Tencent Music Entertainment Group released their unaudited second-quarter results ending 30th June 2019. The reports disclosed online music paying users reached a record 31 million. An increase of 33% or 2.6 million users year-over-year, the highest since Q1/2018.
The growth pushed revenue by 31% year-over-year totalling to USD 859 million. Operating profit increased by 7% year-over-year totalling to USD 158 million.
The net profit attributable to equity holders of the company was USD 135 million, an increase of 2.5% year-over-year.
According to Reuters, the monthly average revenue per user of its social entertainment services saw its slowest increase. It rose just by 16.5% to USD 18.45.
Cussion Pang, Chief Executive Officer of Tencent Music, expressed how they achieved growth in the online music and social entertainment business
“We continued to expand our music content leadership by partnering with more music labels, as well as adding more content including music-centric variety shows, short-form videos and long-form audio such as audiobooks and podcasts.
We strengthened our alliances to produce and distribute more high-quality original soundtracks, including our partnerships within the Tencent ecosystem to develop original music content for games, films and TV shows.”
The paying users for social entertainment also resulted in a 16.8% year-over-year increase from 2018 of 9.5 million to 11.1 million. Tencent Music Entertainment is one of China’s biggest digital music apps with 90% market penetration. However, it generates more revenue from its social media engagement.
Their most popular applications include WeSing, a karaoke platform and Kugou Live, a concert live-streaming service. Pang expressing his joy said,
“We are pleased with second quarter results driven by the strength of both our online music and social entertainment businesses.”
Tencent Music Entertainment in the global market
Tencent Music is a Hong Kong-listed Chinese conglomerate under Tencent Holdings. Recently, TME went through dialogues with Vivendi, to buy a 10% stake in Universal Music Group. The deal is estimated at USD 3.36 million.
TME has over 800 million MAUs, which is substantially more than Spotify and Apple Music. However, the paying users for apps under TME equals to a meagre 4% as compared to Spotify’s 50%.
Pay-for-streaming accounts for a very small percentage of Tencent Music’s total offering. Thus, Tony Yip, Chief Strategy Officer, Tencent Music, commented that it would take a longer time for them to promote a broader user option. However, he also said that their results are encouraging enough to give them the confidence to adopt correct strategies.
Despite rapid revenue growth, TME struggles with sluggish profit and new user growth.
Yip revealed that the company will be taking initial steps to explore overseas opportunities by expanding WeSing into Southeast Asian countries.
“As part of our internationalization strategy, we are also looking to expand our social entertainment services outside of China, as we take initial steps to explore overseas opportunities for WeSing in South East Asia.”
That said, when Tencent Music launched their initial public offering on the New York Stock Exchange, after a two-month delay, it closed the day up by 9.2% at USD 14.19 per share.
The delay in the launch was due to the global market turmoil especially the dispute between U.S.A and China. TME raised a total of USD 1.1 billion ahead of its public debut. They sold 82 million shares at USD 13 for an implied value of USD 21.3 billion.
Tencent Music’s starting valuation of $21.3 billion undercut Spotify’s opening valuation of $26.6 billion in April. The company generates revenue through subscriptions and advertising, however, their adoption of in-app tipping and sending virtual gifts is another way to lure customers in which may not be a sensible thing to do for the long run.
Tencent Music’s streaming platforms account to at least 70% of the Chinese music streaming market. The remaining 30% is controlled by tech companies.
In China, TME is a direct contender to NetEase Cloud Music (NTES), which has approximately 600 million users. NetEase has extended reach due to its partnership with Alibaba’s (BABA) Xiaomi Music, another streaming platform.
TME’s partnership with record companies like Sony Music, Universal Music, and Warner Music, as well as Chinese giants in China’s domestic market, has enriched vertical content by providing users access to 20 million music libraries. However, Tencent Music’s involvement in sub-licensing and copyright agreements with NetEase Cloud Music, Ali Music Group and Xiaomi Music became popular when the Chinese government began checking unlicensed digital music in 2015.
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