Shulou(Shulou.com)11/24 Report--

Sina Science and Technology News in the early morning of August 16 Beijing time, Tencent Music (NYSE:TME) today announced the company's unaudited financial results for the second quarter of fiscal year 2022 as of June 30. According to the report, Tencent Music's total revenue in the second quarter was 6.91 billion yuan ($1.03 billion), down 1.1 billion yuan from 8.01 billion yuan in the same period last year, or 13.8% year-on-year. Net profit attributable to shareholders of the company was 856 million yuan ($128 million), up 3.5% from 827 million yuan in the same period last year. The net profit attributed to the company's shareholders under non-IFRS was 1.03 billion yuan ($154 million), compared with 1.12 billion yuan a year earlier.

On average, 10 Wall Street analysts had expected second-quarter earnings per share of Tencent Music to reach $0.07 based on non-IFRS, according to Yahoo Finance. Tencent Music's diluted earnings per non-IFRS American depositary share in the second quarter was 0.63 yuan ($0.09), beating analysts' expectations, according to the results.

In addition, 12 Wall Street analysts had on average expected Tencent Music to generate $1.23 billion in revenue in the second quarter. Tencent Music's total revenue in the second quarter was 6.91 billion yuan ($1.03 billion), falling short of analysts' expectations, according to financial reports.

Main achievements:

-Tencent Music posted a second-quarter net profit of 892 million yuan ($133 million). Excluding amortization expenses on intangible assets and other assets from business mergers, equity incentive expenses, net profit and loss from investments and income tax effects, Tencent Music's net profit from non-IFRS in the second quarter was 1.07 billion yuan ($159 million), down 8.3% from the same period last year, but up 13.4% from the previous quarter

-Tencent Music's total revenue in the second quarter was 6.91 billion yuan ($1.03 billion), down 13.8% from the same period last year, but up 3.9% from the previous quarter

Tencent Music's second-quarter music subscription revenue was 2.11 billion yuan ($315 million), up 17.6% from a year earlier. The number of online music paying users of Tencent Music reached 82.7 million in the second quarter, an increase of 24.9 per cent over the same period last year. Compared with the previous quarter, the number of online music paying users increased by 2.5 million

-Tencent Music posted a net profit of 856 million yuan ($128 million) attributable to shareholders in the second quarter. Excluding amortization expenses on intangible assets and other assets derived from business consolidation, equity incentive expenses, net profit and loss from investments and income tax effects, Tencent Music's net profit attributable to shareholders under non-IFRS in the second quarter was 1.03 billion yuan ($154 million).

Company and business highlights:

-the mobile MAU (monthly active users) of Tencent Music's online music service in the second quarter was 593 million, down 4.8 per cent from 623 million in the same period last year.

-the mobile MAU of Tencent Music's social entertainment service in the second quarter was 166 million, down 20.6% from 209 million in the same period last year.

-the number of paying users of Tencent Music's online music service in the second quarter was 82.7 million, an increase of 24.9% compared with 66.2 million in the same period last year.

-the number of paying users of Tencent Music's social entertainment service in the second quarter was 7.9 million, down 28.2% from 11 million in the same period last year.

-the monthly ARPPU (average income per paying household) of Tencent Music's online music service in the second quarter was RMB8.50, down 5.6% from RMB9.0 in the same period last year.

-the monthly ARPPU of Tencent Music's social entertainment service in the second quarter was 169.9 yuan, up 10.8% from 153.3 yuan in the same period last year.

Peng Jiaxin, executive chairman of Tencent Music Entertainment Group Group, said: "in the second quarter of 2022, the complex and changeable macro environment still had a certain impact on our total revenue growth. However, it is gratifying to note that while our online music paying users continue to grow, online music ARPPU has also achieved healthy development, which has led to a steady increase in our online music subscription revenue, with an 18% year-on-year growth in the second quarter. At the same time, we continue to show the results of reducing costs and increasing efficiency, so that the profit margin of this quarter has been improved. June this year coincides with the first anniversary of our content + platform 'one body and two wings' strategy, which continuously empowers the music ecology. Through the original content production support system and Tencent musician platform, we not only continue to improve the scale, quality and attractiveness of content, but also tap and train many high-quality content creators. and help them establish a deeper connection with music lovers. In the future, we will also continue to support music creators to help them better explore and release the commercial and socio-cultural value of music content. In addition, by the end of the second quarter, based on confidence in the company's prospects, we have completed more than $700 million of the $1 billion share buyback program announced last year, and will complete the rest within this year. "

