TME - Earnings call transcript Q4 2021 | Tencent Music Entertainment Group

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Operator

Ladies and gentlemen, good evening, good morning and thank you for standing by. Welcome to the Tencent Music Entertainment Group Fourth Quarter and Full Year 2021 Earnings Conference Call. Today, you will hear discussions from the management team of Tencent Music Entertainment Group followed by a question-and-answer session. Please be advised that this conference is being recorded today.

Now, I will turn the conference over to your speaker host today, Chief Strategy Officer, Mr. Yip. Tony sir. ahead, go Please

Tony Yip

well is you, operator. joining financial ir.tencentmusic.com update. you Pang, for you an earnings Cussion via Newswire Executive and today overview our call with Chairman, Hello, on the everyone release and us close who announced the of IR will as thank services. available from call on after all market recent hear Thank website as at now the our today. Mr. results our Today, will TME start

Ross Liang, will development. Mr. operations our our Next, Tony CEO business Yip, offer product and CSO, and on I, additional thoughts strategies,

that SEC. note IFRS company’s statements Finally, will measures statements the to non-IFRS Ms. obligation and statements and from Safe company’s information, that future company’s with these Harbor otherwise, any new the reported more reconciled comparable the pursuant or filings and may except of of current before questions. update their performance to statements. on company known filings earnings performance entirety or measures results company call forward-looking factors the of to different to not conditions unknown under the and Shirley a financial by or are the provisions the for implied Reform Litigation assume are expectations thoroughly or under as results, required discuss in forward-looking expressly are as involve forward-looking law. qualified Private These of market any the our not risk achievements forward-looking with and Hu, Please SEC. company All XXXX. the note in details the uncertainties address call Act observations be Please events explained risks, by cautionary control, release result in made actual our open and statements this of statements, factors results, materially changes today, revise the will does based expectations forward-looking most the we that The which Securities CFO, contain the cause management’s by which other may the

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Cussion Pang

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Ross Now, call to go to I over ahead. more Ross, strategy. like our turn about will share platform would please who the

Ross Liang

everyone. Thank you, Cussion. Hello,

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Tony Yip

Hello, everyone. you, Ross. Thank

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Shirley Hu

Tony. Thank you, Hello, everyone.

I’ll our driven online a financial In of fourth rapid our service the by quarter music discuss perspective. XXXX, Next, results growth from subscriptions. revenues grow, continued to music in

Social entertainment and impacted were by competition negatively the changing environment. business macro

for Our by QX RMBX.X total X% were down revenues billion, XXXX year-over-year.

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XXXX, my on music to outlook XXXX. with In are for XXXX. close music prepared operating full core regimen subscription I’ll grow our reach some Finally, expected and remarks for year comments and business, advertising, partially

actions recovery improve are slow in taking and various expect to XXXX. a ARPPU see to We

costs content Additionally, we requirements are totally controlled ROI. on our on increased with

ratios from Furthermore, environment, while we revenue are and core to are to For changed keeping high entertainment taking challenges company-wide, high business competition tightening we control marketing revenue healthy margin, ROI expenses. focusing from monitor closely scale. improve controls our and and with actions cost social reach for adjusting services, and and are sharing channel costs, market our to the maintain relative on efficiency count each to comp gross

overall This under audio on the focus with invest questions. environment, Operator, the investment new our in and mindfully call growth long-form open are for international products a concludes including we continue returns and services, to Finally, market remarks. to ready potential. and the future business, we prepared

Operator

Leung America. question Our first comes from Instructions] with of Bank Eddie [Operator

You now go ahead. may

Eddie Leung

my quarter. Good the in user questions. We the morning and thank you noticed fourth for sequentially taking base declined

slow in existing despite the impact development of all So, on growth number on of are us the also the you of given spend if similar then COVID just you you content share not about users? and the the usage, could for just XXXX little So just to the base, these features time platform quarter more current XXXX your the trend example, of seeing? Thank any the into a the situation the usage with And user heading wondering could user that, wondering aspect, streams, but have you. base? or users first bit talk traffic traffic

