Core Insights - Tencent Music Entertainment Group reported a total revenue of RMB 84.4 billion (USD 11.8 billion) for Q2 2025, representing a year-on-year growth of 17.9% [1] - The net profit attributable to equity holders was RMB 24.1 billion (USD 3.36 billion), showing a year-on-year increase of 43.2% [1] - The company achieved a diluted earnings per American Depositary Share of RMB 1.55 (USD 0.22) [1] Revenue Breakdown - Online music service revenue increased by 26.4% year-on-year, reaching RMB 68.5 billion (USD 9.57 billion) [2] - Online music subscription revenue was RMB 43.8 billion (USD 6.11 billion), up 17.1% from RMB 37.4 billion in the same period last year [2] - The average revenue per paying user increased from RMB 10.7 to RMB 11.7, driven by enhanced super member benefits [2] Strategic Developments - The company emphasized high-quality growth with robust increases in both revenue and profit, highlighting the core role of music subscription services [3] - The CEO noted a significant milestone with the super member count surpassing 15 million, indicating strong user trust and engagement [3] - The company aims to create a vibrant one-stop music service platform, enhancing value for content creators and strengthening connections with fans [3] Half-Year Performance - For the first half of 2025, the company reported revenue of RMB 157.98 billion, a year-on-year growth of 13.43% [3] - The net profit attributable to equity holders for the same period was RMB 67 billion, reflecting a substantial year-on-year increase of 115.85% [3] - Basic earnings per American Depositary Share for the first half were RMB 4.38 [3]

Core Insights - Tencent Music Entertainment Group reported its unaudited financial results for the second quarter ending June 30, 2025, with total revenue of 8.44 billion yuan, representing a year-over-year increase of 17.9% [1] - The adjusted net profit for the quarter was 2.64 billion yuan, showing a year-over-year growth of 33.0% [1] Revenue Breakdown - Online music service revenue increased by 26.4% year-over-year to 6.85 billion yuan [1] - The number of online music paying users grew by 6.3% year-over-year to 124.4 million [1] - Average revenue per paying user per month rose from 10.7 yuan in the same period of 2024 to 11.7 yuan [1]

Cover and Company Information [Disclaimer](index=1&type=section&id=香港交易及結算所有限公司及香港聯合交易所有限公司對本公告的內容概不負責) Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited disclaim responsibility for the accuracy or completeness of this announcement and any resulting losses - HKEX and SEHK are not responsible for the content of this announcement and bear no liability for any losses[1](index=1&type=chunk) [Company Basic Information](index=1&type=section&id=Tencent%20Music%20Entertainment%20Group%20騰訊音樂娛樂集團) Tencent Music Entertainment Group (TME) announced its unaudited financial results for the second quarter ended June 30, 2025, and provided a list of board members - TME announced its unaudited Q2 2025 financial report, available on HKEX and the company website[2](index=2&type=chunk) - Board members include Executive Directors Cussion Pang, Zhu Liang, Min Hu, James Gordon Mitchell, Brent Richard Irvin, and Wei-Yeh Tseng, along with Independent Directors Wenling Yan, Yu Kei Mak, and Jianyin Chen[2](index=2&type=chunk) Q2 2025 Financial Highlights [Key Financial Data](index=2&type=section&id=2025年第二季度財務亮點) TME achieved total revenue of **RMB 8.44 billion** in Q2 2025, a **17.9% year-over-year increase**, primarily driven by strong growth in online music services revenue, with net profit and non-IFRS net profit both seeing significant increases | Indicator | 2025 Q2 (RMB) | 2024 Q2 (RMB) | YoY Growth | | :--- | :--- | :--- | :--- | | Total Revenue | 8.44 billion yuan | 7.16 billion yuan | 17.9% | | Online Music Services Revenue | 6.85 billion yuan | 5.42 billion yuan | 26.4% | | Online Music Subscription Revenue | 4.38 billion yuan | 3.74 billion yuan | 17.1% | | ARPPU | 11.7 yuan | 10.7 yuan | 9.3% | | Net Profit Attributable to Equity Holders | 2.41 billion yuan | 1.682 billion yuan | 43.2% | | Non-IFRS Net Profit Attributable to