[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 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].

Dual-Class Share Structure and Voting Rights - Tencent holds approximately 92.6% of the voting rights in Tencent Music Entertainment Group through its ownership of B-class shares and other arrangements[4][5] - The total number of issued and outstanding shares as of April 18, 2023, is 3,432,154,261, comprising 1,767,205,006 A-class shares and 1,664,949,255 B-class shares[5] - B-class shares can be converted into A-class shares at any time, and if all B-class shares were converted, it would result in the issuance of 1,664,949,255 A-class shares, representing approximately 94.2% of the total A-class shares outstanding[6] - Tencent and Min River have committed to converting B-class shares to A-class shares before any transfer to non-affiliated entities, ensuring voting rights remain within the Tencent-controlled group[7] - The company's dual-class share structure grants higher voting rights to Class B shares held by Tencent and Min River, with Tencent holding the highest proportion of voting rights[8] - Any transfer of Class B shares to a non-Tencent affiliate will result in automatic conversion to Class A shares unless specified otherwise in the company's articles of association[8] - The dual-class share structure may pose risks to investors as the interests of Class B shareholders may not always align with those of other shareholders[8] - The company has a dual-class share structure, with Class B shares holding 15 votes per share compared to 1 vote per Class A share, giving significant control to Class B shareholders[162] - As of April 18, 2023, Tencent and its affiliates beneficially own 9.1% of the company's Class A shares and 98.5% of Class B shares, collectively holding 92.6% of the total voting rights[163] - The dual-class share structure may limit the influence of Class A and ADS holders on corporate matters and could prevent beneficial control change transactions[163] Financial Performance and Reporting - The company's annual report will be interpreted based on the English version in case of any discrepancies, except for Chinese entities, laws, and government agencies where the Chinese names take precedence[9] - The annual report includes sections on financial performance, market risks, corporate governance, and financial statements, among others[10] - The company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board[12] - The company has submitted all required reports under Sections 13 or 15(d) of the Securities Exchange Act of 1934 in the past 12 months[12] - The company's auditor has issued a report on the effectiveness of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act[12] - The company's financial reporting internal controls were effective as of December 31, 2022, but there is no guarantee that significant deficiencies will not be identified in future audits under Section 404 of the Sarbanes-Oxley Act[111] - The company's American Depositary Shares (ADS), each representing two Class A ordinary shares, are listed on the New York Stock Exchange under the ticker symbol "TME"[12] - The company's Class A ordinary shares are listed on the Hong Kong Stock Exchange under the stock code 1698[12] - The company is incorporated in the Cayman Islands and operates under the laws of that jurisdiction[12] - The company has filed all interactive data files required by Regulation S-T Item 405 in the past 12 months[12] User Metrics and Revenue Calculation - Monthly Average Revenue Per Paying User (ARPPU) for online music and social entertainment services is calculated by dividing the monthly revenue of each service by the number of paying users for that service[14] - Paying user rate is calculated as the proportion of paying users to mobile monthly active users (MAU) during a specific period[14] - The number of paying users for online music services is the average of users with active subscriptions at the end of each month during a specific quarter or year[14] - The number of paying users for social entertainment services is the average of users who contributed revenue through purchases of virtual gifts or super membership services during a specific month[14] - Mobile MAU for online music services is the total MAU of music products (QQ Music, KuGou Music, and KuWo Music) in a specific month, excluding duplicate visits from the same device[15] - Mobile MAU for social entertainment services is the total MAU of services like WeSing, KuGou Live, KuWo Live, KuGou ChangChang, and QQ Music Live in a specific month, excluding duplicate visits from the same user account or device[15] Regulatory and Compliance Risks - The company operates through a variable interest entity (VIE) structure due to Chinese regulations restricting foreign investment in certain industries[19] - The company's VIE structure allows it to direct activities that significantly influence the economic performance of the VIE and obtain the majority of its economic benefits[19] - The company's VIE structure includes various contractual agreements such as equity pledge agreements, exclusive purchase right agreements, and exclusive technical service agreements[19] - Variable Interest Entities (VIEs) accounted for 99.8%, 99.1%, and 96.8% of the company's net revenue in 2020, 2021, and 2022, respectively[21] - As of December 31, 2022, VIEs