Tony Yip

I’ll and supplement. perhaps first a take can Ross also crack, then

QQ slight the fourth MAU, MAU, in primarily Music in of terms a our saw elsewhere. In by of platform because within the four served entertainment Music and Music on demographics. whereas MAU, saw to sing, reason implement and X% as is year-over-year more we to some it’s with features the and of saw decline. amongst a basis, mix users, experience: play by of completely online watch, QQ difference its result flagship decline and to music extent, for pan-entertainment features But that of the social casual music first actually that music a a pillars and the quarter its increase app fully Kugou important is note a our think I our a a Music year-over-year And of younger of churning that listen focus community full Kuwo bit

that these so enhancements streamlining we’ll that Kugou And same product we the of and the starting throughout are the see initiatives year. Music more fruit. to rest along And some as are pleased we improvements and the lines to towards to we’re Language] work making Kuwo MAU in hopeful Music, also see bear [Foreign

Ross Liang

[Foreign Language]

Tony Yip

Thank I’ll translation. you, brief Ross. do a

see these Z, and we exercising Gen listening respect improving demographics. among Kugou better with to Yes. talking the facing particular, MAU to So rest this this with of hope with has more the to and stabilize we’ll primarily particular, iOS be stabilize able more the Music, the our given history because in into as year, brand room amongst year. challenges scenario-based for do all Ross around demographics. to it such more young And smart app. QQ our of improvement. recommendation, MAU expect decline growth, music MAU vertical some this scenarios, music We on is image to the operations Music its starting about catalog, user sleeping for overall, younger focus main base the And focusing of long on expanding initiatives, the In

Eddie Leung

Language] [Foreign

Operator

Yap Citigroup. Alicia with comes Our from next question

go You ahead. may now

Alicia Yap

management. Thanks for outlook. a I taking the have question. follow-up Hi. morning, question, Good my on

any qualitative And on online color provide the the online latest So how rate? the competition, into the we business you. some if how you entertainment social this over the the revenue of quarter should is could first rate And XXXX, expect also the business share with and growth growth – color and the could of also course also is management this in latest expectations year? music Thank macro trending revenue any growth advertising year. for us trending color specifically, also the light

Tony Yip

Okay.

sublicensing on the a In around in an been embrace business have environment and these macro to in a of environment. adjusting process former mid-teens. by we renewed secondly, Massa And our year-over-year decline expect this we’re industry to terms contracts a outlook year. falling changing non-Massa licensing revenue And continue particular, total on challenging face to of for adjustments. In impact currently QX, licensing have model advertising our live basis away thirdly, as revenues competition streaming contracts and

In terms to we expect of year currently full decline by mid-single digit. XXXX, a total revenue on basis around year-over-year

second the half. see factors in factors above recovery also these all While a to do the we from expect apply,

In full online an a subscribers That be in expect translates basis. average million addition, subscribers quarterly adds the X we to XX% to to terms music in grow subscribers X.X of be net approximately between by to million. year, year-over-year to online able for music on

cost understand to past the I that have the – we over the we years. X understand Now think

prioritized have ahead decline. of a And we some have a result, subscriber ARPPU. We growing ARPPU as seen base

For by QX, declined in ARPPU example, year-over-year. X% our

there that focus we ample is unchanged. the But subscriber continue this the but over of remains we on potential However, view revenue believe plan quality the year, only to subscription services ahead want the of and growth, not for growth long for we quantity stream. also on to over run, the as

advertising, our subscription so ARPPU. we both a cost variety a subscribers of more growth as ample as more revenues, we improve of business take advertising. we which a short-term initiatives And supplement to expect balanced And we despite to it in to efficiencies, growing also audio, to online Shirley trend improving expect very excluding which XXXX. level expected in XXXX our and core core see particular, is as to and adjusted at an margin business, to operating music to mentioned, in profit online In music continue audio. as long is music be a line online to long an subscription healthy excluding result profitability have as through maintaining businesses, long-term will to compared of with in net seek stabilized look will for believe our revenues well growth advertising the within headwinds non-IFRS we potential margin relates And our approach achieve management

Operator

comes with question next Our Morgan Alex Poon from Stanley.

now may go ahead. You

Alex Poon

should we XXXX? some stream just my and headcount, XXXX, business, etcetera. we how in slower change resulting mentioned for our controlling in the margin sharing some in entertainment our net management because time Previously, taking now, we related there about And decline growing business, you question. see stabilization we Thank is social and ‘XX. are to some net and think the in is music, live and than margin also XXXX you. that trend business, higher-margin our margin. net of revenue overall because a ratio question into Thanks Can have mix the lower into My

Tony Yip

want do Shirley, you to take that?

