Earnings call transcript Q4 2022

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Tony Yip

Good evening and good morning. Welcome to Tencent Music Entertainment Group’s Fourth Quarter and Full Year 2022 Earnings Webinar. TME announced quarterly financial results today after market close and earnings release is now available on our IR website at ir.tencentmusic.com as well as via Newswire Services. Today, you will hear from Mr. Cussion Pang, our Executive Chairman, who will start the call with an overview of our recent updates.

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

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

comparable discuss our Please Before in Harbor the also applies this note our you will we will which explained statement with recorded. which that under reconciled Instructions] and call release, measures are most that earnings Safe filings reported is in as we the and non-IFRS press make And refer thoroughly continue, to I the company’s measures to today, the earnings being more forward-looking today’s webinar advised company statements. IFRS to [Operator please release be SEC.

pleased Executive turn to to over Cussion? am Chairman TME. call Cussion, the that, With of I

Cussion Pang

you Hello, you, today. Tony. Thank and everyone joining call our for thank

our focus innovation effective firm strategy industry as year. delivered subscriptions a fast-changing on keen measures, the growth XXXX, bottom build Looking of growth in solid optimization execution macro progress highly growth steady line throughout cost a platform back our the engine a on rebound product and the in of content online in led music and we With high-quality environment. as well dual and

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Ross Liang

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Tony Yip

everyone. Hello, Ross. you, Thank

balanced with to to improved the we the COVID in have continue operating scale. cases users revenue growth and Most excitingly, measures capabilities music in our monetization online revenue Along strong and led efficiency with high-quality quarter-over-quarter, for boosting continued growth maintained amid subscription to both platform of churn year-over-year. During third the user delivered a cost users, aim growth quarter, high our non-subscription quarter. sequentially strengthen fourth Online a decline consecutive surge optimization fourth improve reflecting our efficiency increased in also that our mobile Meanwhile, MAUs. quality as competition the ARPPU achieved and subscription healthy and casual cohort, quarter year-over-year during approach. a the paying year-over-year and monetization of music trend and

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ad delivered channels advertisers, in Specifically, users. embraced and LIANG Coca-Cola, innovative format sequential TME including as in the musical fourth the its WU during for their given mode CHUN, advertising quarter quarter, to performance supported with Through strong Live appeal and partnership, Brand’s JD.com young leading music growth with particularly KFC TMELAND our revenues.

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Shirley Hu

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close XXXX. monetization operational keeping outlook I Finally, XXXX, success effective cost in in and the expansion and revenue XXXX, cost will efficiency and and management. comments growth will we expenses improvement some expense of upon and controls on with focus Built for while

our be merchandise, Our contributors continue growth [indiscernible], driver. customized to monthly to expected model, music [indiscernible] in important become will and monetization expand ad-supported artist suite and users continue grow. continue Paying the up core music tools of such as to we particularly subscription services, and expect key them to Meanwhile, VIP online XXXX. Super revenue are to

growth. and and and we as Furthermore, live investing keeping we content For pressures as entertainment face production, and new products high-quality with for stream competition expect long-term content to as macro audio still original invest revenue services will in changing extend from well in continue our international AIGC. keep social in and such technologies, challenges to footprint will headwinds,

growth confident industry are shareholders. long-term our We of the music providing company returns remain the overall on about and for and our high-quality focused investment sales

open our call ready Operator, are the concludes remarks. questions. we This to prepared for

Operator

first Alicia, your go Citigroup. today’s and is question [Operator Instructions] ahead. Yap Alicia from yourself And unmute from line Please opened. comes

Alicia Yap

Hi, also thank questions. for on the management. quarter. And you. solid congrats Good Thanks evening, my taking

comment margins concluding outlook. the Shirley bit also think also little XXXX XXXX the fundamental I trends, TME a with with So improving just and

for the growth So music what if growth XXXX? subscriber specifically, expecting revenue And the terms detail target social there a the or any your music trend bit the begin overall, are on ARPPU little elaborate expecting? expect you can into Thank declining is in year-over-year you’re online revenue change of more you the do you. for still any we that as also trend entertainment, management

Cussion Pang

for your question. Thank you

XXXX mid-single-digit So will net a expect both line top overall, low-teens percentage percentage. we of growth that bottom-line currently a around for as profit be revenues well of around year positive of as

strengthen healthy of continued investments to In as revenue level as well online subscription as our in both by to we driven that music our to music, of expect year-over-year, of operations. This revenue driven over continue entertainment the the growth from some during both services exceed by revenue addition, deliver ARPPU. quarterly primary – in source expect macro pro-growth we to within of our China’s In terms online growth services social XX% to growth users a paying at policies point year. is of become as this well

long meaningfully the growth. contribute advertising, expected audio, all IoT addition, In are to to services

compared social international delivering competitive expected entertainment continue live while social businesses of to that can streaming to terms face growth. by Net-net, streaming means to of continued traditional decline entertainment, and combining is our year. rate pressure, In efficiency, audio compensate we to of video milder above live partially healthy the on focus all management a also with expect currently our improve XXXX. to And see improve last net cost into margins