Equity Holders | 2.57 billion yuan | 1.873 billion yuan | 37.4% | | Diluted Earnings per ADS | 1.55 yuan | 1.07 yuan | 44.9% | | Non-IFRS Diluted Earnings per ADS | 1.66 yuan | 1.19 yuan | 39.5% | | Cash, Cash Equivalents, Term Deposits, and Short-term Investments Total Balance (End of Period) | 34.92 billion yuan | N/A | N/A | - Total revenue growth was primarily driven by strong growth in online music services revenue, partially offset by a decrease in social entertainment services and other services revenue[6](index=6&type=chunk) Management Comments [Cussion Pang, Executive Chairman](index=3&type=section&id=騰訊音樂娛樂集團執行董事長彭迦信表示) Cussion Pang emphasized the company's high-quality growth, with music subscription business as the core growth engine, while music-related services also showed strong momentum, aiming to build a one-stop music service platform - Achieved high-quality growth, with revenue and profit both showing steady year-over-year increases[7](index=7&type=chunk) - Music subscription business continued to be the core growth engine, with strong momentum in music-related services such as advertising, concerts, and artist merchandise[7](index=7&type=chunk) - Actively building a vibrant one-stop music service platform to empower content creators and reshape connections with music fans in more valuable ways[7](index=7&type=chunk) [Zhu Liang, CEO](index=3&type=section&id=騰訊音樂娛樂集團首席執行官梁柱表示) Zhu Liang noted that the online music business achieved steady growth through product innovation and immersive experiences, with continuous increases in paying user scale, ARPPU, and user engagement, and super member scale exceeding **15 million** - Online music business achieved steady growth through continuous product innovation and immersive experience creation[7](index=7&type=chunk) - Paying user scale and average revenue per paying user (ARPPU) continued to increase, with user engagement constantly improving[7](index=7&type=chunk) - Super member scale recently exceeded **15 million**, demonstrating users' high trust and strong stickiness to the company[7](index=7&type=chunk) Q2 2025 Business Overview [Key Operating Metrics](index=3&type=section&id=主要經營指標) In Q2 2025, online music services' monthly active users slightly decreased, but paying users and average revenue per paying user both increased, indicating enhanced user payment willingness and value | Indicator | 2025 Q2 | 2024 Q2 | YoY Change Rate | | :--- | :--- | :--- | :--- | | Online Music Services MAU (Millions) | 553 | 571 | (3.2%) | | Online Music Services Paying Users (Millions) | 124.4 | 117.0 | 6.3% | | Online Music Services ARPPU (RMB) | 11.7 | 10.7 | 9.3% | [Content Ecosystem Development](index=4&type=section&id=構建日益豐富的內容生態，為長期增長蓄力。) TME continuously enriches its content ecosystem and enhances content appeal by expanding collaborations with domestic and international record labels and artists, and innovating content co-creation and promotion models, laying a foundation for long-term growth - Expanded collaborations with domestic and international record labels and artists, signing The Black Label and H MUSIC for the first time, and renewing contract with Wang Feng[8](index=8&type=chunk) - Innovated content co-creation and promotion models, such as collaborating with SM Entertainment to create a Chinese special for NCT member Chenle, producing the ending song for the hit movie "Chang'an's Lychee," and forming a strategic partnership with Zhejiang TV[8](index=8&type=chunk) - TME's brand and platform value continue to deepen, providing customized support for domestic and international artists, earning widespread recognition[9](index=9&type=chunk) [Product Innovation and User Stickiness](index=5&type=section&id=通過協同深耕產品創新來提高產品吸引力，有效推動用戶黏性提升，促進超級會員轉化，並拓展新的商業化路徑。) The company effectively enhanced product appeal and user stickiness, promoted super member conversion, and expanded new monetization paths by hosting large-scale concerts, developing proprietary performance IPs, introducing interactive communities, improving audio quality, and enriching member benefits - Successfully managed large-scale international tours (G-DRAGON Macau concert) and domestic artist concerts (Fiona Sit, Tia Ray, GAI Zhou Yan), attracting over **36,000 attendees**[12](index=12&type=chunk) - Created over **300 offline performance opportunities** for nearly a hundred Tencent musicians through two proprietary performance IPs, "Dang Ran Hao Ting" and "Bu Fan Xian Chang"[12](index=12&type=chunk) - Partnered with DearU to introduce the interactive community "bubble" on QQ Music, allowing users to directly interact with hundreds of K-pop artists, with plans to invite popular Chinese artists to join[12](index=12&type=chunk) - Kugou Music pioneered Viper HiFi sound quality and "One-Click Power Sound 2.0" features, and launched the industry's first "AI Chorus" function, enhancing member music experience[12](index=12&type=chunk) - Artist-related benefits (digital albums, priority ticket purchase, Star Card series) significantly drove super member activation and conversion[12](index=12&type=chunk) - Closely collaborated with leading car manufacturers and numerous car models to create a superior in-car music experience, such as with Geely Group and Xiaomi's first SUV[15](index=15&type=chunk) - Newly launched innovative advertising memberships, optimized advertising models, and incentive schemes collectively promoted increased user engagement and advertising effectiveness, driving strong year-over-year growth in advertising revenue[15](index=15&type=chunk) Q2 2025 Financial Performance Review [Revenue Analysis](index=5&type=section&id=總收入為人民幣84.4億元（11.8億美元）) Total revenue increased by **17.9% year-over-year to RMB 8.44 billion**, primarily driven by a strong **26.4% growth** in online music services revenue, with subscription revenue up **17.1%** due to improved ARPPU, and advertising, artist merchandise, and offline performance revenues also increasing, while social entertainment services revenue decreased by **8.5%** | Indicator | 2025 Q2 (RMB) | 2024 Q2 (RMB) | YoY Change Rate | | :--- | :--- | :--- | :--- | | Total Revenue | 8.44 billion yuan | 7.16 billion yuan | 17.9% | | Online Music Services Revenue | 6.85 billion yuan | 5.42 billion yuan | 26.4% | | Online Music Subscription Revenue | 4.38 billion yuan | 3.74 billion yuan | 17.1% | | Social Entertainment Services and Other Services Revenue | 1.59 billion yuan | 1.74 billion yuan | (8.5%) | - Online music subscription revenue growth was primarily driven by an increase in average revenue per paying user (ARPPU), which grew from **RMB 10.7** in the same period of 2024 to **RMB 11.7** in Q2 2025[15](index=15&type=chunk) - Advertising business revenue increased year-over-year mainly due to a more diversified product portfolio and innovative advertising formats[15](index=15&type=chunk) - Artist merchandise and offline performance revenues also achieved strong growth[15](index=15&type=chunk) [Costs and Gross Margin](index=5&type=section&id=營業成本同比增長13.1%至人民幣46.9億元) Operating costs increased by **13.1% year-over-year to RMB 4.69 billion**, mainly due to increased IP-related costs, while gross margin improved from **42.0% to 44.4%**, driven by music subscription and advertising revenue growth and a decrease in social entertainment services revenue sharing ratio | Indicator | 2025 Q2 (RMB) | 2024 Q2 (RMB) | YoY Change Rate | | :--- | :--- | :--- | :--- | | Operating Costs | 4.69 billion yuan | 4.15 billion yuan | 13.1% | | Gross Margin | 44.4% | 42.0% | 2.4 percentage points | - The increase in operating costs was primarily due to higher IP-related costs such as artist merchandise costs, offline performance costs, and advertising agency fees[14](index=14&type=chunk) - Gross margin improvement was mainly attributable to strong growth in music subscription revenue and advertising service revenue, and a decrease in the revenue sharing ratio for social entertainment services[14](index=14&type=chunk) [Operating Expenses and Profit](index=6&type=section&id=經營開支總額為人民幣11.6億元（1.61億美元）) Total operating expenses remained stable at **RMB 1.16 billion**, with the percentage of total revenue decreasing from **16.0% to 13.7%**, while operating profit increased by **35.5% to RMB 2.98 