Shirley Hu

Okay.

to the We music be for XXXX. online advertisement. margin paying net stable increase and as users in will in revenues expect that grow And XXXX up continue compared that

paying X will each million users to So, increase quarter. million X.X

between balance paying through year the will expected We the users increase ARPPU and XXXX.

taking the macroeconomic in are the other ROI. content music in level. because will The entertainment from to we be gross of the margin XXXX, expect under competition platforms that increase will at to increase pressure XXXX, factors. we the and and will revenue business social Additionally, music cost investment tightening online controls accounting keep And operational the breakeven be

on the the reason quite on business And And of have and in are one stream the the the We higher for margin and the that for both mix music, WeSing, expenses, expenses businesses gross live operational streaming because such Gross also the as but be margin. to count will and and projects. good of on controlled high video business, audio ratio we They gross live revenues, requirement will of revenue, gradually increase profitable related stable. margin the high keep platform and business revenue margin. potential main streaming RI of cost the live streaming. new live than deal reach will have will And revenue expect international the growth, decreased. streaming core XXXX, we all of Kugou no gross such gross WeSing our inflation the gross margin no ratio marketing pressure Kuwo and the margin negative cut as headcount. revenue online improve the increase sales the control showing And impact

investing we continue audio, For new the this on long-form will business.

long-form the audio. multiple try to will of of the and content cost ways control monetization We long-form expand audio

gross We margin expect breakeven long-form that audio level.

And can profit margin profit believe we margin, so gross will ways, our long-term, be we believe increase And net I take when net – XXXX XXXX. net yes. stable in in XXXX, these compared our to – kept all we

Operator

Our HSBC. next with question comes Liu from Charlene

go ahead. now You may

Charlene Liu

Thank asked. very Thank taking my much. Actually, already you you have now. question. they for good been I am

Operator

Wei come UBS. will Xiong question next Our with from

You may now go ahead.

Wei Xiong

seen the high to year. because the has that music the just past at of on you, user end want consistently online Thank management. target have point we your I follow-up number Sure. the of growth, grow for

ratio terms terms because share you. do to could what’s So, wonder very you paying channels growth? robust we of And users? a have And here? term acquiring the I new of longer have target way kind is are there the looking paying and target which we that ratio against you what in XX% look of the most year, we see of driving paying at Thank effective ceiling at of this if that growth a in

Tony Yip

Yes.

subscriber the to our high over many long-term an content attractive driving base users or we include and is of content. includes to leverage. tools that that privileges Obviously, digital base, quality access contents albums that and able access service providing also growth unique very can by this subscriber important. These unique offered content of terms there And and are Live. to actually in providing our to, In privileges are TME are maybe include premium

are and with In also membership expanding addition, opportunities. we internal partnerships with exploring and actively also parties multiple channels joint external

to also finally, and and then as promotion external scale continue a at then effective device periodically business do subscription could us. a we IoT And price with we the for well. And an are driver. long-form as as that, campaigns And IoT to module. enough important joint in also large pace, music parties example, grow addition campaign do act for subscription also fast reach an between our cross-selling For cross-marketing campaigns

us less services quality users service the focusing of And balance of better all to approach important not why subscriber it’s over I think that music years we the growth we value – and that lay the growth that very the help I is industry subscriber strike to and between will which stage ARPPU for X will mentioned, we growth. a years at the over the just I a past would think ARPU. thereby, see obviously context promotion. growth more few to And more long-term well, a as the past the subscription Now, in we are appreciate on we price on TME, by over time. is focus, this whole we we to strong see And stronger benefit, mentioned. learn on the over as lot things seek of where a of have And prioritize foundation is

Cussion Pang

advertising We based business also as model will the focusing be on well.

