TME - Earnings call transcript Q2 2022 | Tencent Music Entertainment Group

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Operator

Ladies and gentlemen, good evening and good morning, and thank you for standing by. Welcome to the Tencent Music Entertainment Group Second Quarter 2022 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, Mr. Yip. Tony sir. ahead, go Please

Tony Yip

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

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

Finally, Ms. for address call questions. financial Shirley results will our before we the our Hu, open CFO,

earnings will press as which which refer a this to I call that, and to forward-looking Please Chairman measures discuss meaningful measures. release to With over make metrics to I'm release, earnings these we for performance. Cussion? TME. of most safe to Before continue, Executive IFRS the our call refer applies the we of The our you believe are to turn reconciliation evaluating comparable our today, non-IFRS in for Cussion, company statements. we pleased will our filings harbor SEC measures statement

Cussion Pang

content-and-platform Hello, engine Thank strategy. we today. In celebrated for and June everyone, you, dual joining Tony. XXXX, launching of the you thank our our call first anniversary

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

Ross Liang

Cussion. you, Hello, Thank everyone.

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Tony Yip

Thank everyone. spend. were you, music quarter, XXX second Ross. our the Hello, online down In reduced to marketing primarily MAU due year-over-year million,

revenue growth we and new engagement ARPPU. to sequential cohorts user subscription among continual a along core of continued richer continue deploying year-over-year with innovative user deliver and our strengthen content, to robust features by quarter-over-quarter paying iterations. However, product and growth, Meanwhile, rebound

double-digit MAUs with partners. Our and cases to continued of broader growth achieve the a group establish a as we service enrich of IoT products our year-over-year use collaboration

bringing vehicle the and For in-vehicle of car Surround ultimate customized by Dolby XX new features example, vehicle enjoyment electric music partner in now through owners Sound top XX sales, with such as manufacturers effects. we and the passenger thousands top sound

by growth the in year-over-year. online maintained that revenue in the our subscriptions Little on quarter, its watch WeSing In with used the XX% Smart services our trajectory headwinds students, through addition, Despite partnership macro Genius with year-over-year. which Watch, revenue smart grew MAU triple mostly segment is growth music weighted second digits subscription

the sustain We our confident while remainder also year. ARPPU during we growth are continuing the paying of to boost can ongoing this rebound user of

and COVID-XX changes revenue macro quarter, year-over-year. of advertising outbreak our result the a the As resurging second in softened

quarter-over-quarter, by ad TME well rebounded from as and XX sponsorship it sales opportunities June driven the as arising promotions e-commerce However, Live TMELAND.

innovated to In diversified a addition, advertising consistently we build portfolio.

inventories of music ad-based and the is incentive playlists, a making good format advertising Our quarter, progress. search others. listening during charts, launched new free And host banners second and mode we on pages, among

we our successfully monetization recently, As events highly Pepsi engaging these attracted musicians live artists additional advertising online also with aspiring well-known customized in and popular have avenues, of by Sprite, such we as attracting to events. brands strengthened dozens and Beijing-Hyundai sponsor of a participation off-line and variety

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exciting lineup experiences off-line for planned an the We have coming of quarters.

declined let's users entertainment adjustments. improved, services. industry and sequentially to Its Now turn to paying MAU due our year-over-year competition while social

new competitiveness as streaming our and and We virtual offerings. to improve will ongoing through live innovations interactive such audio product continue product initiatives

WeSing, experience participate. launched energize to tools its while singing lowering we For latest the to with barrier the version

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into expressions streaming live an also generation. and young avatar We real favored allow delve use and for movements and added a multi-person the host host's verticals live idol the live in XD virtual which by function, the time WeSing to captures animation streaming and new interactions.

