Investors interested in Internet - Content stocks are likely familiar with Tencent Music Entertainment Group Sponsored ADR (TME) and Airbnb, Inc. (ABNB) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revisi ...

Financial Data and Key Metrics Changes - The company reported a 33% year-over-year increase in IFRS net profit to RMB1.8 billion and a 26% increase in non-IFRS net profit to RMB2 billion [19] - Total revenues decreased by 2% year-over-year to RMB7.2 billion, primarily due to a decline in revenues from social entertainment and other services [19] - Online music revenues increased by 28% year-over-year to RMB5.4 billion, driven by strong growth in music subscription revenues and advertising revenues [19][20] Business Line Data and Key Metrics Changes - Music subscription revenues reached RMB3.7 billion, marking a 29% year-over-year increase and a 3% sequential rise [20] - The number of online paying users increased by 18% year-over-year to 117 million, with quarterly net additions of 3.5 million [20] - Revenues from social entertainment services decreased by 43% year-over-year to RMB1.7 billion [21] Market Data and Key Metrics Changes - The company experienced strong growth in advertising revenues, attributed to ad-supported advertising and promotions during the 618 mid-year shopping festival [21] - The gross margin for Q2 reached 42%, an increase of 7.7 percentage points year-over-year, driven by the expansion of the paying user base and improved monthly ARPPU [22] Company Strategy and Development Direction - The company is focused on high-quality growth in its music business, expanding SVIP membership, and improving operational efficiency [26] - The strategy includes investing in high-quality content and innovative technologies to enhance user engagement and experience [26] - The company aims to maintain a balance between subscriber growth and ARPPU expansion, with a focus on enriching member privileges [20][30] Management Comments on Operating Environment and Future Outlook - Management remains optimistic about achieving healthy revenue and profit growth in 2024, despite challenges from the macro environment [29][58] - The online music business is seen as a low-cost entertainment option, which is less affected by macroeconomic downturns [58] - The company expects advertising revenue to perform well in the coming quarters, supported by growth in ad-supported advertising and offline event sponsorships [31][59] Other Important Information - The company launched new features to enhance user experience, including improved sound quality and personalized music discovery [13][15] - The self-produced content continues to gain popularity, contributing to user conversion and engagement [10][11] Q&A Session Summary Question: Outlook for the second half of 2024 regarding top line growth and profitability trends - Management expects healthy revenue and profit growth, with both net additions and ARPPU contributing to online music growth [29] Question: Details on ARPPU growth strategies - Future ARPPU growth will be driven by the SVIP plan, which offers enhanced privileges and sound quality [34][36] Question: Membership net adds trend and long-term penetration - Management aims for steady growth in net adds while focusing on revenue and profit, with confidence in achieving long-term subscriber targets [44][47] Question: Profitability and margin trends - Management is confident in continued gross and net margin growth, supported by subscription and advertising revenue increases [48][52] Question: Impact of macro headwinds on business segments - The macro environment poses challenges, but the online music business remains resilient, with advertising and sponsorships expected to perform well [58][59] Question: Changes in the competitive landscape - The company plans to maintain its competitive position by improving content and user experience [60][62]

Investment Rating - The report maintains an "Outperform" rating for Tencent Music (TME.N) [4][15][19] Core Views - The online music business is experiencing robust growth, with a focus on the SVIP membership program for the second half of 2024, which is expected to enhance ARPPU and overall profitability [2][15] - The company has shown strong performance in managing costs, leading to an upward revision of profit expectations for 2024-2026 [2][15] Financial Performance Summary - In Q2 2024, Tencent Music reported total revenue of 71.6 billion yuan, a year-on-year decrease of 1.7% but a quarter-on-quarter increase of 5.8%. Online music revenue accounted for 76% of total revenue [5][10] - The gross margin for Q2 2024 was 42.0%, up 7.8 percentage points year-on-year, while the adjusted net profit reached 19.6 billion yuan, reflecting a year-on-year increase of 25.7% [5][10] - The subscription business generated revenue of 37 billion yuan in Q2 2024, marking a year-on-year growth of 29% [8][10] User Metrics and Growth - The number of subscription users increased by 3.5 million in Q2 2024, with expectations of an additional 1.5 to 2 million in Q3 2024. The paid user penetration rate reached 20.5%, up 3.8 percentage points year-on-year [10][12] - The monthly ARPPU (Average Revenue Per Paying User) was 10.7 yuan, reflecting a year-on-year increase of 10.3% [10][12] Revenue Projections - The report forecasts adjusted net profits of 75 billion yuan, 87 billion yuan, and 93 billion yuan for 2024, 2025, and 2026 respectively, with slight upward adjustments of 2% for 2024 and 2025 [2][15][17]