billion**, and net profit attributable to equity holders increased by **43.2% to RMB 2.41 billion** | Indicator | 2025 Q2 (RMB) | 2024 Q2 (RMB) | YoY Change Rate | | :--- | :--- | :--- | :--- | | Total Operating Expenses | 1.16 billion yuan | 1.148 billion yuan | 0.7% | | Operating Expenses as % of Total Revenue | 13.7% | 16.0% | (2.3) percentage points | | Operating Profit | 2.98 billion yuan | 2.198 billion yuan | 35.5% | | Net Profit Attributable to Equity Holders | 2.41 billion yuan | 1.682 billion yuan | 43.2% | - Operating expenses as a percentage of total revenue decreased from **16.0%** in the same period of 2024 to **13.7%**, indicating improved operational efficiency[16](index=16&type=chunk) [Cash and Investment Status](index=6&type=section&id=截至2025年6月30日，公司現金、現金等價物、定期存款和短期投資的合計餘額為人民幣349.2億元) As of June 30, 2025, the company's total balance of cash, cash equivalents, term deposits, and short-term investments was **RMB 34.92 billion**, a decrease from **RMB 37.67 billion** as of March 31, 2025 | Indicator | June 30, 2025 (RMB) | March 31, 2025 (RMB) | Change | | :--- | :--- | :--- | :--- | | Cash, Cash Equivalents, Term Deposits, and Short-term Investments Total Balance | 34.92 billion yuan | 37.67 billion yuan | (2.75) billion yuan | Other Information [Environmental, Social, and Governance (ESG)](index=6&type=section&id=環境、社會及管治（「ESG」）) TME continues to create social value through music, launching the "Hear Guizhou" project this quarter, utilizing AI technology to help people relax and improve sleep - Launched the "Hear Guizhou" project, utilizing AI technology to help people relax and improve sleep through natural rhythms and immersive soundscapes[19](index=19&type=chunk) [Exchange Rate Information](index=6&type=section&id=匯率) The RMB to USD exchange rate used in this announcement is the noon buying rate on June 30, 2025, at **RMB 7.1636 to USD 1.00**, provided for convenience only - The RMB to USD exchange rate is **RMB 7.1636 to USD 1.00**, which is the noon buying rate on June 30, 2025, as published by the Federal Reserve Board in its H.10 statistical release[20](index=20&type=chunk) [Non-IFRS Financial Measures](index=7&type=section&id=非國際財務報告準則財務計量) The company uses non-IFRS net profit to evaluate operating performance and make decisions, believing it helps identify underlying business trends and provides clearer operating performance information, but it should not be considered a substitute for IFRS measures - The company uses non-IFRS net profit to evaluate operating performance and make financial and operating decisions[21](index=21&type=chunk) - Non-IFRS net profit excludes amortization of intangible assets and other assets arising from business acquisitions or combinations, share-based compensation expenses, net losses/gains from investments, and related income tax effects[22](index=22&type=chunk) [About Tencent Music Entertainment Group](index=7&type=section&id=關於騰訊音樂娛樂集團) Tencent Music Entertainment Group is China's leading online music and audio entertainment platform, operating QQ Music, Kugou Music, Kuwo Music, and WeSing, with a mission to use technology to create infinite possibilities in music and provide diverse music entertainment services - Tencent Music Entertainment Group is China's leading online music and audio entertainment platform, operating QQ Music, Kugou Music, Kuwo Music, and WeSing[23](index=23&type=chunk) - Its mission is to use technology to create infinite possibilities in music, offering services such as online music, online audio, online K-singing, music-centric live streaming, and online performances[23](index=23&type=chunk) [Safe Harbor Statement](index=8&type=section&id=安全港聲明) This announcement contains forward-looking statements that involve inherent risks and uncertainties, and actual results may differ materially from expectations, with the company undertaking no obligation to update such information - This announcement contains forward-looking statements that involve inherent risks and uncertainties, and many factors could cause actual results to differ materially from those contained in any forward-looking