(Yicai) March 21 -- Shares of Tencent Holdings rose after the Chinese tech giant said its annual and fourth-quarter net profits shrank.

Tencent [HKG: 0700] was trading up 1 percent at HKD291.80 (USD37.31) as of lunch break in Hong Kong today, after earlier gaining as much as 3.1 percent. Its over-the-counter stock [OTCM: TCEHY] closed 1.8 percent up at USD37.21 yesterday.

Net profit narrowed 37 percent to CNY118 billion (USD16.7 billion) in the 12 months ended Dec. 31 from the year before, with net profit margin down 15 percentage points to 19 percent, according to the Shenzhen-based firm’s earnings report released yesterday. Revenue rose 10 percent to CNY609 billion.

From the non-international financial reporting standards perspective, which excludes certain one-time and non-cash items, Tencent’s net profit widened 36 percent to CNY161.7 billion, with a net profit margin up 6 percentage points to 27 percent in the period.

“In 2023, we achieved breakthroughs in a number of products and services, as video accounts’ total user time spent more than doubled, enhancements to our advertising artificial intelligence model significantly improved our targeting performance, and international contribution to our games revenue reached a record 30 percent,” Tencent’s Chairman and Chief Executive Officer Pony Ma said.

In the fourth quarter of last year, Tencent reported a net profit of CNY27.8 billion (USD3.9 billion), down 74 percent from a year earlier. Revenue rose 7 percent to CNY155.2 billion in the period.

Revenue from the value-added service and social network segments both fell 2 percent to CNY69.1 billion and CNY28.2 billion, respectively, in the three months ended Dec. 31 from a year earlier. Monthly active users of Tencent’s main social media apps Weixin and its international version WeChat increased 2 percent to 1.34 billion.

International games revenue inched up 1 percent to CNY13.9 billion in the period, while domestic games revenue fell 3 percent to CNY27 billion. Revenue from online advertising rose 21 percent to CNY29.8 billion, and that from financial technology and business services jumped 15 percent to CNY54.4 billion.

According to Lin Jiayi, general manager at China’s Xuanjia Private Equity Fund Management, Tencent’s shares rose today for two main reasons.

The first is that Tencent announced in the earnings report that it intends to at least double the size of its share repurchases to over HKD100 billion (USD12.8 billion) this year from about HKD49 billion (USD6.3 billion) last year.

The second is the high net profit base from the previous years. In fact, Tencent raised over CNY180 billion by reducing its stakes in Chinese lifestyle platform Meituan and Chinese e-commerce giant JD.Com in 2021 and 2022.

Tencent’s stock is also expected to continue growing in the future, Lin told Yicai.

Tencent holds a 14.7 percent stake in Chinese e-commerce giant Pinduoduo and an 11.7 percent stake in short-video platform Kuaishou Technology, which equal to about USD25 billion and HKD26.5 billion, respectively, in market value. Therefore, the company could sell these shares to hike its earnings at any time, Lin pointed out.

Moreover, with the number of e-commerce users continuing to increase, e-commerce, internet, and various other related scenarios will once again drive companies, including Tencent, to achieve high growths in fields such as cloud, financial, enterprise, and overseas business services, and their stocks to jump, Lin noted.

Editor: Futura Costaglione