Tencent Music Entertainment Group (NYSE:TME) Q3 2023 Earnings Conference Call November 14, 2023 6:00 AM ET Company Participants Millicent Tu - Investor Relations Kar Shun Pang - Executive Chairman Ross Liang - Chief Executive Officer Shirley Hu - Chief Financial Officer Conference Call Participants Alicia Yap - Citigroup Alex Poon - Morgan Stanley Zhang Lei - Bank of America Merrill Lynch Lincoln Kong - Goldman Sachs Thomas Chong - Jefferies Alex Yao - JPMorgan Xueqing Zhang - CICC Wei Xiong - UBS Millicent ...

Company Information - Tencent Music Entertainment Group filed its report for April 2024 under Form 20-F[1] - The company is headquartered in Shenzhen, China, with a principal office address at Unit 3, Building D, Kexing Science Park[2] Report Details - The report was signed by Min Hu, Chief Financial Officer, on April 18, 2024[5]

Good evening, good morning. Welcome to Tencent Music Entertainment Group's third quarter 2023 earnings webinar. I'm Millicent Tu, Head of IR at the company. CME announced its quarterly financial results today before the US market opened. Earnings release is now available on our IR website and via Newswire services. Today, you'll hear from Mr. Kashin Pan, our Executive Chairman, who will start the call with an overview of our company's strategies and business updates. Next, Mr. Ross Leung, our CEO, will shar ...

Financial Performance - Total revenue for Q3 2023 was RMB 6.57 billion (USD 900 million), a year-over-year decrease of 10.8% primarily due to declines in social entertainment services and other services revenue[3]. - Net profit for Q3 2023 was RMB 1.26 billion (USD 173 million), a year-over-year increase of 15.6%, while net profit attributable to equity holders was RMB 1.17 billion (USD 160 million), up 10.1% year-over-year[3]. - Operating profit for Q3 2023 rose to RMB 1.43 billion (USD 195 million), a year-over-year increase of 13.0%[9]. - Non-IFRS net profit for the three months ended September 30, 2023, was RMB 1,263 million, an increase of 15.5% compared to RMB 1,093 million in the same period of 2022[16]. - Tencent Music Entertainment Group reported a net profit of RMB 1,263 million for the three months ended September 30, 2023, representing a 15.5% increase from RMB 1,093 million in the same period of 2022[19]. Revenue Breakdown - Online music subscription revenue grew by 42.0% year-over-year to RMB 3.19 billion (USD 438 million), with paid user count increasing by 20.8% to 103 million, a net increase of 3.6 million quarter-over-quarter[3]. - Online music service revenue grew by 32.7% year-over-year to RMB 4.55 billion (USD 624 million), driven by a 42.0% increase in online music subscription revenue to RMB 3.19 billion (USD 438 million)[8]. - Social entertainment service revenue decreased by 48.8% year-over-year to RMB 2.02 billion (USD 276 million) due to adjustments in live interaction features[8]. User Engagement - Monthly active users for online music services decreased by 4.2% year-over-year to 594 million, while mobile monthly active users for social entertainment services fell by 16.8% to 129 million[5]. - The number of paid users for online music services increased by 20.8% year-over-year to 10.3 million, with average revenue per paid user rising by 5.4% to RMB 86.2[5]. - The number of online music paying users increased by 20.8% year-over-year to 103 million, with average revenue per paying user reaching RMB 10.3, marking six consecutive quarters of growth[8]. - The number of monthly active users for the online music services reached 600 million, reflecting a growth of 10% year-over-year[14]. Cash and Liquidity - As of September 30, 2023, the total balance of cash, cash equivalents, and time deposits was RMB 30.96 billion (USD 4.24 billion)[3]. - Cash and cash equivalents totaled RMB 30.96 billion (USD 4.24 billion) as of September 30, 2023, up from RMB 30.50 billion as of June 30, 2023[9]. - The ending cash and cash equivalents as of September 30, 2023, were RMB 12,381 million, up from RMB 8,582 million at the end of September 2022[23]. - The total cash and cash equivalents at the end of the nine months ended September 30, 2023, were RMB 12,381 million, reflecting a strong liquidity position[23]. Strategic Initiatives - The company continues to strengthen its content ecosystem through strategic partnerships, including a collaboration with CUBE Entertainment to enrich its music content library[5]. - The company is enhancing user engagement by launching interactive music experiences, such as a series of activities for the 10th anniversary single of TFBOYS[6]. - The CEO highlighted the ongoing improvement in platform operational efficiency and the core role of online music business in driving profitability[4]. - The company aims to innovate through technology and product development to create a more enjoyable music experience for users[4]. - Tencent Music Entertainment Group aims to leverage technology to create innovative music experiences and expand its user engagement strategies[14]. Cost Management - Operating expenses decreased by 11.8% year-over-year to RMB 1.27 billion (USD 174 million), with sales and marketing expenses down by 10.6%[9]. - Operating expenses for the three months ended September 30, 2023, were RMB 1,049 million, a decrease from RMB 1,192 million in the same period of 2022[16]. - The company reported a significant reduction in financing activities cash outflow, indicating improved financial management strategies[23]. Shareholder Returns - The company repurchased approximately 15.8 million American Depositary Shares for about USD 1.03 million under a USD 500 million share repurchase plan[10]. Asset and Equity Growth - Total assets increased from RMB 67,009 million as of December 31, 2022, to RMB 72,956 million as of September 30, 2023, marking an increase of 8.7%[21]. - The company’s total equity increased from RMB 49,127 million at the end of 2022 to RMB 55,168 million as of September 30, 2023, representing a growth of 12.5%[22].

