Financial Performance - Total revenues for Q2 2024 were RMB7.16 billion (US$985 million), a 1.7% year-over-year decrease, primarily due to a decline in social entertainment services revenues[1]. - Net profit for Q2 2024 was RMB1.79 billion (US$247 million), representing a 33.1% year-over-year growth[2]. - Total operating profit for Q2 2024 was RMB2.20 billion (US$302 million), a 42.8% year-over-year increase[13]. - The net profit attributable to equity holders for the period was RMB 1,682 million, reflecting a year-over-year increase of 29.6% from RMB 1,298 million[24]. - Tencent Music's non-IFRS net profit for the three months ended June 30, 2024, was RMB 1,985 million, up 25.0% from RMB 1,579 million in the same period of 2023[26]. - Basic earnings per share for Class A and Class B ordinary shares was RMB 0.54, compared to RMB 0.42 in the same quarter last year, marking a 28.6% increase[24]. Revenue Breakdown - Revenues from music subscriptions increased by 29.4% year-over-year to RMB3.74 billion (US$515 million), with paying users rising by 17.7% to 117.0 million[2]. - Revenues from online music services grew by 27.7% year-over-year to RMB5.42 billion (US$746 million)[10]. - Revenues from social entertainment services decreased by 42.8% to RMB1.74 billion (US$239 million) due to compliance adjustments and increased competition[11]. User Engagement and Growth - Monthly ARPPU for online music increased by 10.3% year-over-year to RMB10.7[4]. - The company launched new digital album offerings and enhanced user engagement through personalized privileges and advanced technology features[5][8]. - The company reported a total of 51.6 million monthly active users in its online music services segment as of June 30, 2024, a decrease from 45.6 million in the previous year[24]. Financial Position - Cash, cash equivalents, term deposits, and short-term investments totaled RMB35.03 billion (US$4.82 billion) as of June 30, 2024[15]. - The company has increased its financial assets at fair value through other comprehensive income to RMB 10,294 million as of June 30, 2024, from RMB 6,540 million at the end of 2023[28]. - Tencent Music's total assets grew to RMB 82,405 million as of June 30, 2024, compared to RMB 75,536 million at the end of 2023, indicating a growth of 9.8%[29]. - Total equity decreased from RMB 62,879 million to RMB 57,202 million, a decline of 9.7%[30]. - Total liabilities decreased from RMB 19,526 million to RMB 18,334 million, a decline of 6.1%[31]. Cash Flow - Net cash provided by operating activities increased from RMB 2,067 million to RMB 2,944 million, a growth of 42.4%[33]. - Net cash used in investing activities improved from a usage of RMB 1,339 million to a usage of RMB 693 million, a reduction of 48.3%[33]. - Cash and cash equivalents at the end of the period decreased from RMB 12,950 million to RMB 12,251 million, a decline of 5.4%[33]. Other Financial Metrics - Gross margin improved to 42.0%, up from 34.3% in the same period of 2023, driven by strong growth in music subscriptions and advertising[12]. - The gross profit for the same period was RMB 3,010 million, representing a gross margin of 42.0%, up from RMB 2,497 million and a gross margin of 34.3% in the prior year[24]. - Operating profit increased to RMB 2,198 million for the three months ended June 30, 2024, a growth of 43.0% year-over-year from RMB 1,539 million[24]. - Retained earnings increased from RMB 16,520 million to RMB 16,969 million, an increase of 2.7%[30]. - Non-controlling interests decreased from RMB 1,670 million to RMB 1,295 million, a decline of 22.4%[30]. - Current liabilities decreased from RMB 13,179 million to RMB 12,014 million, a decline of 8.8%[30]. - Total equity and liabilities decreased from RMB 82,405 million to RMB 75,536 million, a decline of 8.3%[31]. - Deferred revenue increased from RMB 2,952 million to RMB 2,854 million, a decline of 3.3%[30].

Tencent Music Entertainment (NYSE:TME) Q1 2024 Earnings Conference Call May 13, 2024 7:00 AM ET Company Participants Millicent Tu - Head of Investor Relations Cussion Kar Shun Pang - Executive Chairman Zhu Liang - Chief Executive Officer Min Hu - Chief Financial Officer Conference Call Participants Alicia Yap - Citigroup Alex Poon - Morgan Stanley Lincoln Kong - Goldman Sachs Zhang Lei - Bank of America Merrill Lynch Ellie Jiang - Macquarie Wei Fang - Mizuho Securities Thomas Chong - Jefferies Millicent Tu ...