represented 26.5% of the company's total consolidated assets[21] - The company's contractual arrangements with Variable Interest Entities (VIEs) in China face legal and regulatory uncertainties, which could affect enforceability and financial performance[117] - Foreign investment in China's value-added telecom and internet cultural services industries is restricted, with foreign investors generally limited to holding no more than 50% equity in such businesses[117] - The company's Chinese subsidiaries are considered foreign-invested enterprises and are ineligible to provide value-added telecom services, internet audio-visual program services, internet publishing, internet cultural services, and radio/TV program production services in China, with few exceptions[118] - The company relies on Variable Interest Entities (VIEs) and contractual arrangements to conduct business in China, allowing it to control VIE activities, obtain economic benefits, and maintain exclusive purchase rights for VIE equity or assets[118] - Regulatory risks exist if Chinese authorities determine the company's VIE arrangements violate foreign investment restrictions, potentially leading to penalties, license revocations, or operational disruptions[118] - Non-compliance with Chinese regulations could result in the company being unable to consolidate VIE financials under IFRS, significantly impacting financial performance and stock value[118] - The enforceability of contractual arrangements with VIEs and their shareholders/partners is uncertain under Chinese law, and legal remedies may be insufficient or ineffective[119] - If VIE shareholders or partners breach contractual agreements, the company may face significant operational disruptions and financial losses[119] - The company's ability to enforce VIE contracts depends on the willingness of VIE shareholders/partners to comply, which may not align with the company's interests[119] - Legal disputes related to VIE arrangements are subject to Chinese law and arbitration, with limited precedents and formal guidance, creating uncertainty in outcomes[119] Content Licensing and Intellectual Property - The company relies on third-party licenses for content supply, and any adverse changes or termination of relationships with content providers could negatively affect its business, operating performance, and financial condition[43] - The company faces potential disputes and legal liabilities if users upload content without obtaining necessary copyright licenses[43] - The company's complex licensing agreements impose numerous obligations, and any breach or unfavorable changes in terms could adversely impact its business, operating performance, and financial condition[43] - Minimum guarantee payments under certain music and long-form audio content licensing agreements may limit the company's operational flexibility and negatively affect its business, financial condition, and operating performance[43] - The company has accumulated a large amount of user-generated content, some of which may lack proper copyright licenses, making it difficult to accurately identify and verify the copyright status of such content[53] - The company has implemented measures to reduce the risk of copyright infringement, including user agreements, blacklisting procedures, and a "notice and takedown" policy, but these measures may not fully prevent unauthorized content distribution[53] - The company faces potential legal liabilities if it fails to remove or block infringing content after receiving proper notice from copyright holders[53] - The company has adopted screening procedures to filter potentially infringing content and is willing to sign licensing agreements with copyright holders, but it cannot guarantee the removal of all alleged infringing content due to the volume of content on its platform[54] - The company has been involved in lawsuits related to copyright infringement and may face similar legal challenges in China and globally as it expands internationally[55] - The company's complex licensing agreements involve obligations such as tracking content usage, paying minimum guarantees, implementing anti-piracy measures, and complying with technical requirements[56] - Violations of licensing agreements could result in penalties, termination of rights, and significant adverse effects on the company's business and financial performance[56] - The company may face increased intellectual property claims as competition intensifies in China and globally, potentially leading to costly legal disputes and reputational damage[54][55] - The company's new products and services may expose it to additional intellectual property claims, making it difficult to predict the impact on its business and financial performance[55] - The company's reliance on third-party platforms to distribute licensed content carries risks, as these platforms may not comply with licensing terms, potentially leading to legal liabilities[55] Market and Competitive Risks - The company's ability to attract and retain users depends heavily on providing attractive content, including songs, playlists, videos, long audio, lyrics, live performances, and karaoke-related content[50] - The company faces risks if it fails to predict user preferences or adapt to industry dynamics, which could lead to a decline in user traffic and engagement[50] - A significant portion of