Financial Data and Key Metrics Changes - Total revenues for Q2 2023 reached RMB7.3 billion, up 6% year-over-year, with adjusted net profit increasing by 48% year-over-year [4][31] - Online music services contributed 58% of total revenues, surpassing social entertainment services for the first time in history [31] - Monthly ARPPU reached an all-time high of RMB9.7, up 14% year-over-year and 5% sequentially [31][32] Business Line Data and Key Metrics Changes - Music subscription revenues grew to RMB2.9 billion, up 37% year-over-year, with paying users reaching 99.4 million, a 20% increase year-over-year [31][32] - Revenues from social entertainment services were RMB3.0 billion, down 25% year-over-year due to service enhancements and risk control measures [33][26] - Advertising revenues showed strong growth, driven by demand during the annual 618 e-commerce sales event [32] Market Data and Key Metrics Changes - The online music paying ratio reached an all-time high of 16.7% [5] - The number of paying users for online music services increased by 5 million sequentially [31] - The company reported a gross margin of 34.3%, up 4.4 percentage points year-over-year [34] Company Strategy and Development Direction - The company is focused on enhancing user experience and optimizing its music services, including in-car music offerings and AIGC features [18][19] - Strategic partnerships with top-tier labels and artists are being strengthened to expand content offerings [6][8] - The company aims to maintain a stable business scale in social entertainment while exploring diverse opportunities in the music arena [43][44] Management Comments on Operating Environment and Future Outlook - Management expects total revenues to decline by low- to mid-single digits year-over-year for 2023, primarily due to pressures in social entertainment services [26][42] - Confidence remains in delivering year-over-year bottom-line growth for 2023, driven by strong performance in online music services [27] - The company is committed to long-term sustainable growth despite short-term revenue pressures [33][34] Other Important Information - The company hosted the Tencent Music Entertainment Awards 2023, showcasing its industry influence and organizational capabilities [7][8] - Continued investment in research and development is planned to enhance music-related content creation and improve sound quality [35][62] - The company is actively involved in social welfare activities, including charity concerts for children [28] Q&A Session Summary Question: Revenue outlook for music and social entertainment segments - Management indicated that online music services are expected to maintain robust growth, while social entertainment services will face revenue pressure due to adjustments [40][42] Question: Rationale behind adjustments in social entertainment - Adjustments aim to create a more music-centric live streaming atmosphere and control potential risks, despite short-term revenue impacts [46][47] Question: Future targets for subscription business - Management expressed confidence in continued growth in subscription revenue driven by increased willingness to pay and enhanced user privileges [50][51] Question: AIGC developments and applications - The company is focusing on AIGC tools to assist musicians and enhance user interaction, including AI-enabled features for music discovery [55][56] Question: Gross margin expectations - Management expects gross margin to improve sequentially, driven by strong growth in subscription and advertising revenues [58][59]

[1 -> 3] Good evening and good morning. [3 -> 9] Welcome to Tencent Music Entertainment Group's second quarter 2023 earnings webinar. [9 -> 15] T&B announced its quarterly financial results today before the U.S. market opens. [15 -> 21] And earnings release is now available on our IR website at ir.tencentmusic.com, [21 -> 23] as well as via newswire services. [23 -> 28] Today, you'll hear from Mr. Kashan Pang, our executive chairman, [28 -> 31] who will start the call with an overview of our recent updates. ...