Financial Performance - In 2021, 2022, and 2023, revenues generated by the VIEs accounted for 99.1%, 96.8%, and 96.5% of total net revenues, respectively[16]. - Revenues for the year ended December 31, 2023, reached RMB 27,752 million, a slight increase from RMB 28,339 million in 2022[27]. - Gross profit for 2023 was RMB 9,795 million, compared to RMB 8,773 million in 2022, reflecting a growth of approximately 11.6%[27]. - Operating profit for 2023 was RMB 6,059 million, a significant increase from an operating loss of RMB 404 million in 2022[28]. - Profit for the year 2023 was RMB 5,220 million, up from RMB 3,839 million in 2022, indicating a year-over-year growth of about 36%[28]. - The Group's revenues for the year ended December 31, 2021, were RMB30,949 million, with a gross profit of RMB9,404 million[26]. - The operating profit for the Group was RMB3,800 million for the year ended December 31, 2021[26]. - Profit for the year for the Group was RMB3,215 million for the year ended December 31, 2021[26]. Assets and Liabilities - As of December 31, 2023, total assets of the VIEs represented 24.1% of the consolidated total assets[16]. - Total assets as of December 31, 2023, amounted to RMB 75,536 million, compared to RMB 67,009 million in 2022, representing an increase of approximately 12.5%[30]. - Total liabilities for 2023 were RMB 18,334 million, a slight increase from RMB 17,882 million in 2022[30]. - Total equity as of December 31, 2023, was RMB 57,202 million, up from RMB 49,127 million in 2022, indicating a growth of about 16.4%[30]. - Cumulative capital contributions made by Tencent Music Entertainment Group to PRC subsidiaries amounted to RMB1,177 million (US$166 million) as of December 31, 2023[19]. Cash Flow - For the year ended December 31, 2023, the net cash inflow from operating activities was RMB 7,337 million, an increase from RMB 7,481 million in 2022[34]. - The net cash outflow from investing activities for 2023 was RMB (1,863) million, compared to RMB (1,446) million in 2022[34]. - The net cash outflow from financing activities in 2023 was RMB (1,538) million, a decrease from RMB (3,419) million in 2022[34]. - The company reported cash and cash equivalents of RMB 13,567 million for 2023, compared to RMB 9,555 million in 2022, reflecting a significant increase of approximately 42%[30]. - Cash and cash equivalents at the end of 2023 totaled RMB 13,567 million, up from RMB 9,555 million at the end of 2022[34]. Regulatory Environment - The company faced restrictions under PRC laws regarding the payment of dividends, which may affect its ability to distribute profits to shareholders[37]. - The National Data Bureau was established in 2023 to oversee data-related regulations, impacting the company's operations in data privacy and cybersecurity[40]. - The company is subject to new regulations regarding cross-border data flows, which may affect its international operations and data management strategies[42]. - The China Securities Regulatory Commission (CSRC) introduced new filing requirements for PRC domestic companies seeking to list overseas, effective March 31, 2023, impacting companies with over 50% of revenue from PRC operations[44]. - The revised Anti-Monopoly Law, effective August 1, 2022, imposes stricter regulations on internet platforms and can result in fines up to 10% of the operator's last year's sales revenue for monopolistic conduct[52]. Legal and Compliance Risks - The company faces risks related to user preferences; failure to anticipate these changes could lead to reduced user engagement and negatively impact financial results[63]. - The company may not have obtained complete licenses for certain copyrights, which could expose it to potential disputes and liabilities[69]. - The company is subject to uncertainties regarding the enforcement of laws and regulations in China, which could materially impact its operations[60]. - The company may face challenges in sourcing high-quality content, which could affect its ability to attract and retain users[64]. - The company has been involved in litigation related to copyright infringement claims, which could adversely affect its business and financial condition[77]. Market and Competitive Landscape - The company operates in a competitive industry, facing challenges from other online music services and emerging content forms like live streaming and user-generated videos[101]. - The online music and audio entertainment market is rapidly evolving, and the company must keep pace with technological changes and user behavior to avoid adverse impacts on its business[91]. - The company relies on strong brands like QQ Music, Kugou, Kuwo, WeSing, and Lazy Audio to maintain market leadership, emphasizing the importance of high-quality content and service offerings[89]. Strategic Initiatives - The company has launched a full suite of AI-powered music production tools in 2023, integrating AI into its offerings, which may lead to potential infringement claims and higher compliance costs[122]. - The company aims to increase the number of paying users by addressing challenges such as providing high-quality content and user experience, curating engaging content, and managing data security risks[88]. - The company has implemented measures to reduce copyright infringement risks, including requiring user agreements and adopting "notice and take-down" policies[74]. Shareholder and Governance Issues - As of April 10, 2024, Tencent holds 9.1% of the company's Class A ordinary shares and 98.5% of Class B ordinary shares, representing 92.6% of total voting power, which may lead to conflicts of interest and influence over shareholder actions[183]. - The company has authorized the issuance of up to 436,999,865 shares under its equity incentive plans, which may result in shareholding dilution for existing shareholders[176]. - The effectiveness of the company's internal control over financial reporting was confirmed as of December 31, 2023, but future audits may reveal material weaknesses that could impact investor confidence[178]. Economic and Operational Risks - Economic conditions in China are sensitive to global economic changes, and any severe slowdown could adversely affect the company's financial condition[155]. - The company's business prospects are significantly influenced by China's economic, political, and social conditions, as well as government policies[211]. - Adverse changes in economic conditions or regulatory policies in China could negatively impact the company's demand for services and competitive position[212].