the company's music and long audio products are licensed from third-party content partners, and unfavorable changes in licensing terms could impact content quality and costs[51] - The company may not have complete licensing for a small portion of the content on its platform, potentially exposing it to copyright infringement claims[52] - User-generated content uploaded to the platform may lead to potential disputes and legal liabilities if users fail to obtain necessary copyright permissions[52] - The company relies on third-party licensing agreements, and the inability to renew these agreements or unfavorable renewal terms could adversely affect its business[51] - Changes in royalty rates or licensing terms due to shifts in bargaining power, industry dynamics, or legal/regulatory environments could negatively impact the company's content supply[51] - The company invests heavily in content acquisition and production but may not always recover these investments or successfully identify attractive content[50] - The company faces challenges in identifying and obtaining licenses from certain copyright owners, particularly for user-uploaded content[52] - The company's content supply could be adversely affected if its relationships with content providers deteriorate or if providers enter agreements with competitors[51] Regulatory Changes and Compliance - The company faces uncertainty regarding the implementation and interpretation of the Trial Measures, which may impact future fundraising activities[38] - New live streaming regulations in China include mandatory real-name registration, user tipping limits, and restrictions on minors, with potential long-term impacts on the company's business and financial performance[39] - The revised Anti-Monopoly Law in China imposes stricter penalties, including fines of up to 10% of annual sales for anti-competitive practices, and enhances oversight of platform monopolies[40] - The Foreign Company Accountability Act poses risks of delisting from U.S. exchanges if PCAOB cannot fully inspect the company's auditor for two consecutive years[41] - Live streaming platforms are required to remove tipping-based rankings by June 7, 2022, under the new regulatory guidelines[39] - The Anti-Monopoly Law's new rules clarify control rights and concentration implementation, with stricter review mechanisms for mergers and acquisitions[40] - PCAOB's ability to conduct full inspections of China-based auditors remains uncertain, impacting the company's compliance with U.S. regulations[41] - The company may need to adjust growth strategies to adapt to evolving regulatory environments in China[39] - The revised Anti-Monopoly Law introduces detailed regulations on monopolistic agreements and abuse of market dominance, effective April 15, 2023[40] - The Foreign Company Accountability Act requires annual PCAOB determinations on the inspectability of China-based auditors, adding ongoing compliance risks[41] - Regulatory uncertainties in China's live streaming and social entertainment sectors could negatively affect the company's operations and financial outlook[39] Legal and Litigation Risks - The company faces 923 pending lawsuits alleging copyright infringement on its platform, with total damages sought amounting to approximately RMB 257.7 million (USD 37.4 million)[80] - The company relies on trade secrets, confidentiality policies, patents, copyrights, and other intellectual property laws to protect its innovations, but these measures may not be sufficient to prevent infringement[76] - The company may need to initiate legal proceedings to enforce its intellectual property rights, which could result in significant costs and resource diversion[77] - The company's platform content may be deemed inappropriate by regulators, potentially leading to penalties, license revocation, or reputational damage[78] - The company is involved in a putative class action lawsuit with certain directors and executives, which could have a material adverse impact on its business and financial performance[81] - The company may face future litigation or regulatory actions related to intellectual property, antitrust, or competition claims, which could negatively affect its reputation and user base[79] - The company's internal rules and procedures for content review may not keep pace with regulatory changes, potentially leading to legal and administrative liabilities[78] - The company may be required to pay substantial damages or adjust its business practices if it loses legal disputes, which could harm its financial condition and operational performance[80] - The company's insurance may not cover all defense costs or obligations arising from litigation, potentially impacting its cash resources and management focus[81] - The company's inability to protect its intellectual property could severely harm its business, operating results, and financial condition[76] Corporate Governance and Shareholder Rights - The company's strategy prioritizes rapid innovation and long-term user engagement over short-term financial performance, which may lead to decisions that reduce short-term revenue or profitability[84] - The company is investing heavily in content production and partnerships, including collaborations within the Tencent ecosystem, to meet evolving user demands[84] - The company faces risks related to privacy and security breaches, which