Liang Zhu, CEO of Tencent Music Entertainment Group Group, said: "promoting product and technological innovation has always been an important task of TME." In the second quarter, we continue to upgrade our immersive music experience based on the four pillars of music entertainment, 'listen, watch, sing and play', and continue to meet the demands of different users expressing their personal music taste on TME's platforms, thus deepening users' sense of identity and belonging to the products. Recently, our core products QQ Music and National singing have released large versions of updates, bringing users innovative play experiences such as dynamic vision and 3D virtual images, respectively. As an effective supplement to the ecology of multi-music content, we also continue to provide users with more differentiated long audio content. We have also further strengthened our deep cooperation with Tencent Ecology in key areas such as content production, promotion and commercialization. In addition, through the innovative integration model of "music + public welfare", we held a number of music public welfare activities in the second quarter, using the emotional value of music to serve the creation of social value and fulfilling our commitment to society. Looking to the future, we will continue to improve the digital music ecological construction of ourselves and the industry through all-round services and continuous product innovation, and firmly promote the healthy and sustainable development of China's digital music industry. "

Although the reduction in the company's promotion expenses led to a decline in online music mobile MAU in the second quarter of 2022 compared with the same period last year, the company's online music paying users continued to grow thanks to the company's continued expansion of marketing channels, high-quality music content and services, and loyal core users. At the same time, due to more moderate and effective promotions, the company's online music ARPPU rebounded month-on-month, further driving the company's online music subscription revenue to achieve strong year-on-year and month-on-month growth.

In the second quarter of 2022, due to changes in the macro environment, the company's social entertainment paying users declined compared with the same period last year, but social entertainment mobile MAU rebounded from the previous quarter. The company will continue to carry out product innovation and strengthen exploration in more vertical areas of social entertainment, such as live audio and virtual interactive content, so as to continuously enhance the competitiveness of the company.

Based on the content strategy of "one body and two wings", the company continues to improve in terms of content scale, quality and attractiveness.

The company continues to deepen content cooperation to provide users with a richer experience and further explore multiple forms of digital music.

In July, Jay Chou's new digital album "the greatest work" was launched and went on sale at the same time. By the end of July, the album had sold more than 6 million copies, making it another popular style of digital albums on the company's platform.

Strategic cooperation has been reached with leading record companies and artists in the Greater China region, such as Shifengjun (music label of TFBOYS and time Youth Troupe), avex China and Chinese female singer Liu Yuxin. The company's platform has an advantage in the launch period in terms of the release of its latest works, the sale around customized artists or unique artist-fan interaction activities.

Together with Lehua Entertainment, the company launched super subscription services for 13 well-known artists, including Meng Meiqi and Huang Minghao, to provide customized audio and video content for their music fan groups.

Based on the one-stop service system of systematic creation, evaluation and promotion, the company's original content production support ability continues to be enhanced.

Continuous efforts to support the production of high-quality original music content. High-quality cases in the second quarter include the hit single "three Luck" sung by musician Hailai Amu. Since its launch in May, the song has topped the music charts and garnered more than 2.5 billion social media views and 350 million broadcasts. As well as 15 top-ranked game songs in cooperation with Tencent Games's popular games and events and the first Chinese theme song "Love" to appear in the NBA finals.

An one-stop music production service platform "Qixing Music Assistant" is launched, which is based on the self-developed PDM prediction model and AI tool to help music creators make accurate decisions at every key node in the process of music production.

The company's Tencent musician platform has created a full-service platform for the industry to help independent musicians release their musical talent and love.

Continue to help musicians expand online and offline publicity and expand multiple ways of realization. For example, the company recently launched a new feature of "releasing new songs overseas with one click", which can help musicians distribute their music works in batches to more than 150 music streaming platforms around the world. By the end of the second quarter, the service had brought 190000 songs by more than 10, 000 musicians to overseas fans.

The company's innovative performance brand TME live has launched a series of online and offline music performances, bringing users a richer experience.

In the second quarter, TME live held Wang Yuan's online concert and launched a replay concert based on AI enhanced technology to support two national superstars, namely "Leslie Cheung's 2000 Hot Concert Super clear Restoration version" and Jay Chou's "the strongest Magic on the Earth". The two replay concerts have won more than 100 million unique visitors in Tencent Ecology, and the total number of topic readings has reached 6 billion.

The company has adopted more abundant means to enhance commercial realization, and recently successfully held various customized online and offline music activities sponsored by well-known brands in different fields, such as Sprite, Beijing Hyundai, Pepsi, etc., attracting many famous singers and musicians with dreams.

Based on the platform strategy of "one body and two wings", the company's products carry out continuous innovation based on the four music entertainment pillars of "listening, watching, singing and playing", constantly deepening users' sense of identity and belonging to the products.