Financial Data and Key Metrics Changes - In Q4 2023, total revenues were RMB6.9 billion, down by 7% year-over-year, primarily due to a decline in revenues from social entertainment services [22] - IFRS net profit and non-IFRS net profit were RMB5.2 billion and RMB6.2 billion respectively, up by 36% and 27% year-over-year [22] - Gross margin for Q4 stood at 38.3%, marking an increase of 5.3 percentage points year-over-year [25] - For the full year 2023, total revenues were RMB27.8 billion, down by 2% year-over-year, while revenues from online music services were RMB17.3 billion, up by 39% year-over-year [28][29] Business Line Data and Key Metrics Changes - Music subscription revenues reached RMB3.4 billion in Q4 2023, a 45% increase year-over-year [22] - The number of online music paying users expanded to 106.7 million, representing a 21% increase year-over-year [23] - Advertising revenue showed strong growth year-over-year and sequentially, supported by diversified product offerings [24] Market Data and Key Metrics Changes - The online music business has consistently delivered strong performance, with total monthly subscribers reaching 107 million [34] - The demographic profile of users is aligned with China's population structure, with a significant portion of active users aged between 18 to 30 years old [38] Company Strategy and Development Direction - The company aims to leverage its content and platform dual engines to drive growth and capture opportunities in 2024 and beyond [14] - Continued investment in high-quality content and original productions, as well as new technologies like AIGC, is a priority [32] - The strategy includes enhancing user experience through technology and expanding into new areas such as artist merchandise and live performances [35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future of the music industry and the company's ability to maintain solid growth in subscription services [34] - The company is focused on improving monetization and operational efficiency while exploring new growth opportunities [32] - The long-form audio segment is expected to see significant growth and integration with existing music platforms [39] Other Important Information - The company has repurchased 25.3 million ADS for a total cash consideration of US$175 million as part of its share repurchase program [28] - The effective tax rate for Q4 2023 was 17.3%, an increase from 12.2% in the same period of 2022 [26] Q&A Session Summary Question: What are the revenue growth expectations for 2024, particularly in the music segment? - Management indicated strong performance in 2023 and expressed confidence in continued growth driven by subscription services and advertising opportunities [34] Question: Can management elaborate on the user profile of newly converted members? - The user base is reflective of China's demographic structure, with a focus on younger users in tier 1, 2, and 3 cities [38] Question: What are the key drivers for gross margin expansion in 2024? - Gross margin increased due to significant growth in music subscription revenues, higher ARPPU, and a ramp-up in self-produced content [43] Question: How does the company leverage AIGC in its business? - AIGC is used to enhance user experience, improve content creation efficiency, and boost promotional materials for better conversion rates [55][57]

[Executive Summary](index=1&type=section&id=Executive%20Summary) [Fourth Quarter 2023 Financial Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20Highlights) TME reported a 7.2% YoY decrease in total revenues for Q4 2023, primarily due to a decline in social entertainment services, while online music services showed strong growth, with music subscription revenues increasing by 45.3% and net profit growing by 16.9% | Metric | Q4 2023 (RMB) | YoY Change | US$ (million) | | :-------------------------------- | :------------ | :--------- | :------------ | | Total Revenues | 6.89 billion | -7.2% | 971 | | Music Subscriptions Revenue | 3.42 billion | +45.3% | 481 | | Net Profit | 1.41 billion | +16.9% | 198 | | Net Profit Attributable to Equity Holders | 1.31 billion | +13.5% | 184 | | Non-IFRS Net Profit | 1.68 billion | +12.5% | 236 | | Diluted Earnings per ADS | 0.83 | +15.3% | 0.12 | | Music Paying Users | 106.7 million | +20.6% | - | | Monthly ARPPU - Online Music | 10.7 | +20.2% | - | - Total cash, cash equivalents, and term deposits as of December 31, 2023, were **RMB32.22 billion (US$4.54 billion)**[4](index=4&type=chunk) [Full Year 2023 Financial Highlights](index=1&type=section&id=Full%20Year%202023%20Financial%20Highlights) For the full year 2023, TME's total revenues decreased by 2.1% YoY, despite which music subscription revenues saw significant growth of 39.1%, contributing to a substantial 36.0% increase in net profit | Metric | FY 2023 (RMB) | YoY Change | US$ Equivalent | | :-------------------------------- | :------------ | :--------- | :--------------- | | Total Revenues | 27.75 billion | -2.1% | 3.91 billion | | Music Subscriptions Revenue | 12.10 billion | +39.1% | 1.70 billion | | Net Profit | 5.22 billion | +36.0% | 735 million | | Net Profit Attributable to Equity Holders | 4.92 billion | +33.8% | 693 million | | Non-IFRS Net Profit | 6.22 billion | +26.8% | 876 million | | Net Adds of Music Paying Users | 18.2 million | Up from 12.3M in 2022 | - | [Management Commentary](index=2&type=section&id=Management%20Commentary) [Executive Chairman's Comments](index=2&type=section&id=Executive%20Chairman's%20Comments) Mr. Cussion Pang highlighted 2023 as a pivotal transition year, noting accelerated growth in music subscription revenue and expanded net profits, driven by online music services mitigating social entertainment headwinds - 2023 marked a pivotal transition at TME, with **accelerated year-over-year growth in music subscription revenue** and **expanded quarterly net profits**[5](index=5&type=chunk) - Online music services' strong performance mitigated headwinds from social entertainment services[5](index=5&type=chunk) - TME is well-positioned for multi-faceted opportunities, underpinned by content and platform dual engines and the online music business's relatively counter-cyclical nature[5](index=5&type=chunk) [CEO's Comments](index=2&type=section&id=CEO's%20Comments) Mr. Ross Liang focused on efficiency and user experience, noting that deeper insights into users and content enhanced operational efficiency and personalization, and highlighted the positive impact of expanded user privileges and AI-empowered products on subscriber conversion and retention - Laser focus on execution resulted in a year of efficiency, with enhanced operational efficiency through deeper insights into users and content[5](index=5&type=chunk) - Expanded user privileges and AI-empowered products contributed positively to **subscriber conversion and retention**[5](index=5&type=chunk) - For 2024, TME remains dedicated to delivering a more compelling user experience and easier access to music across a broader range of use cases[5](index=5&type=chunk) [Operational Highlights](index=2&type=section&id=Operational%20Highlights) [Key Operating Metrics (Q4 2023)](index=2&type=section&id=Key%20Operating%20Metrics%20(Q4%202023)) In Q4 2023, online music paying users and ARPPU showed strong growth, while MAUs for both online music and social entertainment declined, and social entertainment ARPPU also saw a significant decrease | Metric | 4Q23 | 4Q22 | YoY % | | :-------------------------------- | :--- | :--- | :---- | | MAUs — online music (million) | 576 | 601 | (4.2%) | | Mobile MAUs — social entertainment (million) | 104 | 146 | (28.8%) | | Paying users — online music (million) | 106.7 | 88.5 | 20.6% | | Paying users — social entertainment (million) | 8.0 | 7.6 | 5.3% | | Monthly ARPPU — online music (RMB) | 10.7 | 8.9 | 20.2% | | Monthly ARPPU — social entertainment (RMB) | 78.0 | 169.6 | (54.0%) | [Strategic Initiatives](index=3&type=section&id=Strategic%20Initiatives) TME strengthened its content leadership through extensive partnerships and diverse offerings, enhanced platform value with improved user experiences and multi-device support, and leveraged AIGC for intelligent music discovery and artist creation - Strengthened content offerings with **over 200 million music and audio tracks** by the end of 2023, including renewed multi-year strategic cooperation with Universal Music Group[8](index=8&type=chunk)[10](index=10&type=chunk) - Enriched mid- to long-tail content with **over 3 million songs** published by **over 480,000 indie musicians** through Tencent Musician Platform[10](index=10&type=chunk) - Expanded user privileges and improved multi-device experience, including China's largest Dolby Atmos music library and upgraded in-car music experience[9](index=9&type=chunk)[10](index=10&type=chunk) - Integrated Large Language Models (LLMs) into music streaming for intelligent music discovery, upgrading features like the virtual DJ[10](index=10&type=chunk) - Introduced Venus' AI composition tool to support artists' music creation[10](index=10&type=chunk) [Fourth Quarter 2023 Financial Review](index=4&type=section&id=Fourth%20Quarter%202023%20Financial%20Review) [Total Revenues and Cost of Revenues (Q4 2023)](index=4&type=section&id=Total%20Revenues%20and%20Cost%20of%20Revenues%20(Q4%202023)) Total revenues for Q4 2023 decreased by 7.2% YoY, primarily due to a significant decline in social entertainment services, while cost of revenues also decreased, mainly driven by lower revenue sharing fees from social entertainment | Metric | Q4 2023 (RMB million) | Q4 2022 (RMB million) | YoY Change | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Total Revenues | 6,893 | 7,425 | -7.2% | | Cost of