Tencent Music (01698) disclosed its Q3 2024 report, achieving a total operating revenue of 7.015 billion yuan, a year-on-year increase of 6.79%, a net profit of 1.709 billion yuan, a year-on-year increase of 35.31%, and a gross profit margin of 42.64%, up from 35.65% in the same period last year.
Tencent Music includes two major categories: online music services and social entertainment services. The former includes subscriptions, digital albums, advertisements, etc., while the latter includes karaoke, live streaming, and other businesses. According to the data, due to the rectification of live streaming, the revenue scale of social entertainment services has continued to shrink since June 2023. As of the end of this quarter, its proportion of total revenue has decreased from 30.69% in the same period last year to 21.88%, a decrease of 8.81 percentage points.
It should be pointed out that in the first half of 2024, the social entertainment service business experienced a brief stabilization, with quarterly revenues of 1.761 billion yuan and 1.736 billion yuan, respectively, increasing by -12.65% and -1.42% month on month. The number of monthly active users, number of paying users, and average monthly revenue per paying user also stabilized in the second quarter, while the decline rate of the three core data significantly narrowed in the second quarter of 2024.
However, in the third quarter of 2024, Tencent Music's social entertainment service business declined again after a brief period of stabilization, with its revenue decreasing by 11.58% month on month to 1.535 billion yuan. From the perspective of core operational data, the main reason for the decline in social entertainment revenue is the decrease in monthly average revenue per paying user, which decreased from 73.20 yuan in the previous quarter to 64.80 yuan.
In addition to the rectification factors of the live broadcast industry, the deep reason for the decline of the company's social entertainment service revenue is that the live broadcast market share is gradually concentrating on Tiktok and Kwai. In recent years, the income scale of live broadcast platforms Tiger Teeth and Betta has continued to decline, and popular anchors on both platforms have also turned to Tiktok and Kwai. According to statistics, from 2023 to now, the anchors from Tiger Teeth, Douyu Job hopping to Tiktok and Kwai include Xu Xu Baobao, Feng Timo, Zhang Daxian, Doinb, Dragon Cat, I'm Da Kunkun, etc.
However, as the proportion of Tencent Music's revenue from live streaming based social entertainment services has dropped to around 20%, the impact of this business change on the company's overall performance is also weakening.
Tencent Music's online music service business has performed steadily and offset the impact of the decline in social entertainment services on performance. In the second and third quarters of 2024, its revenue was 7.16 billion yuan and 7.015 billion yuan, respectively, with year-on-year growth of 27.65% and 20.36%, respectively. It should be noted that the month on month growth rate of the company's online music service revenue has significantly slowed down, with values of 8.33% and 1.03% respectively during the same period.
From the data perspective, as the "quantity and price" of online music service business, in the second and third quarters of 2024, the month on month growth rate of the number of paying users was 3.08% and 1.71% respectively, and the month on month growth rate of the average monthly revenue of paying users was 0.94% and 0.93% respectively. Therefore, the slowdown in the growth of the two core data is the main reason for the weakness in the music service business.
In addition, Tiktok soda music has had a certain impact on Tencent Music's online music service business. In the first three quarters of 2024, the decline of the iPhone end of soda music was 20.69 million, compared with 13.15 million in the same period last year.
Relatively optimistic is that Tencent Music's online music service has a monthly active user base of 576 million, but the payment rate is only 20.66%, indicating that there is still room for improvement in the payment rate.