Tencent Music’s revenue in the first quarter was 6.64 billion yuan, net profit fell 34% year-on-year, and online music paying users reached 80.2 million

Beijing time on May 17, Tencent Music today announced the company’s unaudited financial report for the first quarter of fiscal 2022 ended March 31. The report shows that Tencent Music’s total revenue in the first quarter was 6.64 billion yuan (about 1.05 billion U.S. dollars), a decrease of 1.18 billion yuan compared with 7.82 billion yuan in the same period last year.A year-on-year decrease of 15.1%; net profit attributable to shareholders of the company was RMB 609 million (approximately US$ 96 million),A decrease of 34% compared to RMB 926 million in the same period last year.

According to data provided by the Yahoo Finance website, 10 Wall Street analysts had previously expected, on average, based on non-IFRS calculations, Tencent Music’s first-quarter earnings per share would reach $0.07. According to the financial report, excluding the amortization of intangible assets and other assets arising from business combinations, share-based compensation expenses, net investment losses/gains and income tax effects, Tencent Music’s first-quarter non-IFRS diluted earnings per American depositary share It was 0.54 yuan ($0.09), beating analysts’ expectations.

In addition, 12 analysts on Wall Street had expected on average that Tencent Music’s revenue in the first quarter would reach 1.23 billion US dollars. According to the financial report, Tencent Music’s total revenue in the first quarter was 6.64 billion yuan (about 1.05 billion US dollars), which was lower than analysts’ expectations.

Financial and operational highlights:

– Tencent Music’s first-quarter net profit was RMB 649 million (approximately US$102 million). Tencent Music’s first-quarter non-IFRS net profit (excluding amortization of intangible assets and other assets arising from business combinations, share-based compensation expenses, net investment losses/gains and income tax effects) was RMB 939 million (approximately $148 million), an increase of 7.6% compared to the previous quarter.

– Tencent Music’s total revenue in the first quarter was 6.64 billion yuan (about 1.05 billion U.S. dollars), a decrease of 15.1% compared with the same period last year;

– Tencent Music’s revenue from music subscription services in the first quarter was RMB 1.99 billion (approximately US$314 million), an increase of 17.8% compared to the same period last year.

– Tencent Music’s online music service had 80.2 million paying users in the first quarter, up 31.7% from the same period last year. Compared with the previous quarter, Tencent Music increased the number of paying users of its online music service by 4 million in the first quarter. Tencent Music’s online music service payment rate was 13.3% in the first quarter, up from 12.4% and 9.9% in the fourth and first quarters of fiscal 2021, respectively;

– Tencent Music’s first-quarter net profit attributable to shareholders of the company was RMB 609 million (approximately US$ 96 million). Tencent Music’s first-quarter non-IFRS net profit attributable to shareholders of the company (excluding amortization of intangible assets and other assets arising from business combinations, share-based compensation expenses, net investment losses/gains and income tax effects) was RMB 899 million Yuan (approximately $142 million).

Peng Jiaxin, Executive Chairman of Tencent Music Entertainment Group, said: “Based on the continuous deepening of the content and platform ‘one body and two wings’ strategy, our online music subscription revenue in the first quarter achieved a healthy growth of 18% year-on-year, with more than 8,000 online music paying users. 10,000. Our efforts in optimizing the cost structure and improving the efficiency of business operations have also achieved initial results, and the company’s profitability has improved month-on-month. In this era of increasing entertainment methods, we firmly believe that those companies that can provide users with a differentiated experience , has the ability to continue to maintain its advantages. We are also pleased to see that the company’s long-term investment in the original content production support system and Tencent’s musician platform continues to bring benefits to our users, musicians and the overall content ecosystem. We are also Through these initiatives, we will continue to move towards our long-term strategic goals and continuously create more value for the music industry.”

Liang Zhu, CEO of Tencent Music Entertainment Group, said: “In the first quarter of 2022, we will continue to build an immersive music entertainment ecosystem and actively bring more innovative possibilities for music lovers to listen, watch, sing and play. We continue to refine to meet the individual needs of multi-level groups, and deepen the sense of identity and belonging between products and users. We have also further strengthened the all-round linkage with Tencent’s ecology, and the benefits are becoming more and more significant. In addition, we also provide users with More differentiated long audio content, and are committed to continuing to improve the commercialization efficiency of this business through the membership model. Looking ahead, we will continue to enhance the differentiation and specialization of our ecosystem, content, products and services, and more It is a good way to provide high-quality services for music lovers, music creators and the entire music industry, and further unleash the infinite possibilities of music.”