Revenues | 4,252 | 4,978 | -14.6% | - The decrease in total revenues was mainly due to the decline in revenues from social entertainment services and others, partially mitigated by growth in online music services[4](index=4&type=chunk)[11](index=11&type=chunk) - Cost of revenues decreased mainly due to decreased revenues from social entertainment services leading to lower revenue sharing fees, partially offset by increased content costs of royalties and advertising agency fees[12](index=12&type=chunk) [Gross Margin and Operating Expenses (Q4 2023)](index=4&type=section&id=Gross%20Margin%20and%20Operating%20Expenses%20(Q4%202023)) Gross margin improved significantly by 5.3 percentage points to 38.3% in Q4 2023, driven by strong growth in music subscriptions and advertising, and the ramp-up of own content, while total operating expenses decreased by 7.0% YoY, mainly due to reduced employee-related and promotional expenses | Metric | Q4 2023 | Q4 2022 | Change | | :-------------------------------- | :------ | :------ | :----- | | Gross Margin | 38.3% | 33.0% | +5.3 ppts | | Total Operating Expenses (RMB million) | 1,266 | 1,361 | -7.0% | | Selling and Marketing Expenses (RMB million) | 255 | 266 | -4.1% | | General and Administrative Expenses (RMB million) | 1,011 | 1,095 | -7.7% | - Gross margin increase was primarily due to **strong growth of revenues from music subscriptions and advertising services**, and the ramp-up of TME's own content[13](index=13&type=chunk) - Selling and marketing expenses decreased mainly due to reduced promotional expenses for social entertainment services, partially offset by increased spending on content promotion[15](index=15&type=chunk) - General and administrative expenses decreased primarily due to reduced employee-related expenses[15](index=15&type=chunk) [Revenue Breakdown by Service (Q4 2023)](index=4&type=section&id=Revenue%20Breakdown%20by%20Service%20(Q4%202023)) Online music services revenue surged by 41.1% YoY, driven by strong music subscription growth (45.3%) and increased advertising, while social entertainment services revenue plummeted by 51.6% due to adjustments in live-streaming functions and stricter compliance | Service | Q4 2023 (RMB million) | Q4 2022 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Online Music Services | 5,022 | 3,559 | +41.1% | | Music Subscriptions | 3,420 | 2,350 | +45.3% | | Social Entertainment Services and Others | 1,871 | 3,866 | -51.6% | - Online music paying users increased by **20.6% to 106.7 million**, and monthly ARPPU expanded to **RMB10.7**, marking its seventh consecutive quarter of growth[14](index=14&type=chunk) - The decrease in social entertainment revenues was mainly caused by adjustments to certain live-streaming interactive functions and more stringent compliance procedures[14](index=14&type=chunk) [Operating Profit, Net Profit, and EPS (Q4 2023)](index=5&type=section&id=Operating%20Profit%2C%20Net%20Profit%2C%20and%20EPS%20(Q4%202023)) Operating profit grew by 23.5% YoY, reflecting improved operating efficiency, with net profit and non-IFRS net profit also seeing double-digit growth, and diluted EPS increasing to RMB0.83 | Metric | Q4 2023 (RMB million) | Q4 2022 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Operating Profit | 1,714 | 1,388 | +23.5% | | Net Profit | 1,409 | 1,205 | +16.9% | | Net Profit Attributable to Equity Holders | 1,306 | 1,151 | +13.5% | | Non-IFRS Net Profit | 1,678 | 1,492 | +12.5% | | Diluted EPS (RMB) | 0.83 | 0.72 | +15.3% | | Non-IFRS Diluted EPS (RMB) | 1.00 | 0.91 | +9.9% | - Effective tax rate for Q4 2023 was **17.3%**, up from 12.2% in Q4 2022, mainly due to the accrual of withholding income tax[16](index=16&type=chunk) [Cash and Term Deposits (Q4 2023)](index=5&type=section&id=Cash%20and%20Term%20Deposits%20(Q4%202023)) As of December 31, 2023, TME's combined balance of cash, cash equivalents, and term deposits increased to RMB32.22 billion (US$4.54 billion) from RMB30.96 billion at the end of Q3 2023 | Metric | As of Dec 31, 2023 (RMB billion) | As of Sep 30, 2023 (RMB billion) | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Cash, Cash Equivalents and Term Deposits | 32.22 | 30.96 | +1.26 | [Full Year 2023 Financial Review](index=5&type=section&id=Full%20Year%202023%20Financial%20Review) [Total Revenues and Service Breakdown (FY 2023)](index=5&type=section&id=Total%20Revenues%20and%20Service%20Breakdown%20(FY%202023)) Total revenues for FY 2023 decreased by 2.1% YoY, while online music services revenue grew strongly by 38.8%, driven by music subscriptions (up 39.1%) and advertising, but social entertainment services revenue declined significantly by 34.2% due to operational adjustments | Service | FY 2023 (RMB million) | FY 2022 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Total Revenues | 27,752 | 28,339 | -2.1% | | Online Music Services | 17,325 | 12,483 | +38.8% | | Music Subscriptions | 12,100 | 8,700 | +39.1% | | Social Entertainment Services and Others | 10,427 | 15,856 | -34.2% | - Online music paying users increased by **19.8% to 100.9 million**, and monthly ARPPU expanded to **RMB10.0**[20](index=20&type=chunk) - The decrease in social entertainment revenues was mainly caused by adjustments to certain live-streaming interactive functions and more stringent compliance procedures[21](index=21&type=chunk) [Cost of Revenues, Gross Margin, and Operating Expenses (FY 2023)](index=6&type=section&id=Cost%20of%20Revenues%2C%20Gross%20Margin%2C%20and%20Operating%20Expenses%20(FY%202023)) Cost of revenues decreased by 8.2% YoY, primarily due to lower revenue sharing fees from social entertainment, leading to a gross margin improvement of 4.3 percentage points to 35.3%, while total operating expenses decreased by 9.7% YoY with reductions in both selling & marketing and G&A expenses | Metric | FY 2023 (RMB million) | FY 2022 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Cost of Revenues | 17,957 | 19,566 | -8.2% | | Gross Margin | 35.3% | 31.0% | +4.3 ppts | | Total Operating Expenses | 5,018 | 5,557 | -9.7% | | Selling and Marketing Expenses | 897 | 1,144 | -21.6% | | General and Administrative Expenses | 4,121 | 4,413 | -6.6% | - Gross margin increase was primarily due to **strong growth of revenues from music subscriptions and advertising services**, and the ramp-up of TME's own content[22](index=22&type=chunk) - Selling and marketing expenses decreased mainly due to reduced promotional expenses for social entertainment services[26](index=26&type=chunk) - General and administrative expenses decreased primarily due to reduced employee-related expenses and expenses related to the Hong Kong secondary listing incurred in 2022[26](index=26&type=chunk) [Operating Profit, Net Profit, and EPS (FY 2023)](index=6&type=section&id=Operating%20Profit%2C%20Net%20Profit%2C%20and%20EPS%20(FY%202023)) Operating profit for FY 2023 increased significantly by 36.4% YoY, driven by improved operating efficiency and cost controls, with net profit and non-IFRS net profit also showing strong double-digit growth, and diluted EPS reaching RMB3.11 | Metric | FY 2023 (RMB million) | FY 2022 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Operating Profit | 6,059 | 4,443 | +36.4% | | Net Profit | 5,220 | 3,839 | +36.0% | | Net Profit Attributable to Equity Holders | 4,920 | 3,677 | +33.8% | | Non-IFRS Net Profit | 6,223 | 4,907 | +26.8% | | Diluted EPS (RMB) | 3.11 | 2.27 | +37.0% | | Non-IFRS Diluted EPS (RMB) | 3.74 | 2.93 | +27.6% | [Other Corporate Information](index=7&type=section&id=Other%20Corporate%20Information) [Share Repurchase Program](index=7&type=section&id=Share%20Repurchase%20Program) As of December 31, 2023, TME had repurchased 25.3 million ADSs for a total consideration of US$174.5 million under its US$500 million Share Repurchase Program announced in March 2023 - Repurchased **25.3 million ADSs** for **US$174.5 million** under the **US$500 million Share Repurchase Program**[27](index=27&type=chunk) [Social Responsibilities](index=7&type=section&id=Social%20Responsibilities) TME collaborated with local governments and Tencent Charity in Q4 2023 to organize music events, such as the Shenzhen-Linzhi Music Festival, to promote cultural and economic development in ethnic minority regions and boost rural tourism - Collaborated with local governments and Tencent Charity to organize music events, like the 2023 Shenzhen-Linzhi Music Festival, to promote cultural and economic development in ethnic minority regions[28](index=28&type=chunk) [Exchange Rate Information](index=7&type=section&id=Exchange%20Rate%20Information) All RMB to USD translations in the announcement were made at a rate of RMB7.0999 to US$1.00, based on the noon buying rate on December 29, 2023, as per the Federal Reserve Board's H.10 statistical release - All translations from RMB to USD were made at the rate of **RMB7.0999 to US$1.00**, the noon buying rate in effect on December 29, 2023[29](index=29&type=chunk) [Non-IFRS Financial Measure Explanation](index=7&type=section&id=Non-IFRS%20Financial%20Measure%20Explanation) TME uses non-IFRS net profit to evaluate operating results and for financial decision-making, believing it helps identify underlying business trends by excluding certain expenses like amortization of intangible assets, share-based compensation, and net losses/gains from investments - Non-IFRS net profit helps identify underlying trends by excluding amortization of intangible assets, share-based compensation expenses, net losses/gains from investments, and related income tax effects[30](index=30&type=chunk)[33](index=33&type=chunk) - Non-IFRS net profit should not be considered in isolation or as an alternative to IFRS measures, and may not be comparable to similarly titled measures