Listen: through a series of functional updates, we will continue to provide users with a professional and personalized sense of listening in the second quarter, including the real-time display function of "Desktop lyrics" and the conversion from real-time low tone quality to high sound quality. and a series of new search functions that can improve the efficiency of music discovery.

Look: continue to deepen the linkage with Wechat video account, continue to attract a wider range of users in the Wechat ecology, and at the same time enhance the promotion ability of musicians' audio and video content. Visual effects updates in the second quarter include personalized dynamic playlists, dedicated radio stations covering three scenes of learning, sleep, and meditation, as well as a vinyl phonograph player interface.

Singing: national singing released a large version update and launched the "KK Show" in July, users can customize to create their own "virtual image" as their social card, and launched a new sound synthesis tool supported by AI technology. In addition, KuGou Music's first AI singer "beyond AI" has also been officially launched, and users can synthesize songs with one click through personalized settings.

Play: the company joined hands with Adidas Originals to create China's first virtual rap concert at the virtual music carnival TMELAND, which was watched by more than 7 million people that day, setting a new record for the performance in TMELAND. In addition, the company's exclusive virtual album room for artists has attracted 13 artists since its launch, including well-known singers and musicians in the second quarter, including well-known singer and actor Wang Xinling and Tencent musician Liu Shuang.

Long audio: by further expanding popular content such as sleep aids, the company continues to enrich differentiated and high-quality long audio content. At the same time, the company continues to carry out in-depth cooperation with Tencent Video's hit drama IP, such as the third season of Wu Zhi Qiankun and try the World, to strengthen the joint operation and promotion of popular content in audio books.

The company is continuously committed to the implementation of social responsibility. In the second quarter, the company and Tencent International Children's Day jointly launched the "Little Safflower Public Service Concert" on June 1, bringing a heart-warming online performance for children in need; on World Ocean Day, the company held an online public welfare concert with the well-known brand LA MER Sea Blue Mystery to arouse more people's awareness of the protection of the marine ecosystem.

Financial Analysis:

Revenue:

Tencent Music's total revenue in the second quarter was 6.91 billion yuan ($1.03 billion), down 1.1 billion yuan from 8.01 billion yuan a year earlier, or 13.8 percent from a year earlier.

Tencent Music's revenue from online music services in the second quarter was 2.88 billion yuan ($430 million), down 2.4% from 2.95 billion yuan a year earlier. Tencent Music earned 2.11 billion yuan ($315 million) from online music subscriptions in the second quarter, up 17.6 percent from 1.79 billion yuan a year earlier, mainly due to a 24.9 percent increase in the number of paying users. The average income per paying household fell to 8.5 yuan in the second quarter from 9.0 yuan in the same period last year, but increased 2.4% compared with the previous quarter, mainly because Tencent Music has provided more promotional activities to attract users in the past few quarters since 2021, and paid more attention to the quality growth of subscription revenue, while maintaining a healthy ARPPU since the last quarter. Due to the impact of industry adjustment on open-screen advertising and the outbreak of the COVID-19 epidemic in some big cities, the company's revenue from advertising fell year-on-year, while revenue from re-licensing also fell year-on-year due to the restructuring of agreements with some record companies.

Tencent music's revenue from social entertainment services and other businesses was 4.03 billion yuan ($601 million) in the second quarter, down 20.4% from 5.06 billion yuan a year earlier. In the second quarter, the average income per paying household of social entertainment services increased by 10.8% compared with the same period last year, while the number of paying users decreased by 28.2% year-on-year. This decline is due to changes in the macro environment and increased competition between the company and other platforms.

Revenue cost:

Tencent Music's second-quarter revenue cost was 4.84 billion yuan ($723 million), down 13.1% from 5.57 billion yuan a year earlier. The decline was mainly due to a year-on-year decline in revenue from social entertainment and advertising services, as well as lower revenue-sharing fees and agency fees as a result of competition from other platforms.

Gross profit and gross profit margin:

Tencent Music's second-quarter gross profit was 2.06 billion yuan ($308 million), down 15.3% from 2.44 billion yuan a year earlier. Tencent Music's gross profit margin in the second quarter was 29.9%, down 0.5% from 30.4% in the same period last year. The slight decline in gross profit margin is mainly due to the fact that the decline in the company's total revenue exceeds that of the total revenue cost. Tencent Music is taking steps to effectively manage costs and improve overall efficiency.

Operating expenses during the period:

Tencent Music's total operating expenses were 1.42 billion yuan ($212 million) in the second quarter, down 15.5% from 1.68 billion yuan a year earlier. Tencent Music's total operating expenses accounted for 20.5% of total revenue in the second quarter, down 0.4% from 20.9% in the same period last year. Excluding the impact of expenses related to applying for a secondary listing, Tencent Music's total operating expenses as a share of total revenue fell 1% in the second quarter compared with the same period a year earlier.