could result in economic losses, reputational damage, and legal penalties[84] - The company collects and stores user, partner, and employee data to the minimum extent necessary for operations, but cannot guarantee complete protection against unauthorized access[84] - The company's services are vulnerable to cyberattacks, including malware, phishing, and denial-of-service attacks, which could disrupt operations and lead to data loss[85] - Compliance with evolving cybersecurity, data protection, and privacy laws may impose significant costs and require changes to the company's business operations[85] - The company must adhere to regulations on data collection, storage, and transfer, as well as measures to prevent unauthorized access or misuse of personal data[85] - The company's business is significantly dependent on its relationship with Tencent, and any negative developments in Tencent's market position, brand reputation, or financial condition could adversely affect the company's user base, marketing efforts, and brand strength[113][114] - Tencent holds 9.1% of the company's outstanding Class A shares and 98.5% of Class B shares, totaling 92.6% of the company's total voting rights[115] - Tencent's voting control may prevent transactions beneficial to Class A shareholders or ADS holders, such as control change transactions offering premiums above market price[115] - Potential conflicts of interest with Tencent include commercial opportunity allocation, employee recruitment, and competition with Tencent's rivals[116] - Tencent may sell its shares to third parties, including competitors, potentially impacting the company's business and shareholder interests[116] Financial and Operational Risks - The company's ability to attract and retain users may be significantly impacted if it fails to predict user preferences and provide content that meets user needs[43] - The company's business and financial condition could be significantly impacted by severe or prolonged economic weakness in China or globally[44] - The company's business may be adversely affected if it can no longer benefit from its business cooperation with Tencent[45] - The company's operations depend on the performance of China's internet infrastructure and telecommunications networks, which are largely operated and maintained by state-owned operators[48] - The company's securities trading may be prohibited, and its securities may be delisted from U.S. national securities exchanges if the PCAOB determines it cannot fully inspect or investigate the company's auditor for two consecutive years under the Holding Foreign Companies Accountable Act[48] - The company's ability to attract and retain users depends heavily on providing attractive content, including songs, playlists, videos, long audio, lyrics, live performances, and karaoke-related content[50] - The company faces risks if it fails to predict user preferences or adapt to industry dynamics, which could lead to a decline in user traffic and engagement[50] - A significant portion of the company's music and long audio products are licensed from third-party content partners, and unfavorable changes in licensing terms could impact content quality and costs[51] - The company may not have complete licensing for a small portion of the content on its platform, potentially exposing it to copyright infringement claims[52] - User-generated content uploaded to the platform may lead to potential disputes and legal liabilities if users fail to obtain necessary copyright permissions[52] - The company relies on third-party licensing agreements, and the inability to renew these agreements or unfavorable renewal terms could adversely affect its business[51] - Changes in royalty rates or licensing terms due to shifts in bargaining power, industry dynamics, or legal/regulatory environments could negatively impact the company's content supply[51] - The company invests heavily in content acquisition and production but may not always recover these investments or successfully identify attractive content[50] - The company faces challenges in identifying and obtaining licenses from certain copyright owners, particularly for user-uploaded content[52] - The company's content supply could be adversely affected if its relationships with content providers deteriorate or if providers enter agreements with competitors[51] Tax and Foreign Exchange Risks - The company currently intends to permanently reinvest profits from its Chinese subsidiaries and VIEs into its operations in China[24] - Under a hypothetical tax scenario, the net distribution to parent company/shareholders would be 67.5% after a 25% statutory tax rate and 10% withholding tax[25] - The company's tax planning strategies could result in a double taxation scenario, potentially reducing after-tax income to approximately 50.6% of pre-tax income[26] - The company has contingency plans involving non-deductible transfers to its Chinese subsidiary if tax planning strategies fail, which could impact profitability[26] - The company may be classified as a "Chinese resident enterprise" for Chinese corporate income tax purposes, which could result in a 25% tax rate on global income and negatively impact net income[154] - If classified as a Chinese resident enterprise, the company may need to withhold 10% withholding tax on dividends paid to non-resident enterprise shareholders, including ADS holders[155] - Non-res