presented by other companies[31](index=31&type=chunk) [About Tencent Music Entertainment](index=8&type=section&id=About%20Tencent%20Music%20Entertainment) Tencent Music Entertainment Group is China's leading online music and audio entertainment platform, operating popular apps like QQ Music, Kugou Music, Kuwo Music, and WeSing, with a mission to create endless possibilities with music and technology - TME is the leading online music and audio entertainment platform in China, operating QQ Music, Kugou Music, Kuwo Music, and WeSing[34](index=34&type=chunk) - TME's mission is to create endless possibilities with music and technology, enabling users to discover, listen, sing, watch, perform, and socialize around music[34](index=34&type=chunk) [Safe Harbor Statement](index=8&type=section&id=Safe%20Harbor%20Statement) The press release contains forward-looking statements made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995, which involve inherent risks and uncertainties that could cause actual results to differ materially from expectations - The press release contains forward-looking statements made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[35](index=35&type=chunk) - Forward-looking statements involve inherent risks and uncertainties, and actual results could differ materially from those contained in any forward-looking statement[35](index=35&type=chunk) [Investor Relations Contact](index=8&type=section&id=Investor%20Relations%20Contact) Contact information for Tencent Music Entertainment Group's Investor Relations is provided for inquiries - Investor Relations Contact: ir@tencentmusic.com, **+86 (755) 8601-3388 ext. 818415**[36](index=36&type=chunk) [Financial Statements](index=9&type=section&id=Financial%20Statements) [Consolidated Income Statement](index=9&type=section&id=Consolidated%20Income%20Statement) The consolidated income statement provides a detailed breakdown of revenues, costs, expenses, and profits for both the fourth quarter and full year ended December 31, 2023, compared to the prior year | Metric | Q4 2023 (RMB million) | Q4 2022 (RMB million) | FY 2023 (RMB million) | FY 2022 (RMB million) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Online music services revenue | 5,022 | 3,559 | 17,325 | 12,483 | | Social entertainment services and others revenue | 1,871 | 3,866 | 10,427 | 15,856 | | Total revenues | 6,893 | 7,425 | 27,752 | 28,339 | | Cost of revenues | (4,252) | (4,978) | (17,957) | (19,566) | | Gross profit | 2,641 | 2,447 | 9,795 | 8,773 | | Total operating expenses | (1,266) | (1,361) | (5,018) | (5,557) | | Operating profit | 1,714 | 1,388 | 6,059 | 4,443 | | Profit for the period/year | 1,409 | 1,205 | 5,220 | 3,839 | | Profit attributable to equity holders | 1,306 | 1,151 | 4,920 | 3,677 | | Diluted Earnings per ADS (RMB) | 0.83 | 0.72 | 3.11 | 2.27 | [Unaudited Non-IFRS Financial Measure Reconciliation](index=11&type=section&id=Unaudited%20Non-IFRS%20Financial%20Measure%20Reconciliation) This section reconciles IFRS net profit to non-IFRS net profit for both the fourth quarter and full year 2023, detailing adjustments for amortization, share-based compensation, investment gains/losses, and related tax effects | Metric | Q4 2023 (RMB million) | Q4 2022 (RMB million) | FY 2023 (RMB million) | FY 2022 (RMB million) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Profit for the period/year (IFRS) | 1,409 | 1,205 | 5,220 | 3,839 | | Amortization of intangible and other assets | 111 | 126 | 445 | 498 | | Share-based compensation | 183 | 178 | 736 | 834 | | Losses/(gains) from investments | 23 | — | (7) | (141) | | Income tax effects | (48) | (17) | (171) | (123) | | Non-IFRS Net Profit | 1,678 | 1,492 | 6,223 | 4,907 | | Non-IFRS Net Profit Attributable to Equity Holders | 1,575 | 1,438 | 5,923 | 4,745 | | Non-IFRS Diluted EPS (RMB) | 1.00 | 0.91 | 3.74 | 2.93 | [Consolidated Balance Sheet](index=13&type=section&id=Consolidated%20Balance%20Sheet) The consolidated balance sheet presents TME's financial position as of December 31, 2023, and December 31, 2022, detailing assets, equity, and liabilities | Metric | As of Dec 31, 2023 (RMB million) | As of Dec 31, 2022 (RMB million) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Total assets | 75,536 | 67,009 | | Total equity | 57,202 | 49,127 | | Total liabilities | 18,334 | 17,882 | | Cash and cash equivalents | 13,567 | 9,555 | | Term deposits (Non-current) | 8,719 | 6,530 | | Term deposits (Current) | 9,937 | 11,291 | | Financial assets at fair value through other comprehensive income | 6,540 | 3,168 | [Condensed Consolidated Statements of Cash Flows](index=15&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The condensed consolidated statements of cash flows provide an overview of cash generated from operating, investing, and financing activities for both the fourth quarter and full year ended December 31, 2023 | Metric | Q4 2023 (RMB million) | Q4 2022 (RMB million) | FY 2023 (RMB million) | FY 2022 (RMB million) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Net cash provided by operating activities | 1,977 | 2,494 | 7,337 | 7,481 | | Net cash used in investing activities | (193) | (1,108) | (1,863) | (1,446) | | Net cash used in financing activities | (576) | (383) | (1,538) | (3,419) | | Net increase in cash and cash equivalents | 1,208 | 1,003 | 3,936 | 2,616 | | Cash and cash equivalents at end of period/year | 13,567 | 9,555 | 13,567 | 9,555 |