number I'd On in with initiatives. Last, about and the live to Day, but through Additionally, events children least, and Red with recommend a for XX uniting which self-owned participating rooms. triple-digit musicians recorded comic of popular live Tencent spend organized a the like Flower Animation groups Children's in and to Kugou's a growth concert responsibility fans worked with live special number Concert, over its our IPs of event's to viewers of we [indiscernible], to heartwarming streaming launch and idol, social Comics, hosts, close artists Tencent together live time Little of the user Charity not with streaming streaming, hosts during needs. ACG virtual jointly word

around to role our the industry power special sustained . music To La with would also We're We to continue ecosystem. the lives public conclude, call of closer for and technology development welfare welfare of strategy the dual Mao to as leverage use of emotional a Day. to with environmental to music forward, music review financials. efforts support elevate the New the move for to content-and-platform Oceans proud in concert engine turn World commitment. awareness the our our partnered of Life, Launching CFO, With our Buyi over growing we people's of Blue marine by I will Shirley, our to that, a host and like strong social these to advance a Mer song, create

Shirley Hu

Thank you, Tony. Hello, everyone.

our results from I'll perspective. a discuss Next, financial

same by year-over-year, to sequentially. year-over-year to XXXX, we to [indiscernible] subscription users' Our resulted sequentially adds RMBX.XX net to XX% as representing total RMBX period X% cost increase by costly grew an net which and second to revenues quarter the and QX content In a subscription the users' effective return from grew made net represented ongoing ARPPU by paying we efficiency. content XX% last benefit Monthly and up in strengthen result services growth loyalty our improved efforts channels operating increase of XX% IFRS of revenues XXXX, million profit up by was and we RMBX.XX paying billion, sequential XXXX and RMBX.X sales billion, were profit fourth of from service in was the non-IFRS In up a from from RMBX.X, the year. a more as operations. year this down and high-quality quarter for expanded by on focused million music decrease X% X.X of RMBXXX promotions we for year-over-year was XX.X are in the and the XX% subscription Music and and Online our QX million, provide. service. pay willingness control RMBX.X of billion, We for music users achieved sequentially. continued

the to started the contributable the advertising in fruit ended to in adjustment our grow revenue. Revenues by sustainable continued impact from continuous to decreased healthy business negatively to as music subscription and advertising growth and has year-over-year business strategy be Our of bear industry music a outbreak way COVID-XX.

sales since XX revenues. business to sequential in economic the advertising moderately June. also increase began the outlook The to advertising sequentially advertising promotions of revenues grew COVID-XX as recover contributed However, June from

formats growth continue expanding are advertising the to expect rolling out innovative optimizing in of manage We advertising added inventories, moderately and We remain XXXX. confident recover long-term proactively half challenges. potential to these about second and revenues to

sequentially streaming sequentially. from in total year-over-year was Social overseas and intense in X.X% and of QX by audio remained some improved stabilize as evolving revenue the revenues to face the resulted showing competition our we an live because business environment were by from revenues environment effective other RMBX and our them margin changing improved down nature. cost streaming down control XX% platform. in total to revenue, operational macro and live expenses. adapt and year-over-year entertainment services XX.X%, differentiated we content revenues on our Gross by to product costs, in business collaboration. in decrease and have offering and our expand revenues resulting XXXX international live including offering in enriching fixed continue interactive for in our from our invest we Meanwhile, the billion, content audio fees as margin year-over-year and business, of growth To our decrease streaming cross-platform cost virtual outpaced Gross enrich

continue will to expenses. take We manage overall measures effectively improve and costs to

were operating as the by a expenses. operating in from XX.X% of of for last same X.X% total total QX to on moving XXXX Now a as revenues, down percentage billion or expenses year. percentage XX.X% period Total revenues RMBX.X

marketing were expenses by for related secondary year-over-year. would million, total our by down impact RMBXXX Selling from expenses revenues and percentage a operating to application X% the expenses as Excluding listing, have year-over-year. of XX% the decreased

impacted some utilize the business, loss of we monitor spend attract measures and each of negatively. leverage ROI continue channel, improve promote MAUs traffic reduced the During resulted users our and start external music to promotion to in The the take closely users brands. the casual to marketing promotion channels and internal to our our quarter,

music billion, subscription by paying users activities. were growth in our year-over-year. administrative to service expenses continued the General XX% grow up and level rapidly of sales RMBX.X with However, user and

the of QX G&A expected secondary related RMBXX our Excluding year-over-year. have million in increased to by approximately impact would listing, the application X% for from