statement[24](index=24&type=chunk) - The company undertakes no obligation to update such information, except as required by applicable law[24](index=24&type=chunk) [Investor Relations](index=8&type=section&id=投資者關係) Provides contact information for Tencent Music Entertainment Group Investor Relations - Investor Relations contact: ir@tencentmusic.com, +86 (755) 8601-3388 ext. 885034[25](index=25&type=chunk) Consolidated Financial Statements [Consolidated Statements of Profit or Loss](index=10&type=section&id=騰訊音樂娛樂集團%20合併損益表) In Q2 2025, TME's total revenue increased by **17.9% to RMB 8.44 billion**, operating profit grew by **35.5% to RMB 2.98 billion**, and net profit attributable to equity holders increased by **43.2% to RMB 2.41 billion**, driven by strong online music services revenue growth, while social entertainment services revenue decreased | Indicator (Millions RMB) | 2024 Q2 (RMB) | 2025 Q2 (RMB) | 2024 H1 (RMB) | 2025 H1 (RMB) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 7,160 | 8,442 | 13,928 | 15,798 | | Online Music Services Revenue | 5,424 | 6,854 | 10,431 | 12,658 | | Social Entertainment Services and Other Services Revenue | 1,736 | 1,588 | 3,497 | 3,140 | | Operating Costs | (4,150) | (4,693) | (8,147) | (8,807) | | Gross Profit | 3,010 | 3,749 | 5,781 | 6,991 | | Total Operating Expenses | (1,148) | (1,156) | (2,284) | (2,299) | | Operating Profit | 2,198 | 2,978 | 4,157 | 7,814 | | Income Tax Expense | (432) | (515) | (813) | (961) | | Profit for the Period | 1,794 | 2,467 | 3,324 | 6,855 | | Profit Attributable to Equity Holders of the Company | 1,682 | 2,409 | 3,104 | 6,700 | | Diluted Earnings per ADS | 1.07 | 1.55 | 1.99 | 4.32 | [Unaudited Non-IFRS Financial Measures](index=12&type=section&id=騰訊音樂娛樂集團%20未經審計非國際財務報告準則財務計量) In Q2 2025, non-IFRS net profit was **RMB 2.64 billion**, a **32.9% year-over-year increase**, and non-IFRS net profit attributable to equity holders was **RMB 2.57 billion**, a **37.4% year-over-year increase**, with these measures excluding specific non-cash and non-operating items | Indicator (Millions RMB) | 2024 Q2 (RMB) | 2025 Q2 (RMB) | 2024 H1 (RMB) | 2025 H1 (RMB) | | :--- | :--- | :--- | :--- | :--- | | Profit for the Period | 1,794 | 2,467 | 3,324 | 6,855 | | Non-IFRS Net Profit | 1,985 | 2,640 | 3,797 | 4,866 | | Non-IFRS Profit Attributable to Equity Holders of the Company | 1,873 | 2,574 | 3,577 | 4,698 | | Non-IFRS Diluted Earnings per ADS | 1.19 | 1.66 | 2.29 | 3.03 | - Non-IFRS adjustments include amortization of intangible assets and other assets arising from acquisitions and business combinations, share-based compensation expenses, net losses/gains from investments, and related income tax effects[33](index=33&type=chunk) [Consolidated Balance Sheets](index=14&type=section&id=騰訊音樂娛樂集團%20合併資產負債表) As of June 30, 2025, the company's total assets were **RMB 107.873 billion**, an increase from **RMB 90.444 billion** at the end of 2024, with total equity rising to **RMB 86.375 billion** and total liabilities increasing to **RMB 21.498 billion** | Indicator (Millions RMB) | December 31, 2024 (RMB) | June 30, 2025 (RMB) | | :--- | :--- | :--- | | Total Assets | 90,444 | 107,873 | | Non-current Assets | 55,900 | 76,996 | | Current Assets | 34,544 | 30,877 | | Total Equity | 69,726 | 86,375 | | Equity Attributable to Equity Holders of the Company | 67,863 | 83,878 | | Total Liabilities | 20,718 | 21,498 | | Non-current Liabilities | 4,168 | 5,002 | | Current Liabilities | 16,550 | 16,496 | [Condensed Consolidated Statements of Cash Flows](index=15&type=section&id=騰訊音樂娛樂集團%20簡明合併現金流量表) In Q2 2025, net cash inflow from operating activities was **RMB 1.638 billion**, net cash outflow from investing activities was **RMB 633 million**, and net cash outflow from financing activities was **RMB 2.056 billion**, resulting in a net decrease of **RMB 1.051 billion** in cash and cash equivalents | Indicator (Millions RMB) | 2024 Q2 (RMB) | 2025 Q2 (RMB) | 2024 H1 (RMB) | 2025 H1 (RMB) | | :--- | :--- | :--- | :--- | :--- | | Net Cash Inflow from Operating Activities | 2,944 | 1,638 | 5,630 | 4,157 | | Net Cash Inflow/(Outflow) from Investing Activities | 693 | (633) | (4,805) | (3,854) | | Net Cash Outflow from Financing Activities | (1,611) | (2,056) | (2,133) | (2,512) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 2,026 | (1,051) | (1,308) | (2,209) | | Cash and Cash Equivalents at End of Period | 12,251 | 10,999 | 12,251 | 10,999 |

