On the afternoon of November 14th, before the US stock market, Tencent Music Entertainment Group (TME) released its unaudited financial results for the third quarter ended September 30, 2023. Affected by the decline in social entertainment service revenue, its total revenue decreased by 10.8% year-on-year to 6.57 billion yuan (RMB, the same below); The net profit was 1.26 billion yuan, a year-on-year increase of 15.6%, while the non IFRS net profit was 1.5 billion yuan, a year-on-year increase of 6.5%.
Peng Jiaxin, Executive Chairman of Tencent Music Entertainment Group, stated: The two wing strategy of integrating content and platform continues to produce positive results. In the third quarter, online music services once again achieved strong growth, buffering the revenue pressure brought by the adjustment of social entertainment services. As our music ecosystem continues to develop and grow, our business structure becomes more resilient, and our group profit margin has also been steadily improved. These achievements further unleash the value of music, laying the foundation for the company's long-term sustainable and high-quality development
Social entertainment service revenue has decreased by nearly 50%, and music subscription business has risen
Online music, social entertainment services, and others are Tencent Music Entertainment's two main businesses, accounting for 69.3% and 30.7% of revenue in the third quarter, respectively. Social entertainment services and others, which previously contributed more than half of revenue, experienced a significant year-on-year decline of 48.8% due to the implementation of multiple risk control and compliance measures in this quarter.
Specifically, social entertainment services and other income decreased by 48.8% from 3.94 billion yuan in the same period of 2022 to 2.02 billion yuan. A reporter from Shell Finance flipped through the financial report and found that the average monthly active users and ARPPU (average revenue per paid user) of its social entertainment service showed a year-on-year decrease of 16.8% and 51.4%, respectively. Only the number of paid users maintained a year-on-year growth of 5.4%. It is worth noting that the average revenue per paid user of social entertainment services in the third quarter decreased from 177.3 yuan in the same period last year to 86.2 yuan, which has had a huge impact on the revenue of social entertainment services.
On the other hand, Tencent Music Entertainment's online music revenue in the third quarter was 4.55 billion yuan, a year-on-year increase of 32.7%. This is mainly due to the growth of music subscription revenue and advertising service revenue. Among them, music subscription revenue increased by 42.0% year-on-year to 3.19 billion yuan, from 2.25 billion yuan in the same period last year; The year-on-year growth in advertising revenue is mainly due to Tencent Music Entertainment providing a more diversified product portfolio and innovative advertising forms.
According to financial report data, although the number of online music users of Tencent Music Entertainment decreased by 4.2% in the third quarter, the number of paid users increased by 20.8% year-on-year to 103 million, and ARPPU (average revenue per paid user) also increased by 17% to 10.3 yuan, both of which jointly contributed to the growth of music subscription revenue.
Cost control is appropriate, but revenue decreases but profits
In the third quarter, Tencent Music Entertainment adopted good cost control measures, and although total revenue decreased, net profit achieved a year-on-year growth of 15.6%.
Specifically, Tencent Music Entertainment's revenue and cost in the third quarter decreased by 14.8% year-on-year to 42 The decrease of 300 million yuan is mainly due to the decrease in revenue sharing expenses caused by the decrease in social entertainment service revenue, which is partially offset by the increase in content costs such as franchise fees and advertising agency fees.
In terms of operations, Tencent Music Entertainment's total operating expenses in the third quarter decreased by 11.8% year-on-year to 1.27 billion yuan, and the percentage of operating expenses in total revenue also decreased from 19.5% in the same period last year to 19.3%. Among them, sales and marketing expenses were 219 million yuan, a year-on-year decrease of 10.6%; The general and administrative expenses were 1.05 billion yuan, a year-on-year decrease of 12.0%.
As of September 30, 2023, the total balance of cash, cash equivalents, and fixed deposits of Tencent Music Entertainment was 30.96 billion yuan, compared to 30.5 billion yuan as of June 30, 2023.
According to the $500 million stock repurchase plan announced on March 21, 2023, as of September 30, 2023, Tencent Music Entertainment has repurchased 15.8 million American depositary shares in cash from the public market, with a total cost of approximately $103 million.
Empowering Large Language Models (LLMs) to Improve Music Consumption Efficiency
Liang Zhu, CEO of Tencent Music Entertainment Group, said, "Our multiple advantages in the music ecosystem, platform scale, and AI empowerment technology have made TME's music ecosystem more prosperous and powerful. We will continue to reconstruct the connection between music and people, and create a more enjoyable music experience for users through technological and product innovation
Tencent Music Entertainment stated in its financial report that it empowers music discovery and consumption efficiency through Big Language Models (LLMs), providing users with more interesting experiences while also working with partners to explore and unleash greater value of music in richer scenarios through multiple dimensions such as music marketing, content promotion, and in car IoT services.
In terms of improving recommendation efficiency and personalized music experience, Tencent Music Entertainment continuously upgrades the recommendation platform to enhance the personalized music recommendation capabilities of various music applications on the platform; QQ Music has recently launched a quick listening function for searching for song climax segments, and the newly upgraded Cool Dog Music supports quick discovery of multiple singing versions of songs.
In terms of connecting more usage and entertainment scenarios, Tencent Music Entertainment extends the mobile operating experience, high-end audio quality, etc. to car usage scenarios, enriching car music consumption and user experience. In addition, Tencent Music Entertainment has also partnered with Qualcomm to pioneered the use of hardware's AI computing power to enhance the listening experience on mobile devices. At the same time, Tencent Music Entertainment customizes music services for different cultural and entertainment industries, such as collaborating with the popular film "All in One" producers to produce movie theme songs and ending songs.
Beijing News Shell Finance Reporter Bai Jinlei