On November 14, 2023, Tencent Music Entertainment Group (TME), a Chinese online music and audio entertainment platform, released its unaudited financial results for the third quarter ended September 30, 2023.
According to financial report data, TME's total revenue for the quarter was 6.57 billion yuan, a year-on-year decrease of 10.8%, mainly due to a decrease in social entertainment services and other revenue. The net profit was 1.26 billion yuan, a year-on-year increase of 15.6%. The net profit attributable to the company's shareholders was 1.17 billion yuan, a year-on-year increase of 10.1%. The non IFRS net profit was 1.5 billion yuan, a year-on-year increase of 6.5%. According to non international financial reporting standards, the net profit attributable to the company's shareholders was 1.41 billion yuan, a year-on-year increase of 2.1%. Diluted ADS earnings per share are 0.74 yuan.
Peng Jiaxin, Executive Chairman of Tencent Music and Entertainment Group, stated that the group's two wing strategy of integrating content and platform continues to produce positive results. In the third quarter, online music services achieved growth again, buffering the income pressure brought by the adjustment of social entertainment services. Driven by the continuous expansion of subscription user scale and per capita income of individual paying users, online music subscription revenue has accelerated year-on-year growth.
The decline in revenue from social entertainment services remains a constraint on TME's overall revenue for the quarter. The financial report shows that TME's revenue from social entertainment services and other services decreased by 48.8% from 3.94 billion yuan in the same period of 2022 to 2.02 billion yuan. The main reason for the decrease is that the group has made adjustments to certain live streaming interactive functions and implemented multiple service enhancements and risk control measures, thereby strengthening compliance procedures.
In addition, online music service revenue increased by 32.7% year-on-year to 4.55 billion yuan. This growth is mainly driven by the increase in music subscription revenue and advertising service revenue. The music subscription revenue was 3.19 billion yuan, a year-on-year increase of 42.0%, compared to 2.25 billion yuan in the same period of 2022. This growth is mainly driven by the base of online music paying users and the further expansion of ARPPU.
Specifically, the number of TME online music paid users increased by 20.8% year-on-year in the quarter, reaching 103 million, and the monthly ARPPU (average revenue per paid user) increased to 10.3 yuan, marking the sixth consecutive quarter of growth and reaching a new historical high. The growth in the number of paid users and ARPPU is mainly attributed to membership privileges, interactive product features, attractive music content, strict promotion and membership acquisition strategies, and high user retention rates. The year-on-year growth in advertising revenue is mainly due to the group providing a more diverse product portfolio and innovative advertising forms.
In terms of cost, TME's revenue and cost decreased by 14.8% year-on-year to 4.23 billion yuan in the quarter. The main reason for the decrease is the decrease in social entertainment service revenue, which leads to a decrease in revenue sharing fees, partially offset by the increase in content costs of royalties and advertising agency fees. The gross profit margin also increased by 3.1% to 35.7% from 32.6% in the same period in 2022, mainly due to the increase in music subscription and advertising service revenue, as well as the increase in self-made content.
The total operating expenses decreased by 11.8% year-on-year to 1.27 billion yuan, and the proportion of operating expenses to total revenue decreased from 19.5% in the same period of 2022 to 19.3%. The sales and marketing expenses were 219 million yuan, a year-on-year decrease of 10.6%. General and administrative expenses were 1.05 billion yuan, a year-on-year decrease of 12.0%. This decrease is mainly due to the improvement in employee efficiency and the reduction in employee related expenses related to the Hong Kong secondary listing in the same period of 2022.
Driven by effective cost control and improved operational efficiency, TME's operating profit increased to 1.43 billion yuan in the third quarter of 2023, a year-on-year increase of 13.0%. However, it should be noted that the monthly active users of TME online music services in the quarter decreased by 4.2% year-on-year to 594 million, while the monthly active users of mobile social entertainment services decreased by 16.8% year-on-year to 129 million. However, the number of paid users continues to rise, with the number of paid users for online music services increasing by 20.8% year-on-year to 103 million, and the number of paid users for social entertainment services increasing by 5.4% year-on-year to 07.8 million.
As of September 30, 2023, the total balance of the company's cash, cash equivalents, and fixed deposits was 30.96 billion yuan, compared to 30.5 billion yuan as of June 30, 2023.
The Hong Kong stock market closed today at HKD 28.2, down 0.53%; The US stock price rose 0.27% to $7.45 before trading.