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

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

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

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

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

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

Financial Performance - Total revenues for Q1 2023 were RMB7.00 billion (US$1.02 billion), representing a 5.4% year-over-year increase[4]. - Revenues from online music services increased by 33.8% year-over-year to RMB3.50 billion (US$510 million), with music subscriptions growing by 30.4% to RMB2.60 billion (US$378 million)[5][6]. - Net profit attributable to equity holders was RMB1.15 billion (US$167 million), representing an 88.5% year-over-year growth[6][15]. - Operating profit grew to RMB1.38 billion (US$201 million), reflecting an increase of 84.4% year-over-year[14]. - Non-IFRS net profit for the period was RMB 1,463 million (approximately USD 213 million), up 55.8% from RMB 939 million in Q1 2022[41]. - Profit for the period rose to RMB 1,200 million (approximately USD 175 million), representing an increase of 84.5% compared to RMB 649 million in Q1 2022[39]. User Engagement and Growth - The number of online music paying users rose by 17.7% year-over-year to 94.4 million, achieving a record-high paying ratio of 15.9%[5][6]. - The number of users utilizing the customized sound effect for the TNT album reached 2.3 million across 170 million streams[31]. - QQ Music and Kugou Music's recommendation streaming volume and time spent per user both increased year-over-year and quarter-over-quarter, achieving a new high in recommended streaming proportion[31]. - The company hosted 29 online and offline concerts in Q1, attracting nearly 70 million unique visitors within the Tencent ecosystem[23]. Revenue Streams - Advertising revenues saw notable growth due to increased interest from advertisers and a recovering macro environment[8]. - Revenues from audio live streaming increased year-over-year, supported by differentiated content and interactive features[10]. - Online music services revenue increased by 33.7% year-over-year to RMB 3,501 million (approximately USD 510 million) in Q1 2023[38]. Financial Position - As of March 31, 2023, total cash, cash equivalents, and term deposits amounted to RMB28.5 billion (US$4.15 billion), up from RMB27.4 billion at the end of 2022[19]. - Cash and cash equivalents increased to RMB 12,129 million (approximately USD 1,766 million) as of March 31, 2023, compared to RMB 9,555 million at the end of 2022[44]. - Total assets grew to RMB 69,113 million (approximately USD 10,064 million) as of March 31, 2023, up from RMB 67,009 million at the end of 2022[44]. - The equity attributable to equity holders of the Company increased to RMB 50,980 million (approximately USD 7,423 million) as of March 31, 2023, compared to RMB 48,099 million at the end of 2022[44]. - Total liabilities increased to RMB 17,882 million, up RMB 2,483 million from the previous period[45]. Cash Flow - Net cash provided by operating activities decreased to RMB 1,852 million, down RMB 642 million year-over-year[46]. - Net cash used in financing activities improved to RMB (80) million, a reduction of RMB 315 million from the previous year[46]. - Net cash provided by investing activities turned positive at RMB 811 million, an increase of RMB 1,140 million year-over-year[46]. - Deferred revenue decreased to RMB 2,170 million, down RMB 164 million from the previous period[45]. - Current liabilities totaled RMB 11,717 million, an increase of RMB 1,599 million compared to the previous period[45]. - Non-current liabilities rose to RMB 6,165 million, an increase of RMB 95 million from the previous period[45]. - Accounts payable decreased to RMB 4,998 million, down RMB 322 million from the previous period[45].

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

SEC Filing and Report Details - Tencent Music Entertainment Group filed a Form 6-K report with the SEC for the month of April 2023 [1] - The report includes a press release as Exhibit 99.1 [2] - The report was signed by Min Hu on behalf of Tencent Music Entertainment Group on April 25, 2023 [4]