Investment Rating - Maintain "Overweight" rating [2] Core Views - Revenue for 2Q24 reached RMB 7.16 billion (yoy -1.7%), slightly above Bloomberg consensus of RMB 7.13 billion [2] - Gross profit increased by 20.5% yoy to RMB 3.01 billion, with gross margin rising to 42.0% (yoy +7.7pct) [2] - Adjusted net profit grew by 26% yoy to RMB 1.99 billion, surpassing Bloomberg consensus of RMB 1.83 billion [2] - Online music revenue grew by 27.7% yoy to RMB 5.42 billion, accounting for 75.8% of total revenue [2] - Social entertainment revenue declined by 42.8% yoy to RMB 1.74 billion, with a slowdown in the rate of decline compared to previous quarters [2] - Operating profit surged by 42.8% yoy to RMB 2.2 billion, driven by effective cost management and expense control [2] - The company is focusing on developing its SVIP super membership, which is expected to drive ARPPU growth in the medium to long term [2] Financial Performance Summary Revenue and Profit - 2Q24 revenue: RMB 7.16 billion (yoy -1.7%) [2] - 2Q24 gross profit: RMB 3.01 billion (yoy +20.5%) [2] - 2Q24 adjusted net profit: RMB 1.99 billion (yoy +26%) [2] - 2Q24 adjusted net profit attributable to shareholders: RMB 1.87 billion (yoy +22.5%) [2] Online Music Business - Online music revenue: RMB 5.42 billion (yoy +27.7%) [2] - Subscription revenue: RMB 3.74 billion (yoy +29.4%) [2] - Paid subscribers: 117 million, with a net increase of 3.5 million qoq [2] - Subscription ARPPU: RMB 10.7 (yoy +10.3%) [2] Social Entertainment Business - Social entertainment revenue: RMB 1.74 billion (yoy -42.8%) [2] - Social entertainment ARPPU: RMB 73.2 (yoy -45.8%) [2] Cost and Expense Management - Operating costs decreased by 13.3% yoy to RMB 4.15 billion [2] - Total expenses decreased by 8.5% yoy to RMB 1.15 billion [2] - Management expenses decreased by 10.2% yoy to RMB 938 million [2] Future Outlook - Revenue forecasts for 2024-2026 are slightly revised downward to RMB 28.4 billion, RMB 30.9 billion, and RMB 32.5 billion, respectively [2] - Adjusted net profit attributable to shareholders is expected to grow steadily, with forecasts maintained for 2024-2026 [2] - The company's focus on SVIP development is expected to drive ARPPU growth and enhance subscription business performance [2] Market Data - Current price: USD 11.12 [4] - Total market capitalization: USD 19.1 billion [5] - 52-week price range: USD 5.7 - USD 15.77 [5] - 3-month turnover rate: 90.2% [5] Financial Projections Income Statement - 2024E revenue: RMB 28.406 billion [6] - 2025E revenue: RMB 30.924 billion [6] - 2026E revenue: RMB 32.466 billion [6] - 2024E adjusted net profit attributable to shareholders: RMB 7.357 billion [6] - 2025E adjusted net profit attributable to shareholders: RMB 8.4 billion [6] - 2026E adjusted net profit attributable to shareholders: RMB 9.367 billion [6] Balance Sheet - 2024E total assets: RMB 82.195 billion [6] - 2025E total assets: RMB 90.889 billion [6] - 2026E total assets: RMB 100.483 billion [6] Cash Flow - 2024E operating cash flow: RMB 8.356 billion [6] - 2025E operating cash flow: RMB 8.86 billion [6] - 2026E operating cash flow: RMB 9.729 billion [6]

Investment Rating - The report maintains a "Buy" rating for Tencent Music, with a target price of HKD 53.17 [4][2]. Core Insights - In Q2 2024, Tencent Music reported revenue of CNY 7.16 billion, a year-over-year decrease of 1.7% but a quarter-over-quarter increase of 5.8%. The company expects Q3 revenue to reach CNY 7 billion, reflecting a year-over-year increase of 6.7% [1]. - The gross margin for Q2 2024 was 42.04%, up 7.77 percentage points year-over-year and 1.10 percentage points quarter-over-quarter, driven by strong growth in music subscription and advertising services [1]. - The online music service revenue for Q2 2024 was CNY 5.42 billion, a year-over-year increase of 27.65% and a quarter-over-quarter increase of 8.33%. The company anticipates Q3 revenue of CNY 5.6 billion, a year-over-year increase of 23% [1]. - The social entertainment service revenue for Q2 2024 was CNY 1.74 billion, a year-over-year decrease of 42.84% and a quarter-over-quarter decrease of 1.42%. The company expects Q3 revenue to decline to CNY 1.4 billion [1]. Financial Summary - The report forecasts net profit attributable to shareholders for 2024, 2025, and 2026 to be CNY 6.7 billion, CNY 8.2 billion, and CNY 10.2 billion respectively, reflecting an upward adjustment due to increased ARPPU and gross margin [2]. - The expected ARPPU for Q3 2024 is CNY 10.9 per month, with a projected annual membership revenue of CNY 15.2 billion for 2024, a year-over-year increase of 26% [1][2]. - The report provides a comparison of valuation metrics with peer companies, suggesting a P/E ratio of 25 times for 2024 [2][8].