Financial Performance - In Q4 2022, the company's net profit attributable to equity holders was RMB 1.15 billion (USD 167 million), representing a year-on-year increase of 114.7%[2] - For the full year 2022, net profit attributable to equity holders was RMB 3.68 billion (USD 533 million), a year-on-year increase of 21.4%[3] - The company's net profit attributable to equity holders in Q4 2022 was RMB 1.15 billion (USD 167 million), with a year-over-year increase of 103.5% in operating profit to RMB 1.39 billion (USD 201 million)[10] - Non-IFRS net profit for the three months ended December 31, 2022, was RMB 1,205 million, representing a 108.5% increase from RMB 577 million in the same period of 2021[27] - The adjusted net profit for the year ended December 31, 2022, was RMB 4,907 million, up from RMB 4,332 million in 2021, reflecting a growth of 13.2%[30] Revenue and Growth - Total revenue for Q4 2022 was RMB 7.43 billion (USD 1.08 billion), a year-on-year decrease of 2.4% but a quarter-on-quarter increase of 0.8%[5] - Total revenue for the full year 2022 was RMB 28.34 billion (USD 4.11 billion)[3] - Online music subscription revenue grew by 20.6% year-on-year to RMB 2.35 billion (USD 341 million) with paid user count reaching 88.5 million, up 16.1% year-on-year[2][6] - The company reported a significant increase in online music non-subscription revenue, which grew by 29.8% year-on-year to RMB 1.21 billion (USD 175 million) in Q4 2022[7] - Online music services revenue for the full year 2022 grew by 8.9% year-over-year to RMB 12.48 billion (USD 1.81 billion), driven by a 22.7% increase in paid users[11] - Online music service revenue for the three months ended December 31, 2022, was RMB 3,559 million, up 23.5% from RMB 2,880 million in the same period of 2021[27] Operating Costs and Expenses - In Q4 2022, operating costs decreased by 8.1% year-over-year to RMB 4.98 billion (USD 722 million), primarily due to a decline in revenue-sharing costs[9] - Operating expenses decreased by 25.1% year-over-year to RMB 1.36 billion (USD 197 million), with operating expenses as a percentage of total revenue dropping from 23.9% to 18.3%[9] - The total operating expenses for the three months ended December 31, 2022, were RMB 1,361 million, a decrease of 25.1% from RMB 1,817 million in the same period of 2021[27] Cash and Liquidity - The company's cash and cash equivalents, including short-term investments, increased to RMB 27.4 billion (USD 3.97 billion) as of December 31, 2022, up from RMB 25.4 billion[15] - The total cash and cash equivalents at the end of Q4 2022 reached RMB 9,555 million, up from RMB 6,591 million at the end of 2021[34] - The net cash inflow for the full year 2022 from operating activities was RMB 7,481 million, compared to RMB 5,239 million for the full year 2021[34] - The total cash and cash equivalents at the end of the year for 2022 were RMB 9,555 million, reflecting a strong liquidity position for the company[34] Strategic Initiatives - The company plans to exceed social entertainment service revenue with online music service revenue in a single quarter in 2023[4] - The company is focusing on innovative tools and expanding collaborations within the Tencent ecosystem to enhance content distribution and user experience[4] - The company has initiated a USD 1 billion stock repurchase plan to support its long-term growth strategy[3] - The company has launched a new share repurchase plan, allowing for the buyback of up to $500 million of Class A common stock over the next 24 months starting from March 2023[22] User Engagement and Content Creation - The average revenue per paid user per month increased by 4.7% year-on-year to RMB 8.9[6] - The independent musician community on the Tencent Musician platform has created over 2.3 million music works as of Q4[18] - Nearly 1,000 original songs produced by the company achieved over 100 million plays in 2022, with the hit song "Give Me" nearing 500 million plays[18] - The company has introduced innovative AIGC tools to enhance music content creation efficiency, including the Muse engine for automated music poster generation[19] - The company has expanded its ecosystem collaboration with WeChat Video Accounts, enhancing user engagement through innovative online and offline interactive experiences[20] Market Challenges - In Q4 2022, the company's social entertainment services and other services revenue decreased by 18.2% year-over-year to RMB 3.87 billion (USD 561 million) due to a changing macro environment and increased competition[8] - The company's audio live streaming revenue grew year-over-year, driven by the expansion of QQ Music Live and the integration of audio live streaming with music platforms[8]