Financial Performance - Revenues for the year ended December 31, 2022, were RMB 28,339 million, a decrease from RMB 31,244 million in 2021, representing a decline of approximately 9.1%[34] - Gross profit for the year ended December 31, 2022, was RMB 8,773 million, down from RMB 9,404 million in 2021, indicating a decrease of about 6.7%[34] - Operating profit for the year ended December 31, 2022, was RMB 4,443 million, compared to RMB 3,800 million in 2021, reflecting an increase of approximately 16.9%[34] - Profit for the year ended December 31, 2022, was RMB 3,839 million, a slight increase from RMB 3,215 million in 2021, showing an increase of about 19.4%[34] - Total assets as of December 31, 2022, were RMB 67,009 million, compared to RMB 67,254 million as of December 31, 2021, indicating a marginal decrease of approximately 0.4%[38] - Total liabilities as of December 31, 2022, were RMB 17,882 million, an increase from RMB 16,199 million in 2021, representing an increase of about 10.4%[38] - Cash and cash equivalents at the end of the year 2022 were RMB 9,555 million, up from RMB 6,591 million at the end of 2021, indicating an increase of approximately 45%[38] - Net cash inflow from operating activities for the year ended December 31, 2022, was RMB 7,481 million, a significant increase compared to the previous year[43] - Net cash outflow from investing activities for the same period was RMB 1,446 million, reflecting a decrease in investment activities[43] - Net cash outflow from financing activities was RMB 3,419 million, indicating a reduction in financing activities compared to the previous year[43] VIE Structure and Contributions - In 2022, revenues generated by the VIEs accounted for 96.8% of Tencent Music Entertainment Group's total net revenues[23] - As of December 31, 2022, total assets of the VIEs represented 26.5% of the Group's consolidated total assets[23] - Cumulative capital contributions made by Tencent Music Entertainment Group to its PRC subsidiaries amounted to RMB1,161 million (US$168 million) as of December 31, 2022[26] - The VIEs transferred RMB16,415 million (US$2,380 million) to Tencent Music Entertainment Group's PRC subsidiaries as service fees in 2022[26] - The loan balance owed by the VIEs to the WOFEs was RMB129 million (US$19 million) as of December 31, 2022[26] - The total amount of undistributed profits from the PRC subsidiaries and VIEs was RMB17,660 million (US$2,560 million) as of December 31, 2022[27] - Tencent Music Entertainment Group has not declared or paid any cash dividends and has no plans to do so in the near future[27] - Revenues from VIEs constituted substantially all of the company's revenues in 2020, 2021, and 2022, highlighting the importance of these arrangements[215] Regulatory Environment - The Group faces significant legal and operational risks due to PRC regulatory authority over foreign investments and business operations[24] - Recent regulatory developments include the establishment of the National Data Bureau to oversee data-related activities, impacting the company's operations[48] - The company is subject to new live streaming regulations in China, which impose stricter requirements on live streaming businesses[55] - The Trial Administrative Measures by the CSRC require PRC domestic companies to fulfill filing procedures for overseas securities offerings, affecting future financing activities[51] - The CAC issued regulations on live streaming on May 7, 2022, requiring real-name registration and prohibiting minors from virtual gifting[56] - The new live streaming regulations may lead to increased scrutiny and potential adverse impacts on the company's business and financial condition[58] - The PRC Anti-Monopoly Law was amended on August 1, 2022, increasing penalties for monopolistic conduct, with fines up to 10% of the previous year's sales revenue[59] - The Holding Foreign Companies Accountable Act (HFCAA) could lead to trading prohibitions on U.S. markets if audit reports are not inspected for two consecutive years[61] - The PCAOB announced it could conduct inspections in mainland China and Hong Kong in 2022, reducing the risk of being identified as a "Commission-Identified Issuer" under the HFCAA[61] Content and Licensing Risks - The company relies on third-party licenses for content, and any adverse changes to these relationships could materially affect its financial condition[73] - Significant portions of the company's music and long-form audio offerings are licensed from content partners, with no assurance of favorable terms in the future[73] - There is a risk of not having complete licenses for certain copyrights, which could lead to potential disputes and liabilities related to copyright infringement[79] - The company has adopted measures to reduce the likelihood of using content without proper licenses, including user agreements and "notice and take-down" policies[83] - Minimum guarantee payments required under certain license agreements may limit the company's operating flexibility and adversely affect its financial condition if user growth does not meet expectations[91] - The company relies on estimates of market share and user growth to forecast whether minimum guarantees can be recouped, which could impact margins if actual performance underperforms expectations[92] - Inability to obtain accurate copyright ownership information may hinder the company's ability to