Investment Rating - The investment rating for Tencent Music is "Buy" with a target price of USD 14.00, indicating a potential upside of 25.9% from the current price of USD 11.12 [1][11]. Core Insights - Tencent Music's Q2 2024 profits exceeded expectations, with revenue of RMB 7.2 billion, a slight year-on-year decline of 2%. The gross margin improved to 42%, benefiting from subscription and advertising revenue growth [1][2]. - The adjusted net profit for Q2 was RMB 1.87 billion, a year-on-year increase of 22%, surpassing market expectations [1][2]. - The company is focusing on enhancing SVIP operations to improve ARPPU and expects a return to stable membership growth in the second half of the year [2][6]. Financial Performance Summary - Q2 2024 revenue was RMB 72 billion, with online music revenue at RMB 54 billion, a year-on-year increase of 28% [1][6]. - The number of music subscribers reached 117 million, with a net increase of 3.5 million in Q2, slightly below market expectations [1][6]. - Monthly ARPPU for music subscriptions was RMB 10.7, reflecting a 10% year-on-year increase [1][6]. Future Outlook - Management anticipates a 21% increase in music subscription revenue for Q3 2024, with a net addition of 1.7 million members for the year, down from previous estimates [2][6]. - The company has adjusted its revenue forecasts for 2024 and 2025 down by 2% and 4% respectively, while maintaining adjusted net profit expectations due to cost optimization [2][6]. Valuation - The target price has been revised down to USD 14.00, based on a sum-of-the-parts (SOTP) valuation, with music valued at USD 12, social at USD 1, and cash at USD 1 [2][8]. - The estimated P/E ratio for 2024 is 18.4, reflecting a stable outlook for profitability despite adjustments in revenue forecasts [4][8].

Investment Rating - The report does not explicitly state an investment rating for Tencent Music Entertainment (TME) [2] Core Views - TME's 24Q2 performance exceeded expectations with a net profit of RMB 1.79 billion, up 33.1% YoY, and an adjusted net profit of RMB 1.99 billion, up 25.7% YoY [2] - Revenue for 24Q2 was RMB 7.16 billion, up 1.7% YoY, with an operating profit of RMB 2.2 billion, up 42.8% YoY, and an operating profit margin of 30.7% [2] - Online music service revenue grew 27.7% YoY to RMB 5.42 billion, driven by strong growth in subscription revenue and advertising income [2] - Social entertainment and other services revenue declined 42.8% YoY to RMB 1.74 billion due to adjustments in live streaming features and increased competition [2] - Gross margin and net margin have improved for nine consecutive quarters, with a gross margin of 42.0% and a net margin of 25.1% in 24Q2 [2] - The company expects steady growth in net paying users and anticipates ARPPU growth driven by SVIP offerings, which could further enhance profitability [2] Business Performance - Online music subscription revenue reached RMB 3.74 billion, up 29.4% YoY, with paying users increasing to 117 million, up 17.7% YoY [2] - ARPPU for online music services was RMB 10.7, up 10% YoY, with SVIP offerings expected to drive further ARPPU growth [2] - Advertising revenue saw strong growth due to diversified product offerings and innovative ad formats [2] - Social entertainment revenue declined due to stricter compliance measures and competitive pressures [2] Financial Metrics - Gross margin improved by 7.7 percentage points YoY to 42.0% in 24Q2 [2] - Net margin increased by 6.6 percentage points YoY to 25.1% in 24Q2 [2] - Adjusted net margin rose by 6.1 percentage points YoY to 27.8% in 24Q2 [2] - Sales expenses were RMB 210 million, with a sales expense ratio of 2.9%, flat YoY [2] - Management expenses were RMB 938 million, with a management expense ratio of 13.1%, down 1.2 percentage points YoY [2] Future Outlook - TME expects ARPPU growth to outpace net paying user growth in the second half of the year, driven by SVIP offerings [2] - SVIP benefits include early access to digital albums, enhanced audio quality features, and multi-device access, with a monthly price of RMB 40 compared to RMB 15 for regular members [2] - The company anticipates further improvements in gross and net margins for the full year [2]