diversified innovations product well manage as enhancements, by invest closely continue product offerings more technology expenses as in efficiently. We improving to headcount employee-related and

mainly entities XX.X% in to tax effective our the XXXX. period was increase QX rate XX.X% entitled of Our compared was for tax The in rate XXXX. XXXX XXXX of same to some benefits in and effective tax different to due

to attributable company million profit was RMBX.XX to billion, XXXX, Non-IFRS profit QX profit margin profit profit equity XX.X%. RMBX.XX RMBXXX holders was the billion. Non-IFRS million. net net our net non-IFRS and the holders attributable RMBXXX equity and the For was of net company was of net was

As of of equivalents, XX, and XXXX. deposits June were March XXXX, cash, with balances investments our of short-term compared combined as billion term billion RMBXX.X RMBXX.X XX, cash

the cash net billion, was the XX, XXXX, generated X in RMBXXX operations months ended repurchases During was RMBX.X June from million. and used cash share

of base. a acquisition Such outflow cash different of associates. also include as shares exchange RMBto balance We was various net and in million for also combined rate subsidiaries the balance sheet USD RMBXXX of reflected by change in the

forward, potential. core to to including mindfully in control in and products Meanwhile, services, focus on and our audio growth long-form our headcount-related for and new and future business continue to open and remarks. Operator, maximize we marketing costs investment the sharing returns costs, continue business to we savings and operational will expenses our Looking operating invest will content implement cost questions. overall the including social areas business, entertainment are efficiency. our call improve concludes royalties, we revenue prepared ready fees for to This international

Operator

[Operator Instructions].

Stanley. with will from Morgan Alex question first come Poon Our

Alex Poon

basis think on Congrats My on a X sequential despite a on trend second And points QX. can should basis, the to on flat margin segment about how gross very explain And gross the half? about of was revenue from management is percentage is question related strong social the a quarter on up Q-on-Q the QX? each we margin. margin QX Gross in side. profit to

Shirley Hu

increased we QX About we to gross measures margin. a more improve control sequentially. on operational costs in positive bear Gross take factors have Okay. fruit. the margin have efficiency. gross this X% quarter, following and started impact The margin, And to

. First, revenue the third, utilization improve and impact also our of content next cost. related gross storage have items, sequentially. labels optimize agreement the technology of gross the sharing positive be growth the been restructured costs increased expect equipment, revenue will gross some to bandwidth second, quarter. our positive decrease increased business units And the And operational focus increasing on on service and sequentially. We continued our ratio of That the and all had we impact margin and we strategy the margin. decreased on margin. of And and our And and had a to and operation with will live continue recovery to we requirement capability efficiencies streaming the controlled and and subscription music advertising a fourth, revenue cost to in

Operator

Our Zhang America. Lei of come will question with next Bank from

Lei Zhang

we on solid music question results. with mainly behind Congrats you how can about the it. give the should any your Super We you to My VIP, ARPPU. ARPPU [indiscernible] at trend rate, noticed music related user share more ARPPU forward? more Q-on-Q this, And ARPPU? feedback us going and And color the and color to like the the adoption look can of contribution is on

Tony Yip

Yes.

that a discipline result we of RMBX.X last manage RMBX.XX. quarter's the as effective more from And in the promotions sequential well a In way improvement quarter's we this from marketing terms spend. ARPPU, more to saw the that's as

we paying of as last quality the are the growth mentioned the the to at of rest the ARPPU we both the both as to Our achieve quarter, is focus, revenue this second we the that a year. as ARPPU been well in we've as trend overall quarter, target to expect healthy a subscription pace. aiming grow able into on of growth continue the that and our level in And subscribers and for user

Operator

Yao Our with next JPMorgan. Alex will question come from

Alex Yao

us on the of content. the year? do experience paywall? target I becoming and through let in are them to engage user have achieve music What is the company And guys, you nonpaying less to to them regarding going these with Or to music, are able are want features? go? also the you subscription strategies behind What paywall? share do the the and trying now aiming of to you other is by you to up less listen your business. progress a the of with questions terms you guys of the side pushing Can of the are end couple What percentage