Financial Performance - Total revenue for Q2 2023 was RMB 7.29 billion (USD 1.01 billion), representing a year-over-year increase of 5.5%[3] - Net profit attributable to equity holders was RMB 1.30 billion (USD 179 million), up 51.6% year-over-year[3] - Operating profit for Q2 2023 rose to RMB 1.54 billion, reflecting a year-on-year increase of 47.3%[7] - Tencent Music Entertainment Group reported non-IFRS net profit of RMB 1,348 million for the three months ended June 30, 2023, representing a 50.5% increase from RMB 892 million in the same period of 2022[19] - Basic earnings per share for the three months ended June 30, 2023, was RMB 0.42, compared to RMB 0.27 in the same period of 2022, reflecting a 55.6% increase[20] - Tencent Music Entertainment Group reported a net profit of RMB 1,348 million for the three months ended June 30, 2023, representing a 51% increase from RMB 892 million in the same period of 2022[21] - The adjusted net profit for the six months ended June 30, 2023, was RMB 2,548 million, up 25% from RMB 2,004 million in the prior year[21] Revenue Breakdown - Online music service revenue grew by 47.6% year-over-year to RMB 4.25 billion (USD 586 million), accounting for 58.3% of total revenue[3] - Online music subscription revenue increased by 37.2% to RMB 2.89 billion (USD 399 million), with paid user count reaching 99.4 million, a year-over-year growth of 20.2%[3] - Total revenue from online music services contributed 58.3% to the company's overall revenue, surpassing social entertainment services for the first time[9] - Social entertainment services and other revenue decreased to RMB 3,037 million for the three months ended June 30, 2023, down 24.6% from RMB 4,027 million in the same period of 2022[19] User Engagement and Growth - The company achieved a milestone of over 100 million paid online music users in June 2023, reflecting strong user recognition of its content and services[4] - The number of paying users reached a historical high of 99.4 million, representing a year-on-year growth of 20.2%[6] - Monthly average revenue per paying user for online music services increased to RMB 9.7, marking a 14.1% year-on-year growth[8] - The number of monthly active users for online music services was 594 million, down 4.7% year-on-year[8] Cost Management and Profitability - Total operating expenses decreased by 11.4% to RMB 1.26 billion, with operating expenses as a percentage of total revenue dropping from 20.5% to 17.2%[6] - Gross margin improved by 4.4 percentage points to 34.3%, driven by strong growth in music subscription and advertising service revenues[6] - Advertising revenue saw significant growth due to increased user adoption of incentive advertising models, with a low comparison base from the previous year[6] Cash Flow and Assets - Cash, cash equivalents, and time deposits totaled RMB 30.50 billion (USD 4.21 billion) as of June 30, 2023[3] - Cash and cash equivalents increased significantly from RMB 9,555 million to RMB 12,950 million, a growth of 36%[23] - For the three months ended June 30, 2023, net cash inflow from operating activities was RMB 2,067 million, compared to RMB 1,241 million for the same period in 2022, representing a 66.7% increase[25] - The total cash and cash equivalents at the end of June 30, 2023, were RMB 12,950 million, compared to RMB 10,044 million at the end of June 30, 2022, marking a 29.5% increase[25] Strategic Initiatives - The company is enhancing user experience through service improvements and risk management measures, despite potential revenue pressure in the second half of the year[4] - The company is expanding music services to various IoT devices, aiming to provide a more immersive listening experience[4] - Strategic partnerships with well-known record companies and artists are being deepened to enhance industry influence and content appeal[4] - The company aims to explore more opportunities in the online music sector while promoting the development of licensed music[4] - The company launched a couple membership package in June 2023, enhancing user engagement and subscription offerings[9] - The company launched new interactive features in live streaming services, such as AIGC-enabled virtual gifts, to enhance user engagement and competitiveness[10] - The company upgraded its high-quality audio experience across platforms, including QQ Music and Kugou Music, to improve user engagement and retention[12] - The company continues to support emerging musicians through comprehensive resources and opportunities, enhancing the overall music ecosystem[12] - The company collaborated with Tencent Charity to host two charity concerts for children, demonstrating its commitment to social responsibility[14] Market Outlook - Social entertainment services performance in Q2 2023 was weaker than expected, with projected total revenue decline of mid-teens percentage year-over-year for Q3 2023 and low single-digit percentage decline for the full year[10] - Tencent Music Entertainment Group aims to leverage technology to create innovative music products and expand its market presence in China[17] Miscellaneous - The exchange rate used for converting RMB to USD is 7.2513, as of June 30, 2023, for financial reporting purposes[15]