Operator

Thank you.

open. line comes is ahead. from Morgan un-mute Alex question and your yourself Stanley. next Poon Alex, Please from go Our

Alex Poon

music faster social segment faster and now, because segment, results. gross we Congrats segment to and social continues for ‘XX, growing lower gross In very news question margin how margin have as related maybe achieve social. still trend sustainable are the than even is and expansion than ‘XX margin is management this XXXX in even is in maybe than longer. My the to able to gross we still strong on ‘XX, grow music

the X our will next to gross how year years? profile So, change over margin X

Shirley Hu

margin. about X.X% is margin. our Gross Okay. increased are positive increased factors There by margin gross on will XX% QX, talk in gross I and year-over-year several X.X% sequentially. by

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on Our operational the based sequentially. costs year-over-year decreased

gross the revenue of While change social entertainment negative the decrease mix social of entertainment revenue revenue on margin. in has impact and a

Looking XXXX, all factors will also be forward be negative also to these factors can continued. and positive continued the

will growth. and suite AD artist-related merchandise, such will our super expect we tools online membership revenue monetization of as expand We advertisement, the continue keep supported to VIP music

XXXX. our on in focus efficiency units and we So, cost – increased to control to of tightened continue will business all forecast terms

So, margin XXXX. increased on will in year-over-year basis expect our we gross a be

Operator

from is question line next go yourself from ahead. our Please your Sachs. And you. and Kong Goldman Thank Lincoln un-mute Lincoln, open.

Lincoln Kong

far, is results. for let’s about talk support see good you, we we year-to-date say, model. recovery business. enterprising so question How us? enterprising management. do Congrats Thank this ad And My the on demand on the

our or terms about creating here? What’s ad to of new the monetize the progress i.e. in [ph] into inventory, how of more we our So, outlook how do ads here game think especially format ‘XX. better

Tony Yip

for you Thank question. your Yes.

a a continued healthy recovery splash reopening see revenues, at in ad screen post-COVID. the to following to continued the especially We advertising recover The pace.

due ad-supported quarter, and be continued fourth – reopening, expect to that, of then We many opportunities. to the more in while about addition advertising with and In advertising COVID. there sponsorship for percentage ramp it to weakened mode currently the sponsorship during account of thirdly, terms as advertising a events to temporarily live do up mid-teens advertising result, roughly revenue. advertising, the And

that, in strong given in did year ad And a year recovery expect terms and this also e-commerce the e-commerce do then of business. well we a as saw fourth the growth services beverages, electronics all-in-all, services we a continued verticals, vertical. advertisers. from we of consumer verticals to be Internet food in where saw to positive in So, then seasonality, local the for addition in meaningful demand general, are and as year quarter, the And increase

Operator

our Securities. un-mute is And Lei open. line you. Bank your from and from go next Lei Please Thank America of ahead. question yourself Zhang, Zhang comes

Lei Zhang

us question Hi we on good regarding your for solid a is you. sales my plan investment and can color mainly XXXX taking you management. My XXXX? marketing since for give cost year, in Thank congrats so more question and you have last results. and the control pretty Thank

Shirley Hu

focus We tight user Okay. of healthiness we a marketing on decrease expenses, when such QX as of and resulting on the and paying business. promotion control have a About year-over-year and selling And engagement, and continuously and we evaluating the on users. taken level reach the selling user balanced basis. retention expenses more in managing monetization XX% in MAUs

promotion and will our MAUs, that promotion decrease external upgrading very selling We in future. XXXX, and In XXXX. of to year-over-year internal operated will and content those at improve compared cutting be be be the a each and will of selling way limited will and promotion, our will for we eye be a in basis, the manage low new efficiency continued channel XXXX, level our the the resources yes. to expenses in And more expenses degree a invest will on in marketing but further monitor effectively, so

Operator

question Please yourself go you. open. ahead. UBS. is Xiong, un-mute And next comes Wei and from line our your Wei Xiong from Thank

Wei Xiong

some taking management thank question. Good for you evening my I get to AIGC. your want and around of Hi. thoughts

As management mentioned, we leveraging are area. possibilities technology and in exploring that

related TME’s to are Thank opportunities how investment you So, that? we around benefits plan what potential What and positioning pursue implications And of potential the strategic that or the we to some be year? business cost this do AIGC? assess could

Cussion Pang

will always more in Clearly, applications. have in We with models. LLM, focus invested recently a lead in large that particular, language AI, to

with of Other also musicians to more greeting XXXX, we conversational platform. the in and continue our synthetic of to posters, that LLM and Into all in for reduce partnerships own which drive to should would our high-quality applied well industry. music-related in being recommendation voice, And already overall, cards, examples to invest our creativity help dramatically good will to conversational will barrier R&D result their include applications in Examples more creativity. is which leverage applications content, the overall playlist a as music We include are Tencent. as currently would setting.