Tony Yip

Yes.

us period testing to that’s a I of our between the users group model, user some ad At a of base, adapt base, the to is short think monetization will this free are them small to of generate the effectively for our that us subscriber as option of new a currently given watch landscape. have exchange from majority and competitive subscription also to able vast manage better approach ad Cussion mentioned, is to monetization among also opt we to we time, maintaining our allow to example still of in flexibility growing to user right. beta in One a non-paying same this video more user prospective – an free approach free the for give for which being a base. able users, time. And be opportunity will unlock service paying

a subscribers. that a their become the is the subscription subscribers. be we increase enjoy where be So had to users And able XX-minute to for it can of unlock taste will generate free or XX-second to may after ad, able convert of or premium have actually subscription you benefit if conversion you users example, from to XX-second you service. that The period to watch might difficult revenues otherwise may the the enjoying these ad be service, XX-minute

help the conversion advertising also free us user over and grow that the So, time increase could help amongst us base. revenue

So, good us manage. allow to that a balance it’s

Cussion Pang

our in in active is also to exactly. going ad the content, they pay to going that when for they to some user and we right order the of or more seeing premium Yes, be more the to platform. are subscription get the a are on And the ads enjoy watching monthly put efforts trend will the

increase are So, of also, we improving like of usage continuing content. in the we And during the are users also stickiness as that overall the quality as of seeing just our users. we you the mentioned of will the our session, terms well question

Operator

with Chong next from The Jefferies. Thomas question comes

You many now go ahead.

Thomas Chong

the Hi. we want Good how I morning. to would Hong Japan. about sense just back have to introduction. year? talked about QX second our questions. in is get way for release, the May Given impact this a by coming Thanks closed entity for controlling a for Kong management stake about taking the also in press strategies M&A my revenue? deal just a we my ask And And deal question with of about,

get should to you. my When entertainment is and it Just final the timeline the we in about this to future? then the expect that a And stabilized be in our revenue. should question be we management regard sense social about Thank anticipating. want

Tony Yip

Sure.

very obviously, a management. to, adopt we as M&A, capital of prudent terms approach In

constantly on are lookout attractive opportunities. M&A We the on

Pokekara online acquisition are criteria. karaoke operate We recent that They And leading and in investment of businesses. opportunities synergies focused that Japan. to strategic on M&E that the Mobile are complementary our provide core the Limited fits app,

it us have largest it then and allow protection an amid Hong shareholders provide experience a product. broaden the international So, the And changing also presence. Japan, our into Kong to into to direct not way to listing previously of note our the enjoy benefits to we with terms a of online shares. in a to without very we have And in world’s plays listing, Kong which is additional of already the yet karaoke able listing an listing this is important commenced do of impact to footprint regulatory in trading venue introduction. managing well And allow environment, the idea pursuing additional a shareholders that through new the that without behind Hong listing offering secondary be of process the by It is our dilution.

quarter are to we need And lot finally, of very forward we have move we of a a so to that the a around trends, manner. Seasonally, quarter, revenue regulatory approvals, entertainment obviously, difficult working is a a will New streaming And to overall, will the because the development, we the Year expedited during work timing, hard, very live – I holiday. Chinese obtain we hosts an the challenge. In appropriate some terms bit things QX major tends still weaker. and extent think make in go as announcement. holidays, with regards they to continue then but social be we revenue see result, to of on first number to hard always And

In are effectively to adjustments increased addition industry the live around of there cost the taxation many of for doing that, to streaming changes business hosts. that

are activity stabilize forward So, challenging look But into the And their room a what believe we in we drive online some we initiatives recovery, of and of will be levels. them need we WeSing. referencing decline, we low rest to be see adjust period. is XXXX, think recovery And the base. start overall, do do gradual continue try include us QX that karaoke QX to to as of as taking to to the that some revamping a we will