Financial Performance - Total revenues for Q2 2023 were RMB7.29 billion (US$1.01 billion), representing a 5.5% year-over-year growth[1]. - Net profit attributable to equity holders was RMB1.30 billion (US$179 million), reflecting a 51.6% year-over-year growth[2]. - TME's operating profit for Q2 2023 was RMB 1,539 million, up from RMB 1,045 million in Q2 2022, representing a 47% year-over-year increase[43]. - The company reported a non-IFRS net profit of RMB 1,348 million for Q2 2023, compared to RMB 892 million in Q2 2022, marking a 51% increase[43]. - Basic earnings per share for Class A and Class B ordinary shares increased to 0.42 in Q2 2023 from 0.27 in Q2 2022, representing a 56% rise[43]. - Non-IFRS net profit for Q2 2023 reached RMB 3,042 million, a 52% increase from RMB 2,004 million in Q2 2022[47]. - The company reported a profit for the period of RMB 2,548 million for the six months ended June 30, 2023, compared to RMB 1,541 million for the same period in 2022[47]. Revenue Breakdown - Revenues from online music services increased by 47.6% year-over-year to RMB4.25 billion (US$586 million), accounting for 58.3% of total revenues[1][7]. - Revenues from social entertainment services decreased by 24.6% to RMB3.04 billion (US$419 million) due to service enhancement measures[8]. - TME's social entertainment services generated revenues of RMB 3,037 million in Q2 2023, a decline from RMB 4,027 million in Q2 2022, reflecting a 25% decrease[43]. User Engagement - The number of paying users for online music reached 99.4 million, a 20.2% increase year-over-year, with a monthly ARPPU of RMB9.7, marking a 14.1% increase[1][14]. - The company launched a premium package for couples in June 2023, enhancing user experience and engagement[16]. - QQ Music's in-car version 2.0 was launched in June 2023, enhancing user experience and expanding partnerships with car manufacturers[30]. - The company introduced new features across its platforms, including enhanced sound quality in QQ Music and a more intuitive interface in Kugou Music, aimed at increasing user engagement[29]. Cash and Assets - Total cash, cash equivalents, and term deposits as of June 30, 2023, were RMB30.5 billion (US$4.21 billion), up from RMB28.5 billion as of March 31, 2023[13]. - Cash and cash equivalents at the end of Q2 2023 were RMB 12,950 million, compared to RMB 10,044 million at the end of Q2 2022[55]. - Total assets as of June 30, 2023, amounted to RMB 72,466 million, up from RMB 67,009 million at the end of 2022[53]. - Total equity increased to RMB 54,712 million as of June 30, 2023, from RMB 49,127 million at the end of 2022[52]. - The company’s investments accounted for using the equity method rose to RMB 4,483 million as of June 30, 2023, from RMB 4,330 million at the end of 2022[50]. - The company’s term deposits increased to RMB 7,570 million as of June 30, 2023, from RMB 6,530 million at the end of 2022[50]. Future Outlook - The company expects total revenues to decline by a low-to-mid teens percent year-over-year for Q3 2023 and a low-to-mid single-digit percent decrease for the full year 2023[20]. Social Responsibility - The company hosted two charity concerts in Q2 2023, showcasing its commitment to social responsibility and music-based welfare activities[32]. Market Engagement - Tencent Music Entertainment hosted the TMEA 2023 with nearly 40,000 attendees, generating over 10 billion social media views[23]. - The total value of music transactions on the Venus platform exceeded RMB 10 million as of Q2 2023, reflecting significant engagement from indie musicians[25]. Profitability Metrics - Gross margin improved by 4.4 percentage points to 34.3% from 29.9% in the same period of 2022[10]. - TME's gross profit for the first half of 2023 was RMB 4,812 million, compared to RMB 3,923 million in the same period of 2022, indicating a 23% growth[43]. - Net cash provided by operating activities for Q2 2023 was RMB 2,067 million, compared to RMB 1,241 million in Q2 2022[55]. - The company reported a decrease in share-based compensation expenses to RMB 368 million for the six months ended June 30, 2023, down from RMB 430 million for the same period in 2022[47].

Tencent Music Entertainment Group (NYSE:TME) Q1 2023 Results Earnings Conference Call May 16, 2023 7:00 AM ET Company Participants Tony Yip - Chief Strategy Officer Cussion Pang - Executive Chairman Ross Liang - Chief Executive Officer Shirley Hu - Chief Financial Officer Conference Call Participants Alex Poon - Morgan Stanley Alicia Yap - Citigroup Lei Zhang - Bank of America Securities Wei Xiong - UBS Xueqing Zhang - CICC Yiwen Zhang - China Renaissance Wei Fang - Mizuho Securities Tony Yip Good evening a ...