Market Overview - Major U.S. stock indices experienced a collective decline, with the Dow Jones Industrial Average falling by 200.52 points (0.45%) to close at 43,975.09 points, the Nasdaq down by 64.62 points (0.30%) at 21,385.40 points, and the S&P 500 decreasing by 16.00 points (0.25%) to 6,373.45 points [1] - Large-cap tech stocks mostly declined, with Apple down 0.83%, Amazon down 0.62%, Facebook down 0.45%, Nvidia down 0.3%, Google down 0.21%, and Microsoft down 0.02% [3][4] Notable Stock Movements - Tesla saw an increase of nearly 3%, marking its fourth consecutive day of gains [3] - Fannie Mae rose over 15% and Freddie Mac increased by more than 13%, both reaching their highest closing levels since 2008 [3] Sector Performance - Bank stocks showed mixed results, with Morgan Stanley up 0.53%, Bank of America up 0.38%, and JPMorgan up 0.32%. Conversely, Citigroup fell by 0.44%, Goldman Sachs down 0.24%, and Wells Fargo down 0.31% [5] - Gold stocks generally declined, with Harmony Gold, Eldorado Gold, and AngloGold down over 1%, and Coeur Mining down 0.3% [5] Chinese Stocks - The Nasdaq Golden Dragon China Index fell by 0.29%, with individual stocks showing mixed performance. Xpeng Motors rose nearly 6%, Tencent Music up over 2%, while NIO, Bilibili, and Xiaoma Zhixing increased by over 1%. On the downside, WeRide fell over 4%, TAL Education down more than 3%, and Li Auto down nearly 3% [6] Commodity Prices - The FTSE A50 futures index fell by 0.32% to 13,881 points [9] - Crude oil prices saw slight increases, with WTI crude up by 8 cents to $63.96 per barrel (0.13% increase) and Brent crude up by 4 cents to $66.63 per barrel (0.06% increase) [9] - Gold futures dropped by 2.78% to $3,394.1 per ounce, while silver futures fell by 2.29% to $37.66 per ounce [10] Currency Exchange - The offshore RMB (CNH) against the USD was reported at 7.1965, a decrease of 72 points from the previous Friday's close [11] Economic Indicators - Attention is focused on upcoming U.S. inflation data, particularly the Consumer Price Index (CPI) for July, which is expected to provide insights into the impact of tariffs on consumer prices [12][13]

Financial Performance - Tencent Music reported total revenue of 7.356 billion RMB for the fiscal year ending March 31, 2025, representing a year-on-year growth of 8.69% [1] - The company's net profit attributable to shareholders reached 4.291 billion RMB, showing a significant year-on-year increase of 201.76% [1] Stock Performance - On August 11, Tencent Music's stock price increased by 2.12%, closing at $22.6 per share, with a trading volume of $60.881 million [1] - The total market capitalization of Tencent Music is approximately $35.005 billion [1] Upcoming Events - Tencent Music is scheduled to disclose its fiscal year 2025 interim report on August 12, prior to the market opening (Eastern Time) [2] Company Overview - Tencent Music Entertainment Group is a leading online music and audio platform in China, operating popular music products such as QQ Music, Kugou Music, Kuwo Music, and WeSing [3] - The company offers a wide range of services including online music, audio streaming, karaoke, live performances, and social interactions centered around music [3] - Tencent Music aims to enhance user engagement and retention through a community-driven platform that integrates social features with music experiences [3] - The company collaborates closely with music labels and content owners for copyright protection and empowers artists in creation, distribution, and commercialization [3]

里昂对腾讯音乐美股目标价由20美元升至25美元，H股目标价由77.7港元升至97.1港元，维持"跑赢大 市"评级；对网易云音乐目标价由250港元升至297港元，评级由"高度确信跑赢大市"降至"跑赢大市"。 里昂发表报告指，该行第三次音乐调查结果再次确认其对中国在线/离线音乐娱乐市场的正面看法，因 为消费需求的复苏、超级粉丝经济的巨大潜力以及良性的竞争格局，都支持可持续的利润增长前景。报 告指，注意到年轻和低收入用户的支付倾向有显著的季度改善，倾向于等待折扣的"摇摆用户"有所减 少，而自称对价格不敏感的"快乐消费者"有所增加。 ...