fourth and inter-room the broaden drive though the room a we the interactions. our complementary our the quarter, Karaoke WeSing a to streams. is our both in music the to online overseas acquired revenues, a experience, in through presence on seeing growth we our streaming leverage audio also continue and well streaming newly well – use as And second initiatives Karaoke M&E Town audio such help as flagship recorded are even which is enabling Music resulted overseas recent casual in will live area as quarter listening some user of in live to last are and strong WeSing, monetize revenue within recovery well as terms grow streaming. and base we expertise continue mentioned this grow script, our and streaming of year-over-year as then revenue major are the we and business audio adding such core a our as product live streaming mentioned streaming, revenue it we achieving As our cross-room games to to to in China, as case karaoke traditional growth all And our audio in portfolios. And Pokekara, decline. we products, will live live expand Farm is as in also QQ to more of that live

live to continue level. interact we our audio to good a ramp seeing are performers at live streaming. digits growth have up. musicians We XX,XXX base with fan And XXXX growing revenue to revenues go-to-place to it. rate year-over-year attracted It’s stream. a And XXXX, live and becoming for a for continue And musicians our a at for double-digit Users via That’s throughout we strong-double year-over-year connect all streaming. yes. expect –

Cussion Pang

it’s our like that core emphasize – that like our is business. but the investment, strategy to Yes, invest in be to company – of M&A regarding doing the simply I financial rather, synergy just strategy, not some would to the we would will have

development really regarding the as on So, Pokekara, suitable pointed our overseas out example our WeSing that an to which you is platform.

as projects well. the focusing platform Besides some be is we were on So, this content one of we side, forward. that will of investments the the also looking

During different involved music many with we of been X the joint content X of in have to years labels. proactively doing some years, music the the past production

also well, in of started JVs. as investing the setting We have some to up music labels

that think together is build show I M&A you synergistical to to we So, that is strategy also more our strategies. core example business another with want our

strong is our RMBXX company. our very reserve in a base, have we Regarding cash billion cash around

the order it in best think more to advantages. use do we than as again, company the grow ensure do will will continue this and of happy that get to I opportunity we more the our our And in a are way. long-term. when So, success prudent But we help right in the out, investment come to

Tony Yip

question. final one time have we for Operator,

Operator

Okay.

CICC. Our comes final Xueqing Zhang from with question

You go may now ahead.

Xueqing Zhang

at the earnings was you, And call Thank related of is my year. TMELAND. taking question. end management TMELAND. also this to We at question TMELAND launched last conference And quarter’s you. Thank held for the

So, does TMELAND? in business it the color can How see opportunity music management help our about you. metaverse? the and develop does share to more management how industry’s Thank

Tony Yip

to like add you color? would Ross,

Ross Liang

Language] [Foreign

Tony Yip

into use is TMELAND are of flagship virtual many of world. terms metaverse in TMELAND. the cases initiative So, our There

settings such will we for we special the events, particular that will using be special artists. event it There an that is customized first also [indiscernible]. that in for be one The as hosting as venue hosted are

for be will more we to partnering and settings him more her. So, with special or artists develop

will also hosting concerts be virtual We through may and some for – avatar them environment into immersing artists these are avatar concerts whereby be performing through a artists, an the an avatar. concerts, of virtual this

user Secondly, in into extract as we which new encourage one interact this technology a and the will monetization be setting, another types to nightclub of the online virtual setting. virtual well room with And karaoke applying engagement TMELAND users therefore, as opportunities.

for can will room, a the of audio under their – showroom, artists, can an also going opening showrooms music could own partnering virtual and to of to you room for to their instruments these into can user see can come albums listen you where and this virtual QQ your listen world, into XXXX, music into users put virtual virtual individual will together, kind feature, friends music metaverse have Music together. play this its effects. display ahead visit, with where Thirdly, be you all And looking come upgrade own audio different in we all artists that will

parallel but is what current that to a world to that virtual setting. the try environment we environment, So physical parallel much the parallel XD XD in world as as create in a physical a is are the mimic current possible and there can do world effectively,

very and additional free questions. thank we you you team TME’s of Feel speaking again all your Investor This us and for – quarter. you, for call, Thank thank Relations to think to much today’s forward you today. and contact all you next look goodbye. if I So, concludes have joining with questions,

Ross Liang

Thank you.

Shirley Hu

you. Thank

Operator

presentation. conference for The attending has you now concluded. Thank today’s

You may now disconnect.

Tencent Music Entertainment (TME) 22 Mar 222021 Q4 Earnings call transcript