Tencent Music spent 303 million yuan ($45 million) on sales and marketing in the second quarter, down 54.7 percent from 669 million yuan a year earlier. This decline is due to the company's effective control of marketing expenditure and the optimization of the overall promotion structure to improve operational efficiency. Due to the improvement of the efficiency of external promotion channels and the better use of internal traffic to attract users and promote brands, Tencent Music's sales and marketing expenses have also declined.

Tencent Music's general and administrative expenses were 1.11 billion yuan ($166 million) in the second quarter, up 10.5% from 1.01 billion yuan a year earlier. Excluding the impact of expenses related to applying for a secondary listing, Tencent Music's general and administrative expenses rose 6.2 per cent in the second quarter compared with the same period a year earlier. The increase in general and administrative expenses is mainly due to the company's increased investment in R & D to expand its competitive advantage in product and technological innovation.

Operating profit during the period:

Tencent Music posted an operating profit of 1.05 billion yuan ($156 million) in the second quarter, compared with 1.04 billion yuan a year earlier.

Income tax expenditure:

Tencent Music's effective tax rate was 12.2% in the second quarter, compared with 11.5% in the same period last year. The increase in effective tax rates is mainly due to the fact that some entities under the company enjoyed different tax benefits in 2021 and 2022.

Net profit and non-IFRS net profit for the period:

Tencent Music posted a net profit of 856 million yuan ($128 million) in the second quarter, compared with 827 million yuan a year earlier. Tencent Music's second quarter non-international financial reporting standards attributable to the company's shareholders' net profit (excluding amortization of intangible assets and other assets from business consolidation, equity incentive expenses, net profit and loss from investment and income tax impact) is 1.03 billion yuan (about $154 million) Compared with the same period last year, the net profit attributed to the company's shareholders under non-IFRS was 1.12 billion yuan.

Earnings per American depositary share:

Tencent Music's basic and diluted earnings per American depositary share in the second quarter were 0.53 yuan ($0.08) and 0.53 yuan ($0.08), respectively. Excluding amortization charges for intangible assets and other assets from business consolidation, equity incentive expenses, net profit and loss from investments and income tax effects, Tencent Music's basic and diluted earnings per American depositary share for the second quarter were 0.64 yuan ($0.10) and 0.63 yuan ($0.09), respectively. In the second quarter, Tencent Music's weighted average American depositary shares outstanding (basic) and weighted average American depositary shares outstanding (diluted) were 1.61 billion shares and 1.62 billion shares, respectively. Each American depositary share of Tencent Music represents two Class A common shares.

Cash and cash equivalents:

As of June 30, 2022, Tencent Music held cash and cash equivalents, term deposits and short-term investments totaling 25.8 billion yuan ($3.85 billion), compared with 25.93 billion yuan as of March 31, 2022. In the second quarter, Tencent Music had net cash of 1.24 billion yuan ($185 million) from business operations and 969 million yuan ($145 million) for share buybacks. In addition, Tencent Music recorded a net cash outflow of 497 million yuan ($74 million) as it acquired shares in a number of subsidiaries and associates. The consolidated balance is also affected by changes in the exchange rate of the renminbi against the US dollar on different balance sheet days. On June 30, 2022, the exchange rate of RMB against the US dollar was 6.6981.

Share buyback plan:

According to the company's $1 billion 2021 share repurchase plan announced on March 28, 2021, as of June 30, 2022, Tencent Music had repurchased about 86.8 million American depositary shares from the open market, with a total cash consideration of approximately $735 million.

Conference call:

After the announcement, Tencent Music Management team will hold an earnings call at 8: 00 p.m. est (8: 00 a.m. on August 16, Beijing time). The telephone number of the conference call is as follows:

United States: + 1-888,317-6003

International: + 1-412-317-6061

Chinese mainland: 400-120-6115

Hong Kong, China: 800-963-976

Access code: 6831525

Before August 22, 2022, the following phone calls can be made to listen to the recording of the conference call:

United States: + 1-877-344-7529

International: + 1-412-317-0088

Access code: 2652958

In addition, https://ir.tencentmusic.com/, a Tencent music investor relations channel, will hold a teleconference for webcast and provide recordings.

Stock price response:

On the day, Tencent Music shares rose 26 cents, or 5.90 percent, to $4.67 in regular trading on the New York Stock Exchange. Tencent Music shares rose 7 cents, or 1.5 per cent, to $4.74 in after-hours trading as of 06:18 EDT on the 15th (06:18 Beijing time on the 16th). In the past 52 weeks, the highest price of Tencent Music is $9.70 and the lowest price is $2.95.

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