Summary of Key Points from the Conference Call Industry Overview - The focus for the 2Q25 earnings season is on consumer Internet stocks, particularly whether negative earnings revisions have ended or will continue, impacting investor sentiment towards digital entertainment leaders and consumer Internet names [3][34][24] - The average share price of consumer Internet stocks fell by 5% over the past three months, while digital entertainment leaders saw a 31% increase [3][20] Earnings Revisions and Stock Performance - Consumer Internet companies experienced an average 20% cut in 2025 Bloomberg consensus adjusted EPS estimates over the past three months [9][20] - Despite the earnings estimate cuts, the average share price decline for these companies was only 4%, indicating a potential disconnect between earnings expectations and market performance [20][24] Competitive Landscape - Investment intensity in the food delivery and quick commerce sectors is expected to peak in 3Q25, with Alibaba and Meituan being the primary competitors [13][34] - Alibaba's competitive advantage is bolstered by its financial resources, with an estimated Rmb600 billion in cash and equivalents, compared to significantly lower amounts for JD and Meituan [34][13] Company-Specific Insights Alibaba - Alibaba's narrative has shifted towards cloud and AI, with a capex plan of at least Rmb380 billion over the next three years [30][51] - The company is expected to see cloud revenue growth of 22% year-on-year in FY26E, driven by its cloud-first strategy [30][44] Meituan - Meituan faces challenges due to its limited financial resources compared to Alibaba, which may lead to market share loss and a negative impact on long-term earnings outlook [3][34][39] - The company captured 80% of industry revenue share and 99% of industry profit in 2024, but the new competitive landscape suggests potential downside [3][34] Pinduoduo - Pinduoduo plans to invest over Rmb100 billion in building a high-quality e-commerce ecosystem, which is expected to slow revenue growth to 5% year-on-year in FY25E, down from 59% in 2024 [14][16] Trip.com - Trip.com is accelerating its overseas expansion with a focus on talent acquisition and capital investment, establishing a Rmb1 billion tourism innovation fund [17][18] Baidu - Baidu is undergoing a significant AI transformation, with AI-generated content in search results expected to reach 70% by 3Q25, which may negatively impact ad revenue [19][46] Investment Recommendations - The report suggests selective rotation back to consumer Internet operators from digital entertainment leaders, considering valuation and recent earnings revisions [3][24] - Top picks in the consumer Internet sector include TME, Kuaishou, Alibaba, Trip.com, and Tencent [3][24] Conclusion - The upcoming earnings season will be critical in determining the trajectory of consumer Internet stocks, with a focus on management commentary regarding competition and financial guidance for the next quarters [3][34]

Group 1: Core Insights - The focus of the Q2 2025 earnings season is whether the profit downgrades for consumer internet companies (Alibaba, Meituan, Pinduoduo, Ctrip) have ended, which will influence investor decisions between digital entertainment leaders and consumer internet stocks [1][2] - Over the past three months, consumer internet stocks have seen an average price decline of 5%, while digital entertainment leaders have experienced a 31% increase, driven by intense competition and investment in the consumer internet sector [1][2] - Morgan Stanley's current preferred stocks in the industry are Tencent Music (TME), Kuaishou, Alibaba, Ctrip, and Tencent [1] Group 2: Investment Trends - There is no conclusive evidence that profit downgrades for consumer internet companies have ended, but Morgan Stanley believes selectively shifting from digital entertainment to consumer internet offers a favorable risk-reward ratio [2][3] - The investment intensity in the takeaway and instant retail sectors is expected to peak in Q3 2025, with a gradual easing of investment thereafter [4] Group 3: Competitive Landscape - Alibaba holds a competitive advantage in the market, while Meituan faces pressure due to a significant disparity in financial strength [5] - Meituan is projected to capture approximately 80% of industry revenue and 99% of industry profits in 2024, but new competition may lead to a decline in its revenue and profit share [5] Group 4: Stock Price Drivers - The narrative driving stock prices for some internet companies has shifted this year, with Alibaba focusing on cloud computing and AI, and Tencent Music transitioning to an ARPU-driven model [6] - Alibaba's cloud business is expected to be a core driver of revenue growth in the second half of 2025 [6] Group 5: AI Capital Expenditure - AI capital expenditure growth is expected to slow down but remain high, with Tencent's AI-related capital expenditure projected to increase by 152% in 2024, followed by a decrease to 25% and 20% in 2025 and 2026, respectively [7][10] - Alibaba plans to invest at least 380 billion yuan over three years starting March 2025, with AI capital expenditure expected to account for 65% of its total capital expenditure in the 2026 fiscal year [10] Group 6: Earnings Outlook - The investment intensity in takeaway and instant retail has peaked, with a 20% average downgrade in profit expectations for consumer internet companies over the past three months [12] - Major companies are expected to report varying earnings, with Tencent projected to have total revenue of 182 billion yuan and Alibaba expected to report 248 billion yuan [13][16] Group 7: Valuation and Market Sentiment - Despite a 20% downgrade in profit expectations for consumer internet companies, their average stock price has only declined by 4%, indicating potential for valuation recovery if profit downgrades have indeed bottomed out [17] - The digital entertainment sector has seen a 66% average stock price increase year-to-date, despite only a 3% upward adjustment in profit expectations, suggesting that short-term preferences are driving market behavior [17]