Financial Performance - Total revenue for Q1 2023 reached RMB 7.0 billion (USD 1.02 billion), representing a year-on-year growth of 5.4%[3]. - Net profit attributable to equity holders was RMB 1.15 billion (USD 167 million), an increase of 88.5% year-on-year[3]. - Operating profit increased by 84.4% year-over-year to RMB 1.38 billion (USD 201 million) in Q1 2023, attributed to effective cost control and improved operational efficiency[10]. - Non-IFRS net profit for Q1 2023 was RMB 1,463 million, up 55.8% from RMB 939 million in Q1 2022[24]. - Basic earnings per share for A and B ordinary shares increased to RMB 0.37 in Q1 2023, compared to RMB 0.19 in Q1 2022[23]. Revenue Breakdown - Online music subscription revenue grew by 30.4% year-on-year to RMB 2.6 billion (USD 378 million), with paid user count reaching 94.4 million, a 17.7% increase year-on-year[3][6]. - Online music service revenue increased by 33.8% year-on-year to RMB 3.5 billion (USD 510 million), marking a significant growth in commercialization capabilities[5][6]. - Advertising revenue saw significant growth due to innovative ad formats and improved macroeconomic conditions, attracting sponsors from various industries[7]. - In Q1 2023, revenue from social entertainment services and other services decreased by 13.0% year-over-year to RMB 3.5 billion (USD 510 million)[8]. - Tencent Music reported online music service revenue of RMB 3,501 million for Q1 2023, a 33.7% increase from RMB 2,616 million in Q1 2022[22]. User Metrics - The online music paid user conversion rate reached a new high of 15.9%[6]. - Monthly active users for online music services decreased by 6.9% year-over-year to 592 million, while social entertainment services saw a 16.0% decline to 136 million[12]. - Paid users for online music services increased by 17.7% year-over-year to 9.44 million, while paid users for social entertainment services decreased by 14.5% to 7.1 million[12]. Cost Management - Operating expenses decreased by 8.4% year-over-year to RMB 1.23 billion (USD 179 million), with the percentage of operating expenses to total revenue dropping from 20.2% to 17.5%[10]. - Gross margin improved by 5.1 percentage points year-over-year to 33.1% in Q1 2023, primarily due to strong growth in music subscription and advertising service revenues[10]. Cash and Assets - Cash, cash equivalents, and time deposits totaled RMB 28.5 billion (USD 4.15 billion) as of March 31, 2023[3]. - The company maintained a cash and cash equivalents balance of RMB 28.5 billion (USD 4.15 billion) as of March 31, 2023, up from RMB 27.4 billion at the end of 2022[11]. - As of March 31, 2023, total assets increased to RMB 69,113 million from RMB 67,009 million as of December 31, 2022, representing a growth of approximately 3.13%[26]. - The company's total equity rose to RMB 52,063 million as of March 31, 2023, up from RMB 49,127 million, reflecting an increase of about 3.95%[27]. Strategic Initiatives - The company continues to explore innovative interactive and monetization models, including the expansion of its live performance brand TME live[4]. - Tencent Music's "New Force Plan" has successfully assisted 260 emerging musicians in achieving over 1 million song plays for the first time in Q1[14]. - The company hosted 29 online and offline concerts under the TME live brand, attracting nearly 70 million unique visitors within the Tencent ecosystem[14]. - The company deepened collaboration with Tencent's ecosystem, producing songs for 11 well-known game IPs and 4 animation IPs in Q1[14]. - The company initiated a special project "If Music Had a Shape" to raise awareness for autism, featuring over 50 domestic and international artists[17]. Content and User Engagement - The audio live streaming business has become a key growth engine, enhancing user experience and attracting more vibrant audio hosts[4]. - Audio live streaming revenue grew year-over-year, driven by differentiated content and interactive features, with the number of active broadcasters continuing to increase[8]. - The exclusive sound effects for the "Utopia Boys" album reached 2.3 million users, with a total of 170 million plays[15]. - Personalized recommendation playback times for QQ Music and Kugou Music saw a month-on-month increase, achieving record high proportions[16]. - The company launched the "TME Studio Music Creation Assistant" to enhance content production efficiency, providing users with immersive experiences[16].