Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tencent Music Entertainment Group (TME, Financial) reported a 28% year-over-year growth in online music services.
- The company saw a 26% year-over-year increase in adjusted net profit.
- TME added over 10 million music subscribers in the first half of 2024.
- The company extended collaborative licensing agreements with well-known Chinese and Korean music labels.
- TME's self-produced content continues to gain popularity, boosting user conversion and engagement.
Negative Points
- Total revenues decreased by 2% year-over-year to RMB 7.2 billion.
- Revenues from social entertainment services declined by 43% year-over-year.
- The company faces continuous challenges from competition and macroeconomic factors in the social entertainment segment.
- The effective tax rate increased to 19.4% from 12.2% in the same period of 2023.
- Net adds in the second half of 2024 are expected to be smaller compared to the first half.
Q & A Highlights
Q: Can management share the outlook for the second half of 2024 regarding top-line growth, profitability trends, and online music growth rate? Will net additions or ARPPU be the more important growth driver?
A: Our outlook for 2024 remains positive, expecting healthy revenue and profit growth. We added over 10 million music subscribers in the first half of 2024, with ARPPU reaching RMB 10.7. We anticipate continued solid growth in online music, driven by both net additions and ARPPU expansion. In the second half, net additions will be smaller, but ARPPU will grow more noticeably, supported by our SVIP plan. Advertising revenue is expected to perform well, while social entertainment will face challenges but have a smaller impact on total revenue.
Q: Could management elaborate on the plans to increase ARPPU in the second half of the year, particularly regarding the Super VIP progress and other high-value-added services?
A: The key driver for ARPPU growth in H2 will be the SVIP plan, which offers content privileges and higher value to members. SVIP members enjoy early access to music, superior sound quality, and seamless listening experiences across devices. The membership fee is around CNY 40 per month, allowing us to provide better benefits and experiences compared to regular subscribers. We will continue refining content and operations to maintain steady growth.
Q: How should we think about the penetration of Super VIP as a percentage of total paying users in the coming years?
A: SVIP is growing satisfactorily from a small base, and we expect it to be a future growth driver. While we need more time to disclose specific data, we are confident in maintaining steady and solid growth for SVIP. In the long term, SVIP will play a significant role in our growth trajectory.
Q: What is the long-term paying user penetration outlook, and how do you plan to maintain growth in net additions and user retention?
A: We aim to maintain steady growth in our user base while focusing on revenue and profit targets. High-quality growth and strong user retention are crucial for sustainable business growth. We are confident in achieving our mid and long-term subscriber targets and will continue to engage new customers through refined sales and promotion strategies.
Q: Can management share the expected pace of gross margin expansion in the second half of this year and next year? What is the medium-term gross margin level, and how do you plan to optimize costs and net margins?
A: We expect continued improvement in gross and net margins, driven by subscription and advertising revenue growth, SVIP program execution, and cost management. Self-produced content and efficient operational management will also contribute positively. We aim to maintain disciplined sales and marketing expenses while improving operational efficiency, leading to better margins compared to last year.
Q: How should we think about the impact of macroeconomic uncertainties on different business segments, including subscription, advertising, and social entertainment?
A: The macroeconomic environment poses challenges, but TME's online music business remains resilient due to its affordability. Subscription and advertising revenues are expected to grow, supported by new advertising formats and offline concert sponsorships. The overall macro environment has a limited impact on TME, and we remain confident in our long-term growth.
Q: Are there any changes in the competitive landscape for online music?
A: The competitive landscape remains stable with existing players. Our focus is on improving content, user experience, and platform capabilities. By enhancing our content and optimizing user experience, we aim to maintain our market position.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