Business Highlights:

– Mobile MAU (monthly active users) of Tencent Music’s online music service in the first quarter was 604 million, a decrease of 1.8% compared to 615 million in the same period last year;

– Tencent Music’s mobile MAU for social entertainment services in the first quarter was 162 million, down 27.7% from 224 million in the same period last year;

– The number of paying users of Tencent Music’s online music service in the first quarter was 80.2 million, an increase of 31.7% compared to 60.9 million in the same period last year;

– The number of paying users of Tencent Music’s social entertainment services in the first quarter was 8.3 million, down 26.5% from 11.3 million in the same period last year;

– The monthly ARPPU (average revenue per paying user) of Tencent Music’s online music services in the first quarter was RMB 8.3, a decrease of 10.8% from RMB 9.3 in the same period last year;

– The monthly ARPPU of Tencent Music’s social entertainment services in the first quarter was RMB 161.8, an increase of 8.1% compared to RMB 149.7 in the same period last year.

In the first quarter of 2022, thanks to high-quality content and services, effective promotions and increased loyalty of paying users, the Company’s online music paying users continued to achieve strong year-on-year and quarter-on-quarter growth, reaching a new breakthrough of 80.2 million. Although the company’s online music mobile MAU decreased slightly year-on-year due to the temporary loss of some light users and the reduction of promotion expenses due to the company’s prudent cost control.

In the first quarter of 2022, affected by the intensified competition in the industry and changes in the macro environment, the company’s social entertainment MAU and paying users both decreased year-on-year, but the company will continue to carry out product innovation and strengthen its audio live broadcast, business overseas and virtual interactive content. We will continue to improve the competitiveness of the company by exploring more vertical fields of social entertainment.

Through the Tencent Musician Platform, the company provides a full range of services for up-and-coming musicians to help them show their talents and achieve their musical dreams.

Established a sustainable and diversified commercial model for musicians, helping them to achieve a more stable life while focusing on honing their skills. In the past 12 months, Tencent Musicians have distributed over RMB 200 million in income incentives to musicians.

A new behind-the-scenes producer service was launched, with more than 100,000 creators joining in the first quarter; at the same time, customized self-service operation tools were provided for musicians to effectively improve the efficiency of musicians’ creation and exposure.

Based on the rich creative scene and strong online and offline promotion resources, we will continue to support high-quality music talents with ideal aspirations such as Liu Shuang and Qian Runyu, and accelerate their career growth and continuous breakthrough.

Based on a sound original content production support system that systematically creates, evaluates and promotes musical works, the company’s support capability for original content production continues to increase.

With the support of QQ Music’s “Galaxy Project” and Kugou Music’s “Xingyao Project”, the company is committed to using technology to fully support the production, distribution, promotion and other stages of original content. Core aspects such as singer mining help the content to enhance the value. In the first quarter, the company brought a series of original hits to music fans, including “Mirage” and “Dive”, which were huge hits upon release, topping multiple music charts and both In the first quarter, it achieved a peak of over 13 million daily broadcasts.

The original content launched by the company in core vertical categories such as game music, national style music and pop music is among the best both inside and outside the platform. In the first quarter, the company cooperated with popular games such as “Peace Elite”, “Honor of Kings” and “League of Legends Mobile Games” under Tencent Games, and produced original songs sung by well-known singers such as Hua Chenyu, Chen Linong, Mao Buyi and Huang Zitao. These songs have achieved good results at the top of the chart.

Through its Tencent Music Chart, the company further lays a solid foundation for the new infrastructure of the industry and promotes the healthy and sustainable development of the industry. In the first quarter, the company released the annual inventory of Tencent Music Chart. Through the data scoring and professional evaluation of more than 1,800 songs, it comprehensively, truthfully, fairly and objectively reflected the whole picture of the Chinese music scene in 2021. It has attracted extensive attention and heated discussions among professionals and music lovers.

Based on the platform strategy of “one body and two wings”, the company continues to enhance the four pillars of music entertainment “listening, watching, singing and playing”, creating a more immersive user experience for users, and deepening the implementation of the company’s commitment to continuous product innovation .

Listening: It is the first in China to launch three professional playback functions, which significantly improve sound quality, balance music volume, and bring users a smoother music listening experience. By the end of the first quarter, driven by the optimization algorithm, the penetration rate of intelligent recommendation of the company’s QQ Music reached a new high. The upgraded music index function also greatly enhances the user’s sense of participation.

Look: Continue to strengthen the deepening linkage with WeChat video accounts, and launch a large-scale live-benefit event of “Spring Concert”, to create more active music scenes for artists and musicians during the epidemic, and to help them enhance their music promotion capabilities. . In addition to video, the company’s platforms have continued to improve images and more visualizations, such as comment display and play page animation.

