Tencent Music Entertainment Group (TME) reported a 1.7% year-over-year revenue decline in the fiscal second quarter of 2024, reaching $985.00 million (7.16 billion Chinese yuan). This figure fell short of analyst expectations of $996.68 million. The decrease in revenue was primarily due to a decline in social entertainment services, partially offset by robust year-over-year growth in online music services.
Despite the overall revenue dip, Tencent Music’s adjusted earnings per American depositary share (EPADS) of $0.16 (1.19 Chinese yuan) aligned with analyst estimates. However, the stock price experienced a decline following the earnings report.
Key performance metrics revealed a mixed picture. While online music monthly active users (MAUs) decreased by 3.9% year over year to 571 million, mobile MAUs for social entertainment services plummeted by 31.6% year over year to 93 million. However, the monthly average revenue per user (ARPPU) for online music services saw a positive 10.3% year-over-year increase, reaching 10.7 Chinese yuan. In contrast, monthly ARPPU for social entertainment services experienced a significant decline of 45.8% year over year, dropping to 73.2 Chinese yuan.
The company’s online music paying user base continued to grow, increasing by 17.7% year over year to 117.0 million. This growth was reflected in the online music service revenues, which surged by 27.7% year over year to $746 million. Music subscriptions generated $515 million in revenue, representing a 29.4% year-over-year increase. However, revenues from social entertainment services and other sources decreased by 42.8% year over year to $239 million.
Tencent Music’s gross margin improved by 770 basis points to 42.0%, primarily driven by the strong performance of music subscriptions, advertising services, and the increasing production of original content. Operating profit also saw a positive increase, rising by 42.8% year over year to $302 million. The company generated $405 million in operating cash flow during the quarter. As of June-end, Tencent Music held a combined balance of $4.82 billion in cash, cash equivalents, term deposits, and short-term investments.
Cussion Pang, Executive Chairman of TME, highlighted the positive performance of online music services, stating, “We are pleased to report another quarter of robust results, driven by the strong performance of our online music services. With over 10 million net subscriber additions in the first half of 2024 and ARPPU expansion, we continue to break new grounds within China’s streaming landscape.”
Tencent Music Entertainment stock experienced a significant surge of 114% over the past 12 months. However, TME shares were down by 7.16% premarket on Tuesday, trading at $12.19.