Financial Data and Key Metrics Changes - In Q3 2023, total revenues were RMB6.6 billion, down 11% year-over-year, primarily due to a decline in social entertainment services [20][23] - Online music revenues increased by 33% to RMB4.6 billion year-over-year, driven by strong growth in music subscription and advertising [20] - Music subscription revenues reached RMB3.2 billion, up 42% year-over-year, with a paying user base growing to 103 million, a 21% increase [21] - Monthly ARPPU was RMB10.3, marking a 17% year-over-year increase and a record high [21][24] - Gross margin improved to 35.7%, up 3.1 percentage points year-over-year, due to strong subscription and advertising revenue growth [24][40] Business Line Data and Key Metrics Changes - The online music subscription business showed accelerated growth, with a significant increase in both subscriber base and ARPPU [6][21] - Advertising revenues achieved strong growth, supported by innovative ad formats and music IPs attracting advertisers [22] - Social entertainment services revenues were RMB2 billion, down 49% year-over-year, due to adjustments in live streaming functions [23] Market Data and Key Metrics Changes - The company reported a strong performance in the online music market, with a focus on expanding partnerships with artists and labels [7][8] - The advertising market for music services is becoming increasingly competitive, with a diversified product portfolio attracting various brands [22] Company Strategy and Development Direction - The company is focusing on enhancing its music ecosystem, diversifying revenue streams, and improving operational efficiencies [31][34] - There is an emphasis on leveraging AI technologies to enhance user experience and operational efficiency [14][19] - The company aims to stabilize its social entertainment business while continuing to grow its core online music services [33][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of core businesses amid macroeconomic challenges, expecting continued growth in online music subscriptions and advertising [31][34] - The company anticipates a stable external environment will support top-line growth and margin expansion in 2024 [32][34] Other Important Information - The company has initiated a share repurchase program of $500 million, with approximately $103 million repurchased as of September 30, 2023 [27][60] - The company is committed to investing in new products, high-quality content, and technology to support long-term growth [28][60] Q&A Session Summary Question: Expectations for online music revenue growth in 2024 - Management expects stable growth in online music revenue driven by subscription growth and ARPPU expansion, with additional revenue from advertising and new initiatives [31][32] Question: ARPPU growth trajectory - Management is confident in maintaining ARPPU growth, supported by attractive membership benefits and effective operational strategies [36][37] Question: Gross margin trends - Management noted that gross margin has improved due to strong subscription and advertising revenue growth, with expectations for continued improvement [39][41] Question: Online music subscription business outlook - Management anticipates good growth for the subscription business in Q4, with a focus on advertising revenue during the Double 11 shopping festival [44][45] Question: AI and LLM strategies - Management plans to leverage existing AI technologies to enhance user experience and operational efficiency, with a focus on application-driven solutions [49][51] Question: Sales and marketing strategy moving forward - Management will continue to manage sales and marketing expenses efficiently while investing in music channel business and offline events [53][54] Question: IoT membership expansion - Management is focusing on healthy growth in IoT services, particularly in the in-car service sector, with plans to convert users into paying customers [56][57] Question: Shareholder returns and buyback program - Management will continue to monitor market conditions for potential further share repurchase opportunities to enhance shareholder value [60][61]

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

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]

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 ...