Singing: The company has launched the industry’s first external sound repair and cloud mixing functions, which greatly improves the effect of users’ recorded and singing works.

Play: Continue to upgrade the TMELAND experience, and plan to launch special events such as virtual concerts in this virtual music carnival scene in the second quarter. In addition, the company has also opened special virtual rooms for singers and musicians, for example, recently opened a VR room for Jay Chou and Wang Yuan, etc., to realize the continuous integration of user listening experience and VR interactive experience.

Long audio: By activating the podcast ecosystem and strengthening joint operations with popular IPs, the company continues to expand its differentiated long audio content matrix, and helps mid-waist and long-tail podcasts thrive in the TME ecosystem. Take the podcast Lao Shiqi’s audio novel “Notes on Tomb Robbers from the Northern School” as an example. The work has received 23 million views in just one month after it was launched on the platform.

The company continues to be committed to fulfilling its social responsibilities. In the first quarter, on World Autism Day, the company launched the “If Music Has Shape” music care special plan, and launched TME’s first music public welfare digital collection “The Most Beautiful Star”, through different online and offline content and art forms. , so that music can not only be heard, but also seen and treasured, and advocates more social attention and love connection for the autistic group.

financial analysis:

Revenue:

Tencent Music’s total revenue in the first quarter was 6.64 billion yuan (about 1.05 billion U.S. dollars), a decrease of 1.18 billion yuan compared with 7.82 billion yuan in the same period last year, a decrease of 15.1% year-on-year.

– Tencent Music’s revenue from online music services in the first quarter was RMB 2.62 billion (approximately US$413 million), down 4.8% from RMB 2.75 billion in the same period last year. Tencent Music’s music subscription service revenue in the first quarter was RMB 1.99 billion (approximately US$314 million), an increase of 17.8% compared with RMB 1.69 billion in the same period last year, mainly due to a 31.7% year-on-year increase in the number of paying users . ARPPU of online music service dropped to RMB 8.3 in the first quarter from RMB 9.3 in the same period last year, mainly due to the company’s promotional activities to attract users. Tencent Music focuses on high-quality growth in subscription revenue while maintaining stable ARPPU. Revenue from advertising declined year-on-year due to the impact of industry adjustments on open-screen advertising and the COVID-19 outbreak in some major cities. Relicensing revenue also declined year-over-year due to restructuring of agreements with certain labels.

Tencent Music’s revenue from social entertainment services and other businesses in the first quarter was 4.03 billion yuan ($635 million), down 20.6% from 5.08 billion yuan a year earlier. Compared to the same period in 2021, the ARPPU of social entertainment services increased by 8.1% in the first quarter of 2022, while the number of paying users decreased by 26.5%, mainly due to changes in the macro environment and competition from other pan-entertainment platforms exacerbated impact.

Cost of Revenue:

Tencent Music’s cost of revenue in the first quarter was 4.78 billion yuan (about 755 million U.S. dollars), a decrease of 10.7% compared with 5.36 billion yuan in the same period last year. The decline was primarily due to lower revenue share fees and agency fees due to lower revenue from social entertainment services and advertising services, while the revenue share ratio remained stable year-over-year. Content costs have also declined due to increased efficiency.

Gross profit:

Tencent Music’s first-quarter gross profit was 1.86 billion yuan ($293 million), down 24.6% from 2.47 billion yuan a year earlier. Tencent Music’s gross profit margin in the first quarter was 28.0%, compared to 31.5% in the same period last year, a year-on-year decrease of 3.5%. The decline in gross profit margin was primarily due to an increase in online music revenue as a percentage of revenue, which typically has lower gross profit margins.

Operating expenses during the period:

Tencent Music’s total operating expenses in the first quarter were RMB 1.34 billion (approximately US$ 212 million), a decrease of 13.7% from RMB 1.56 billion in the same period last year. Tencent Music’s operating expenses as a percentage of total revenue in the first quarter were 20.2%, compared to 19.9% ​​a year earlier. After deducting the impact of post-acquisition awards, equity award expenses and amortization of intangible assets from the acquisition of Lazy Audio, Tencent Music’s operating expenses as a percentage of total revenue decreased by 0.4% year-on-year in the first quarter.

– Tencent Music’s sales and marketing expenses in the first quarter were RMB 330 million (approximately US$52 million), a decrease of 50.9% compared to RMB 672 million in the same period last year. The decrease was mainly due to the enhanced control over marketing expenses and the optimization of the overall promotion structure to improve operational efficiency. Tencent Music continues to effectively manage the efficiency of external promotion channels and better utilize internal traffic to attract users and promote the company’s brand.

