This Digital Entertainment Giant Might Still Go Up 10% Despite Meteoric Gains

Tencent Holdings (TCHEY) is up 26.50% year-to-date. Yet, Trading.biz analyst Rahul Nambiampurath feels that it might be poised for a 10 to 20% rally in the near-to-midterm.

“Despite the challenges in the gaming sector, Tencent’s diversification into other revenue streams has been relatively successful. The company has shown resilience and adaptability, particularly in its advertising and business services sectors,” mentions Rahul. However, the analys’s bullishness regarding Tencent also stems from several financial validations.

Tencent’s Bullish Financial Presence

Rahul highlights Tencent’s Q1 2024 financial performance, released on May 14. Here are the key points that make him most optimistic about TCHEY’s price action:

Total Revenue: RMB 159.5 billion ($22.08 billion)

• Year-on-Year Increase: 6%

Gross Profit: RMB 72.6 billion ($10.04 billion)

• Year-on-Year Increase: 23%

Operating Profit: RMB 32.6 billion ($4.52 billion)

• Year-on-Year Increase: 30%

Adjusted Net Profit: RMB 50.27 billion ($6.96 billion)

• Year-on-Year Increase: 54%

Advertising Revenue: RMB 26.5 billion ($3.66 billion)

• Year-on-Year Increase: 26%

But that’s not all. The gross margin saw a 7% increase year-on-year, followed by a 3% increase in International Gaming Revenue.

Overall, the standout performance was seen in Tencent’s advertising revenue, which jumped by 26% year-on-year, driven by upgrades to its ad infrastructure and the commercialization of WeChat Video Accounts. Business services also showed significant growth.

While most of the elements are bullish, the domestic gaming revenue was the only weak spot in 2024, experiencing a dip of 2%. Yet, Rahul has this to say:

“Tencent plans to launch its proprietary AI model later in the year, which is currently being tested internally and could enhance both gaming and advertising segments.”

What Is the Daily Chart Indicating?

The financial fundamentals associated with Tencent look promising. However, Rahul decided to go one step further and delve deeper into TCHEY’s daily chart, available on the Hong Kong exchange.

TCHEY trades inside a symmetrical triangle, with the price closely following the upper trendline. Even though the stock price has surged recently, the relative strength index indicator isn’t showing signs of weakening momentum. That is exactly why Rahul seems bullish regarding the TCHEY.

A clear break above the upper trendline can push the price of TCHEY to almost 400 HKD, equivalent to $51.28. After this level, Tencent might push towards 411.8 HKD or $52.79.

Rahul’s analysis aligns with the $61.19 price target set by Jefferies analyst Thomas Chong.