Tony Yip

our to more Well, we expect to first track discussions package. more label add obviously, and going think into with added be to of as to there And the be the I that all, the on content in our we more in progress continue is second be to well, content more subscription partners partners terms and package, premium we paywall have half. of

is that balance and So the bears and that experience, experience it user also mode. about we incentive fruit. we user of previously paid talk ad-based more this then as free between we I in think terms the free touched listening time, upon mentioned And will

as conversion We subscriber. entertainment platform listening are -- think low that strike free will very any way We very online, you're because users balance with us be able the good mode. on probability And a good of type bound with to to we to find to of progress have way become need to a portion they seeing a of monetize. that's for yet, a to

listening quite run free to is And free by a growing more for the basis ad-based mode rate mode XX% incentive listening generated on do ad-based is our that incentive of close revenue, us now, that's so correctly Right a good And -- speaking. well. ads the advertising to so. within incentive way free

So factor we serve experience. free provide to to to expect as the continue balancing user a good that

Operator

will with Citi. Our next come question from Yap Alicia

Alicia Yap

advertising. question a to the related have I

the the still share expect the And vertical Which among then So has sentiment can we to us with weak? reaccelerate which ad experience industry advertisers? a quite management -- on and growth leaning we when revenue basis, again? strongly industry verticals recovered actually accelerate are year-over-year can

Tony Yip

the result of well revenue think Yes. was weak measures, first quite the as pandemic on I as splash ads half. adjustments half, in the first the a advertising industry as Obviously, in

of the the the advertising as with as to situation to expecting as recovery improves pandemic are advertisers revenue of the advertising the recovery starting advertising format we've ongoing However, that see expand our mentioned, well half. well in macroeconomic as effort Couple improves, as our we that moderate demand. inventories see a second we are to

TME Beijing-Hyundai, ad interest or as In online, that Live events cetera. Sprite the parts mentioned as with the seeing events that addition we amount through increasing we interactive off-line et ones in the we interested or on or of are such and other inventories events, both that TMELAND ad that by and do in organized particularly of we are sponsors to we ad formats sponsored kind such incentive mentioned, Pepsi, various platform, that of

quarter, decent the food specifically as categories industry. beverages verticals, in staple, see well given the In e-commerce as from automobile terms and we as this of e-commerce, demand recovery, particularly season, such consumer June the

Operator

CICC. with from question come Zhang next will Xueqing Our

Xueqing Zhang

We to online launched have My short question summer. Live. some performance is saw the related video TME other during the live platforms

And position And landscape? TME about do just do we strategy monetization we the plan think Live? the for competition this so business? What's and how wondering how

Cussion Pang

Okay.

have we top I just plan the also long tiers, the not artists, verticals we the tier growing in for For having well. other very TME different are good Live, but a arrangement think as

really Accounts. with Video good the cooperation have We Weixin a

live We also capabilities our our projects. distribution strengthened for

so like and As the popular our traditional, and release of a concerts, lot call, arouse in do better the the some technology classic a also about And we improve of very that audio to the users. overall user the qualities, users. we during mentioned artists and from ensure Chou Jay of it of video also the quality our we help bring our the trying classical to mentioned top-tier to interest Cheung experience -- a advancing we the Leslie for new also

capabilities of to example, in interactive some to continued demonstrate have TME We in as program artists, well. for Live our the bring

and good off-line online very confidence, are So for have we collaborations our especially concerts. we an doing

that some and So all of to future. be there's we come more TME to great see definitely to our this Live programs in continue the going strengthen projects, will

Operator

with will question from Wei UBS. next Xiong Our come

Wei Xiong

speed quality balance earnings is than the the given My paying quarter, music and ARPPU. the and run or see this between the previous online rate question growth little addition. users this on lower paying the a focus bit our that seek user Congrats We subscription around on was also user quarter. net the addition paying

will of should half just to second our user spend paying the to paying how addition want check, So also I our retention? the And strengthen for we that think marketing next on user given rate focus controls, impact the cost about year? the the run

Tony Yip

Yes.