Financial Performance - The company's net profit for Q3 2022 was RMB 1.09 billion (USD 154 million), representing a year-over-year increase of 38.7% and a quarter-over-quarter increase of 22.5%[4]. - Total revenue for Q3 2022 was RMB 7.37 billion (USD 1.04 billion), showing a year-over-year decline of 5.6% but a quarter-over-quarter growth of 6.7%[4]. - Operating profit increased by 37.2% year-over-year to RMB 1.26 billion (USD 177 million), driven by growth in gross profit and effective control of operating efficiency[17]. - Net profit attributable to equity holders rose by 43.4% year-over-year to RMB 1.06 billion (USD 149 million) in Q3 2022[19]. - Basic and diluted earnings per American Depositary Share (ADS) were RMB 0.67 (USD 0.09) and RMB 0.66 (USD 0.09), respectively, for Q3 2022[20]. - Non-International Financial Reporting Standards net profit increased by 35.9% year-over-year to RMB 1.38 billion (USD 194 million) in Q3 2022[19]. - Non-IFRS net profit for Q3 2022 was RMB 1,411 million, a 33% increase from RMB 1,063 million in Q3 2021[35]. Revenue Breakdown - Online music subscription revenue increased by 18.3% year-over-year to RMB 2.25 billion (USD 316 million), with paid users reaching 85.3 million, a year-over-year growth of 19.8%[4]. - Online music service revenue increased by 18.8% year-over-year to RMB 34.3 billion (USD 4.82 billion), driven by strong growth in music subscription revenue and digital album sales[12]. - Music subscription revenue reached RMB 22.5 billion (USD 3.16 billion), up 18.3% year-over-year, with a 19.8% increase in paid user numbers[12]. - Social entertainment services and other services revenue fell by 20.0% year-over-year to RMB 39.4 billion (USD 5.53 billion), with a 26.0% decline in paid users[13]. - Online music service revenue for Q3 2022 was RMB 3,430 million, a 19% increase from RMB 2,888 million in Q3 2021[32]. - Social entertainment services and other revenue decreased to RMB 3,935 million in Q3 2022, down 20% from RMB 4,917 million in Q3 2021[32]. Cost and Expenses - Operating costs decreased by 9.7% year-over-year to RMB 49.6 billion (USD 6.98 billion), primarily due to a reduction in revenue-sharing costs[14]. - In Q3 2022, total operating expenses decreased by 12.3% year-over-year to RMB 1.44 billion (USD 202 million), accounting for 19.5% of total revenue, down from 21.0% in Q3 2021[16]. - Sales and marketing expenses fell by 58.3% year-over-year to RMB 245 million (USD 34 million), primarily due to effective control over marketing spending and optimization of promotional structure[16]. - Total operating costs for the nine months ended September 30, 2022, were RMB 20,914 million, a decrease of 11% from RMB 23,637 million in the same period of 2021[32]. - The company reported a decrease in total operating expenses for the nine months ended September 30, 2022, to RMB 4,196 million from RMB 4,870 million in the same period of 2021[32]. User Engagement and Product Development - The company launched a series of product upgrades in Q3 2022 to enhance user engagement and interaction, catering to diverse music tastes and refined user needs[6]. - The company plans to continue product innovation and explore more social entertainment verticals, including audio live streaming and virtual interactive content, to enhance competitiveness[6]. - The launch of the TME live brand combined online and offline music entertainment, hosting 32 events in Q3[9]. - The company introduced the Lingyin Engine for voice synthesis technology, enabling the production of over 1,000 songs using AI-generated voices by the end of Q3[10]. Social Responsibility and Community Support - The company aims to combine music with public welfare, enhancing social awareness and creating more social value while supporting the sustainable development of the music industry[6]. - The company supported over 350,000 independent musicians in Q3, enhancing their music content creation and commercialization[8]. - The company emphasized its commitment to social responsibility through various charitable initiatives, including a collaboration with artists for a public welfare album[10]. Shareholder Actions and Financial Position - The company completed over USD 800 million of its previously announced USD 1 billion share repurchase program by the end of Q3 2022[5]. - The company repurchased approximately 114 million ADS for a total consideration of about USD 860 million under the USD 1 billion share repurchase program announced on March 28, 2021[22]. - As of September 30, 2022, cash, cash equivalents, and short-term investments totaled RMB 25.45 billion (USD 3.58 billion), slightly down from RMB 25.80 billion as of June 30, 2022[21]. - The company’s cash and cash equivalents at the end of the period were RMB 8,582 million, showing a strong liquidity position[39]. - The equity attributable to the company's shareholders decreased from RMB 51,055 million to RMB 48,294 million, primarily due to an increase in treasury shares[38]. - The total equity decreased from RMB 51,055 million to RMB 48,294 million, indicating a decline in shareholder value[38]. Assets and Liabilities - As of September 30, 2022, total assets amounted to RMB 66,755 million, a slight decrease from RMB 67,254 million as of December 31, 2021[37]. - Non-current assets increased from RMB 40,463 million to RMB 40,685 million, with significant growth in land use rights from RMB 1,495 million to RMB 2,499 million[37]. - Cash and cash equivalents rose from RMB 6,591 million to RMB 8,582 million, reflecting a net increase of RMB 1,991 million[39]. - Total liabilities increased from RMB 16,199 million to RMB 18,461 million, with current liabilities rising from RMB 10,450 million to RMB 12,138 million[38]. - The company reported a net cash outflow from investing activities of RMB 1,243 million for the three months ended September 30, 2022[39]. - The company’s retained earnings decreased from RMB 14,194 million to RMB 10,970 million, reflecting a reduction in accumulated profits[38].