Interface News Reporter | Zhang Youfa
After four quarters of declining revenue, Tencent Music has returned to growth.
On November 12th, Tencent Music announced its latest financial report. As of September 30, 2024, the company's total revenue for the third quarter was 7.02 billion yuan, a year-on-year increase of 6.8%; The adjusted net profit was 1.94 billion yuan, a year-on-year increase of 29.1%, which was basically the same as the profit in the second quarter. The gross profit margin increased from 35.7% in the same period of 2023 to 42.6%.
After four consecutive quarters of year-on-year decline, Tencent Music's revenue has begun to recover and grow. The revenue in the previous second quarter decreased by 1.7% year-on-year, indicating a narrowing trend compared to the decline in revenue in the first quarter (a year-on-year decrease of 3.4%). However, compared to the total revenue of 7.16 billion yuan in the second quarter, Tencent Music's third quarter revenue showed a month on month decline.
Online music services are a key factor in Tencent Music's year-on-year revenue growth, with a year-on-year increase of 20.4% to 5.48 billion yuan, and a slight increase compared to the 5.42 billion yuan in the second quarter.
However, the financial report also acknowledges the strong year-on-year growth in online music service revenue, partially offset by declines in social entertainment services and other revenue. In the third quarter, Tencent Music's social entertainment services and other revenue decreased by 23.9% year-on-year to 1.54 billion yuan. However, compared to the first and second quarters, the year-on-year decline in this portion of revenue has narrowed.
The explanation for the continuous decline in revenue in this part of the financial report is mainly due to the adjustment of certain live interactive functions and the implementation of stricter compliance procedures, which is also in line with the company's consistent statement.
Specifically in terms of content ecology, Tencent Music has strengthened its cooperation with top record companies. During the financial reporting period, it renewed contracts with LeHua Entertainment Group and Elephant Music Group, and reached a strategic partnership with Galaxy Corporation to increase its focus on Korean pop music content, including digital albums, merchandise, and G-Dragon's multi-year concert hosting rights in Asia and other regions.
In September, Tencent Music held the Zebra Music Festival, with Chen Chusheng, Jacky Xue, Zhang Yuan and other leading artists, as well as Zhao Lei, Suede Goatskin Band and Tencent musician Liu Shuang.
In the third quarter, the number of paid users of Tencent Music increased by 15.5% year-on-year to 119 million, and has maintained continuous growth in all three quarters of this year.
This year, higher priced SVIP (Super VIP) is a key focus of Tencent Music. The most important factor contributing to the growth of ARPPU (average monthly revenue per paying user) is the plan to launch SVIP in the future, "said a Tencent Music executive at the second quarter financial report
The main membership types of QQ Music include Luxury Green Diamond Members and SVIP Super Members. The former is a relatively basic membership service, while the latter provides more privileges, including activating the three major members of Luxury Green Diamond, Listening to Books, and National K-song. The current QQ Music SVIP subscription price is 40 yuan/month, with discounts for consecutive monthly, seasonal, and annual subscriptions.
This quarter, Tencent Music's ARPPU has further increased to 10.8 yuan, and SVIP has also gained a certain scale. As of the end of September 2024, the number of Tencent SVIP users has exceeded 10 million, higher than market expectations, but the penetration rate only accounts for 1.38% of the total monthly active users, indicating significant room for improvement.
Interface Entertainment has previously analyzed that from a longer-term perspective, Tencent Music's revenue structure is in the midst of a period of transition. In 2019, social entertainment services contributed over 70% of Tencent Music's revenue. In the second quarter of last year, the platform's online music services surpassed the revenue contribution of social entertainment services for the first time.
The platform is still continuously controlling costs. The total operating expenses of Tencent Music in this quarter decreased by 3.9% year-on-year to RMB 1.22 billion, and the percentage of operating expenses to total revenue decreased from 19.3% in the same period of 2023 to 17.4%.
From the performance of this quarter, Tencent Music's transformation progress is relatively stable, and the performance of online music services and the development of SVIP are in line with previous goals. However, with the overall saturation of the online music market, Tencent Music still needs to continue exploring paid users in order to maintain its growth momentum.