secure necessary licenses, potentially leading to content removal and infringement claims[93] - The company may be subject to significant financial penalties and reputational damage if it fails to comply with complex license agreements[90] Competition and Market Dynamics - The company operates in a competitive industry, facing significant competition from online music services and other forms of content, which may impact market share[114] - The company faces increasing competition and potential intellectual property claims as it seeks to expand its international footprint[86] - The introduction of the pay-for-streaming model in Q1 2019 has driven user engagement, but future success is uncertain due to regulatory scrutiny and user demand fluctuations[97] - The company faces challenges in maintaining high-quality content and user experience to increase paying users, which is critical for revenue growth[98] - The company's advertising revenues are heavily dependent on the growth of the online advertising industry in China and the willingness of advertisers to invest in online platforms[171] - Regulatory changes, such as the MIIT Notice and the Internet Advertising Measures, have negatively impacted the effectiveness of splash ads, leading to a decrease in advertising revenues[172] Legal and Compliance Issues - As of December 31, 2022, there were 923 lawsuits pending against the company related to copyright infringement, with damages sought totaling approximately RMB257.7 million (US$37.4 million)[137] - The company must comply with evolving PRC regulations regarding content distribution, which may lead to penalties or operational constraints if not adhered to[135] - The company has limited control over user-generated content, which poses risks of legal and administrative liability if inappropriate content is displayed[136] - The company cooperates with talent agencies to manage live streaming performers, and any adverse changes in these relationships could impact operational efficiency[120] - The company may incur substantial costs to enforce contractual arrangements with VIEs if they fail to perform their obligations[203] - The effectiveness of the company's internal control over financial reporting was deemed effective as of December 31, 2022, but future audits may reveal material weaknesses[189] Strategic Focus and Future Outlook - The company plans to continue expanding its market presence and investing in new technologies and products to drive future growth[34] - The company is exploring new monetization opportunities while optimizing existing strategies to maintain revenue growth[97] - The company's strategic focus on long-term user engagement may lead to operational results that do not meet investor expectations, potentially impacting stock price[142] - The company prioritizes long-term partnerships and substantial investments in content production to cater to evolving user demands[142] Cybersecurity and Data Privacy - Privacy concerns and security breaches could lead to economic loss and legal liabilities, affecting user trust and business operations[144] - The company is subject to evolving cybersecurity and data protection laws, which may impose additional operational costs and compliance challenges[146] - The PRC Cyber Security Law and Data Security Law require network operators to implement security measures and appoint data security officers[148][149] - The company may face uncertainties regarding compliance with new regulations affecting national security and data processing activities[154] - Compliance with the GDPR and UK GDPR may result in fines up to EUR 20 million or 4% of worldwide annual turnover, whichever is greater, if personal data breaches occur[157] - The California Consumer Privacy Act (CCPA) provides California residents with expanded privacy rights, and similar laws are being enacted in other states, increasing compliance costs[158] - The company faces significant risks related to evolving privacy and data security regulations, which could lead to civil or regulatory liabilities and impact its financial condition[161] Management and Operational Risks - The loss of key management could disrupt operations and adversely affect future growth[166] - The company may need to alter its business model to comply with new regulations regarding virtual currencies, which could lead to penalties[167] - The company's operations depend on the performance of internet infrastructure in China, which is largely maintained by state-owned operators[68] - Programming errors on the platform could adversely affect user experience and market acceptance, impacting overall business performance[186] - Negative media coverage and social media publicity can harm the company's reputation and operations, potentially affecting financial performance[180] Tencent's Influence - Tencent holds 9.1% of the outstanding Class A ordinary shares and 98.5% of the Class B ordinary shares, representing 92.6% of total voting power[194] - Any negative developments in Tencent's market position or financial condition may adversely affect the user base and marketing efforts of the company[193] - The effectiveness of the company's marketing efforts is closely tied to Tencent's brand recognition and user ecosystem[193] - The company's financial contribution to Tencent was not material, and Tencent's strategic decisions may not align with the company's interests[198]