Group 1 - KIM, a South Korean investment management company, launched an ETF focused on China's AI sector, tracking 50 leading AI companies, which was listed on July 29 [1][2] - The ETF, named "KIM ACE China AI Big Tech TOP2+ Active ETF," aims to capture investment opportunities in artificial intelligence, digital platforms, and smart industrial technologies [2] - The underlying index, developed by Solactive, selects 25 companies from two main fields: cognitive technology and digital platforms, ensuring that selected companies have substantial AI technology layouts [2][3] Group 2 - Morgan Stanley predicts that China will become a global AI leader by 2030, with the core AI industry expected to reach a scale of $140 billion and an overall industry chain expansion to $1.4 trillion [3] - International capital has shown strong interest in Chinese tech stocks, particularly in emerging fields like AI, with the KraneShares China Overseas Internet ETF seeing a significant increase in assets under management, growing over 40% from $5.414 billion at the end of last year to $7.667 billion by August 5 [4][5] - The average price-to-sales ratio of comparable Chinese AI companies is around 15 times, significantly lower than that of typical American AI companies, which averages 42 times, indicating that Chinese AI firms may be undervalued [8]

Summary of Conference Call Notes Industry Overview - The conference call discusses the outlook for digital media companies in China, specifically focusing on Kuaishou, Tencent Music Entertainment (TME), Bilibili, and Baidu. - The second quarter of 2025 (2Q25) is expected to show continued growth momentum in video and music platforms, with livestreaming GMV recovering from lows, while Baidu's Search continues to lose market share [1][2]. Company-Specific Insights Kuaishou (TP raised to HK$85) - Kuaishou is projected to achieve 4-5% platform growth, with a resumption of GMV growth for e-commerce and continued CPM growth, indicating revenue acceleration into the second half of the year [2][19]. - Tracker data shows a 20% acquisition in 2Q, suggesting a full-year number higher than the previous $100 million forecast [2]. - The target price (TP) has been raised to HK$85 based on a 13x forward multiple, reflecting improved long-term earnings expectations [7][19]. Tencent Music Entertainment (TP raised to $25) - TME is expected to deliver results that modestly beat estimates, with strong QoQ ARPU growth of approximately 10% [3][41]. - The focus is on future plans, particularly the potential synergies from the Ximalaya acquisition, which could create a new phase for the stock [3][41]. - The TP has been raised to $25, reflecting a three-year synergy creation roadmap worth at least $5 per share [7][41]. Bilibili (TP set at $28) - Bilibili is expected to have inline results with continued CPM improvement and strong MAU growth, but limited content monetization and a slow gaming cycle may hinder strong upside [4][9]. - The focus for the second half of the year will be on game commentary and potential revenue from upcoming releases [4]. Baidu (TP set at $90) - Baidu's results are expected to disappoint, with further downward revisions to Search revenue due to the removal of ad space and lack of monetization efforts [5][8]. - The company is shifting focus to video ads, but there are concerns about their effectiveness given the current consumer mind share [5]. Key Financial Metrics - Kuaishou's revenue is projected to grow approximately 11.5% in 2025, with a non-GAAP operating profit expected to improve by 25% YoY [10]. - TME's revenue is expected to show around 15% growth, with a focus on ARPU uplift and synergies from the Ximalaya deal [10]. - Bilibili's revenue is anticipated to grow in the high teens, while Baidu's revenue is expected to decline by a low single digit percentage [10]. Additional Insights - Kuaishou's MAU has improved, with a mid-single-digit YoY increase, driven by new downloads and stable retention rates [22][23]. - TME's core user base remains stable, but competition from other music platforms is increasing, leading to a decline in less engaged users [44]. - The advertising revenue growth for Kuaishou is strongest in categories like education, local services, and mini-dramas, with some categories seeing growth rates of 20-35% YoY [30][32]. Conclusion - The digital media landscape in China is showing signs of growth, particularly for Kuaishou and TME, while Baidu faces challenges in monetizing its Search product. - The focus for the second half of 2025 will be on product development and monetization strategies across these platforms, with varying degrees of success anticipated.