Tencent Music’s general and administrative expenses in the first quarter were RMB 1.01 billion (approximately US$160 million), an increase of 14.6% compared to RMB 883 million in the same period last year. This growth is mainly due to the company’s increased investment in research and development to expand its competitive advantage in product and technological innovation. At the same time, Tencent Music is closely monitoring employee-related expenses and improving staffing efficiency. Post-acquisition awards, share-based award expenses and amortization of intangible assets from the Lazy Audio acquisition also contributed to the increase in general and administrative expenses.

Operating profit for the period:

Tencent Music reported operating profit of 749 million yuan ($118 million) in the first quarter, compared with 1.16 billion yuan in the same period a year earlier.

Income tax expense

Tencent Music’s effective tax rate was 12.2% in the first quarter, compared to 11.5% in the same period in 2021. The increase in the effective tax rate is mainly due to the different tax benefits that some of the company’s entities enjoy in 2021 and 2022. The effective tax rate represents Tencent Music’s specific estimate of the tax liability and benefits applicable to the company each quarter.

Net profit and non-IFRS net profit for the period:

Tencent Music’s first-quarter net profit attributable to shareholders of the company was 609 million yuan ($96 million), down 34 percent from 926 million yuan a year earlier. Tencent Music’s first-quarter non-IFRS net profit attributable to shareholders of the company (excluding amortization of intangible assets and other assets arising from business combinations, share-based compensation expenses, net investment losses/gains and income tax effects) was RMB 899 million Yuan (approximately US$142 million), compared with RMB 1.18 billion in the same period last year.

Loss per ADS:

Basic and diluted earnings per ADS for Tencent Music in the first quarter were RMB 0.37 (approximately US$0.06) and RMB 0.37 (approximately US$0.06), respectively. Excluding amortization of intangible assets and other assets arising from business combinations, share-based compensation expense, net investment loss/gain and income tax impact, Tencent Music’s first-quarter non-IFRS basic and diluted earnings per ADS, respectively RMB 0.55 (~$0.09) and RMB 0.54 (~$0.09). During the first quarter, Tencent Music’s weighted average total outstanding ADSs (basic) and weighted average total outstanding ADSs (diluted) were 1.64 billion and 1.65 billion, respectively. Each ADS of Tencent Music represents 2 Class A ordinary shares.

Cash and Cash Equivalents:

As of March 31, 2022, Tencent Music held cash, cash equivalents, term deposits and short-term investments totaling RMB 25.93 billion (approximately US$4.09 billion), compared to RMB 25.93 billion as of December 31, 2021 24.69 billion yuan. The increase in total cash, cash equivalents, term deposits and short-term investments was mainly due to cash flow from business operations reaching RMB 2.49 billion (approximately US$ 393 million), which was used for land use rights and share repurchases. partially offset by cash. The above consolidated balances were also affected by changes in the exchange rate of RMB against the US dollar on different balance sheet dates. On March 31, 2022, the exchange rate of RMB against the US dollar was 6.3393 to 1.

Share Repurchase Program:

According to the 2022 share repurchase plan announced by Tencent Music on March 28, 2021, as of the date of this financial report, Tencent Music has repurchased approximately 73.3 million American depositary shares from the open market with cash for repurchase The total amount is approximately US$674 million.

telephone conference:

After the release of the earnings report, the Tencent Music management team will hold an earnings conference call at 8:00 pm EST on May 16 (8:00 am Beijing time on May 17). The phone numbers to listen to the conference call are as follows:

United States: +1-888-317-6003

International: +1-412-317-6061

Mainland China: 400-120-6115

Hong Kong, China: 800-963-976

Access code: 2636670

Until May 23, 2022, a recording of the conference call can be accessed by calling:

United States: +1-877-344-7529

International: +1-412-317-0088

Access code: 4475331

In addition, the Tencent Music Investor Relations Channel https://ir.tencentmusic.com/ will conduct a webcast of the conference call and provide a recording.

Share price reaction:

On the same day, Tencent Music shares rose $0.05 in regular trading on the New York Stock Exchange to close at $4.15, or 1.22%. In subsequent after-hours trading as of 5:43 p.m. ET Monday (5:43 a.m. Beijing time on Tuesday), Tencent Music shares rose again by $0.06, or 1.45%, to $4.21. In the past 52 weeks, Tencent Music’s highest price was $16.53 and its lowest price was $2.95.