revenue goal revenue the the and healthy for growth subscription online just before, we subscriber be either a subscription the on leaning overall see As is or music for our in not ARPPU. to overly the mentioned overall

we will we a industry So because the want whole And focusing of as healthy on price. growth more to in from just do benefit quality we on offer believe the value the continuous to and our that both opposed see service subscription metrics in service to good of subscription cultivate the the user's that service music continues lot a results. think pay effort we to there's willingness for that

there more continue having on And long-term see we the we so a approach, focused of balanced are foundation plan. stronger we on the Obviously, we be at within growth, potential. the strong a that expanding lay privileges subscription service the by to for very which offer a same the to and time,

RMBXX albums, lot month, price to mentioned privileges Such is as to access access WeSing you sort for the which of effects, more long-audio get When access we digital the get we membership, to subscription, about that quarter, you to mentioned. music you get the the this more. add you high-quality the large to et get cetera, Ross premium et such you cetera. So that we continue of more of whereby normal get ones access super a double mentioned membership, a number a a as, VIP and Super

are that those stage, they roll we in the early good are as privileges appreciating to adopting, it's but traction seeing that and -- are And we're out. putting we are we VIPs. So Super people seeing

the quality people adopted that's XX% have feature, example, over to premium VIP. Super So for by who of sound subscribed the

more to well addition control spend. helped cost in improve us that also so as promotional And discipline as the ARPPU having in

Operator

question T. next H. come from with will Capital. Our

Unidentified Analyst

a that The [indiscernible], as Congratulations percentage would added say, from going et That's how with you content of guys long-term this for cooperation And -- artists? quarter. growth strategy or on cetera, and continues Tencent good Tencent to the many already enable And to have question. newly my much comes do users et function have you cost forward, guys of you guys distribution. to started driven our your like was And wonder, have them Tencent. to channel? how a, only how related hit albums cetera, to such add Tencent more are by instead to member more going numbers, sustainable what advertising I new

Tony Yip

Yes.

additional We colors have can I extensive perhaps collaboration as and very with well. Tencent. start add can Ross

as collaboration well side. music the side the both as extensive have Tencent, We with on production on content promotion

either And areas. in music of us Video, quarter, the many games see original together, either original Tencent they we of coproduced of for by that On big charts. for some on selected Tencent produced example. every content results these the side, that we production kind we IPs bucket of the are the mentioned -- content popularity songs almost very of or are IPs from in showcased terms produced of as some That's one that Tencent such or good

form through collaboration deepened of important for content are enrich music means Weixin an Video The bucket A the areas second us the It's the content. of in of big our promotion. is prime video-based Accounts. that example to

a of or of Music or platforms, content our All music-related video Accounts. Video Kuwo, Weixin be we it Kugou lot QQ through promote

vertical. content best music within Weixin the ranking fact, In the the in that provide amongst Accounts is the Music sort music we category of

more such have WeChat QQ -- and very organic. our product our have do to the as are QQ is Music. set to partnership a tones music And between on we've by in operation deepened years, music already serve so way. And in for don't a while our to is enjoy platform listen on music platform the of traffic at user established provider and finally, established very all a as Obviously, music for users then you collaboration, and to been to Music can back the many now go we channels from more to QQ for given after back perspective, songs. come Tencent you most more way features to rely explore which continue brands, can There Music ring lovers WeSing and using so We more example, discover TME through that and WeSing. music collaboration,

You and to songs in can personal et listened your using being Music, update provided profiles QQ cetera.

that continue. are more collaboration, expect seeing to and more we So and we

Operator

are Tony Mr. will host for call. the conference the I Yip, the call over remarks. to of turn We now closing end today, pressing your speaker now

Tony Yip

thank Well, Okay. call. for joining you our quarter earnings very much second

the free And questions, call. next have you, look forward to We further concludes this please you If quarter. Relations Thank all contact and you again Investor today's speaking goodbye. with feel team. to

Cussion Pang

Goodbye. much. you Thank so

Operator

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

You may now disconnect.

Tencent Music Entertainment (TME) 16 Aug 222022 Q2 Earnings call transcript