Investment Rating - The report maintains a "Buy" rating for TME with a target price of $16.00, representing a potential upside of 21.9% from the current price of $13.13 [4][11]. Core Insights - TME's Q2 2024 total revenue decreased by 2% year-on-year to RMB 7.16 billion, aligning with consensus estimates. However, non-IFRS net income grew by 22% year-on-year to RMB 1.87 billion, exceeding expectations [2][3]. - The management emphasizes a balanced growth strategy focusing on music subscribers and ARPPU (Average Revenue Per User), with long-term goals of reaching 150 million music users and a monthly ARPPU of RMB 15 [2][3]. - The online music segment showed robust growth, with revenue increasing by 28% year-on-year to RMB 5.42 billion, accounting for 76% of total revenue. Paid users rose by 18% year-on-year to 117 million [2][3]. - The report forecasts an 8% year-on-year revenue growth in Q3 2024, driven by a 24% increase in online music revenue, despite a 29% decline in social entertainment revenue [2][3]. Financial Summary - For FY24E, total revenue is projected at RMB 28.415 billion, with a gross profit margin (GPM) of 42.2% and an adjusted net profit of RMB 7.501 billion [3][8]. - The GPM is expected to expand to 42.8% in Q3 2024, supported by improved online music margins and increased self-produced content [2][3]. - The report indicates a compound annual growth rate (CAGR) of 21% for TME's revenue from FY24 to FY26, driven by core music revenue growth and GPM expansion [2][3]. Valuation Metrics - The report provides a DCF valuation with a target price of $16.00, based on a WACC of 11.6% and a terminal growth rate of 2.5% [11][12]. - TME's current P/E ratio is 21 times FY24E earnings, which is considered fair by the report [2][3]. Market Performance - TME's stock has seen a 1-month decline of 13.2% and a 3-month decline of 11.3%, while it has increased by 36.3% over the past 6 months [5]. - The company has a market capitalization of approximately $20.23 billion and an average turnover of $32.1 million over the past three months [5]. Future Outlook - The management's focus on leveraging AI technology to enhance user experience and drive music streaming growth is highlighted as a key strategy moving forward [2][3]. - The report anticipates continued growth in the number of music users, with a net increase of 1.5 to 2 million users per quarter in the second half of 2024 [2][3].

14 August 2024 | 6:40AM HKT Tencent Music Entertainment Group (tme) Buy Earnings Review: 2024 in-line: Shifting gear to ARPPU over subs, expectation reset but still long runway of growth; Buy TMEUpside: 27.7%12m Price Target: $14.20Price: $11.12 1698.HK12m Price Target: HK$55.10Price: HK$53.50Upside: 3.0% TME delivered in-line 2Q24 results (see our note) yet produced a mixed outlook over 2H24-2025 including: 1) A shift in gear of growth drivers may raise concerns for some investors on multiple contraction, ...

Investment Rating - The report maintains a "Buy" rating for Tencent Music Entertainment Group (TME) with a 12-month price target of US$16.00 per ADS and HK$62.30 for 1698.HK, indicating an upside potential of 21.9% [7][10]. Core Insights - Tencent Music reported 2Q24 revenue largely in line with expectations, showing a slight year-over-year decline of 2% but a significant increase in non-GAAP operating profit by 39% year-over-year [2][4]. - The company achieved a record high gross profit margin (GPM) of 42%, reflecting an 8 percentage point increase year-over-year, driven by operating leverage from online music services and subscriber growth [4][8]. - The number of paying subscribers increased by 3.5 million quarter-over-quarter, with an average revenue per paying user (ARPPU) of RMB 10.7, marking a 10% year-over-year improvement [4][8]. Financial Performance Summary - **Net Revenues**: RMB 7,160 million, down 2% year-over-year, and slightly below Goldman Sachs estimates [4]. - **Online Music Revenues**: RMB 5,424 million, up 28% year-over-year, indicating strong growth in this segment [4]. - **Adjusted Net Income**: RMB 1,873 million, a 22% increase year-over-year, slightly above estimates [4]. - **Gross Margin**: Increased to 42%, surpassing expectations, with a target of 45% in the medium term [4][8]. - **Operating Expenses**: Remained disciplined, with total OPEX largely flat quarter-over-quarter, reflecting a focus on cost management [4][8]. Subscriber and Revenue Metrics - **Total Subscribers**: 117 million, with a year-over-year growth of 18% [4]. - **ARPPU**: RMB 10.7, showing a 10% increase year-over-year [4]. - **Quarterly Subscriber Growth**: Sustained momentum with 3.5 million net adds [4][8]. Market Outlook - The management's outlook for 3Q growth in subscribers and ARPU, along with profitability expansion, will be critical to watch [2][4].