Operator

from go line yourself comes Xueqing Please open. And and Thank our from Xueqing, next un-mute Zhang your you. is CICC. ahead. question

Xueqing Zhang

about to of this for the promotions, And us content taking that a management by business. continued in subscription just attractive the it prepared more in may how color Hey. music music so does driven remarks, channels privileges, on program industry? follow-up give be pool this think noticed the the side Thanks quarter We the way. Thank member improvement first optimized And more you. a on You question. sales effective quality, improve content more more in mentioned and quarter?

Tony Yip

ARPU yes. Well, things we the We to continue the improve, that the driven is do mentioned. expect to short all by answer

of engage to combination of the as that platform in by include we offering, which as helpful And the as improvement a of when as internal of more promotions. higher external obviously, the broadened outside our kind are channels channels quality platform of membership, and sales which to promotions, effective lead our a our more do promotions, in channels ROI privileges well within ARPPU. So, effective would in membership the well comprehensiveness continued more quality

Operator

yourself is you. And question your Thank Chong Thomas, Jefferies. open. next go ahead. comes and line Thomas Please un-mute our from from

Thomas Chong

evening. competitive and My my Thanks about the of management on result. is for landscape. questions taking congratulations good Hi. question Good set

and of spending I online competitive in and surpassing how the stabilized is point revenue mix, to Given we services seeing are from think question music should with social the and online just the this about color margin that get video? in some at that’s terms to second Thank form landscape about some more year. marketing regard long-term sales improvement, want for my short you. contribution entertainment And the we less music long-term? services revenue the threat

Tony Yip

revenue about I will second first the mix. tackle part the

we – entertainment. surpass to we online expect music As the social revenue services do mentioned, music

what continue to expect mean would over the that that run. clearly, long we so long And into run, the

expect the primarily looking grow into than growth then by see have revenue obviously at in the the as that XXXX, year-over-year IoT effects quarter, of do be faster as a and at a non-subscription services offsetted north music of that slightly just revenue, primary album XX% will source I to subscription music XX% And a we long that, then subscription as as the mentioned. will going sub-licensing. low you then seen non-subscription And the being one-off digital online music advertising well, grew think over grow we which in audio forward in areas of revenue be on is well due will pace pockets the obviously different. basis, opposed but to So, to volatility Music in effect. services, somewhat growing we very online services, XXXX. base fourth Within

Operator

And our next you. Thank question…

Ross Liang

merchandising the help e-commerce Those started as revenue opportunities. with mentioned, content artist-related some licensing strategy to some and which to can also, also streams new revenue, will And rising to of help content monetization And also our TME, we the further future. have some unique starting us reductions, through is with life we and also explore the brings. to platform TME content us sponsorship now have and in

Operator

you. Please from open. Thank question Charlene, line ahead. next Charlene your And our go yourself un-mute is from Liu Okay. and HSBC.

Charlene Liu

so two questions. I Thank much. have you

First, macro on could room still the first us That’s from much. improve I for impact subscriber share reopening? first margin, we would post a that into think kind that is mentioned to and profit music? investments willingness of should had pay can to your so P&L is, how expectations mid-term you growth What target be gross offline Thank of And for you think question impact to further. subset Separately, I GPM resumption management entertainment, has about paid from for recovers as standpoint? also, a it how LLM think question.

Tony Yip

subscriber take will bit and a perhaps around part of can on the comments Shirley I first growth the gross margin. add

trend. following secular Our a subscriber been growth has

of see irrespective COVID, to a trend growth. the we continue So, irrespective behind of secular subscriber reopening,

on revenue as Our a subscription Barry whole as [ph] offline And activities. and as by more focus driven paying is mentioned both is well offline ARPPU. user much growth which more

and as a we mentioned, also sponsorship I us revenue benefit the mind in because Cussion that a number offline generate of events result. meaningful monetization, as think a vast we form in amount of bear that organized of advertising advertising music

COVID. that impact quarter, showed part fourth the business the us of some because During of actually temporary

result. there the impact to with positive revenue to expect activities, Now be actually with offline a advertising a and more reopening sponsorship as we the

a addition music So, that as driver to in our second to would help subscription. growth act online revenue

Shirley Hu

came for we And about our margin the same overall music, of gross the we can And the gross margin the – have Spotify. rate believe of about company, to we margin gross in our will that in the is IPO, and gross in XXXX, XX%, will mentioned our margin long-term XXXX. increased our margin, that in yes. higher gross than And be be target believe

Operator

open. CICC. question and and Xueqing our ahead. line from from you yourself Zhang un-mute Xueqing, last is Please today Thank will we your take go

Xueqing Zhang

give labels collaboration management one labels color question. for question Music, can it TME B’in does on And that more with out And Thank JVR and announced reached on cooperation. an more our gross agreement and another you. we Thanks so today, affect how margins? some

Ross Liang

partners, we music just repeat music and to our development an be also many and internationally. try IP and Yes. for insist domestically We labels drive and we to right the able of Chinese the Can a put for artists industry. healthy best

music comprehensive of provide music and content So in most for top-page users also currently, the the best library China. we

events of to the in our technologies work also labels continue we the live Chinese I live in Besides, are we relationship, is the is there promotions that the will music we and are better the with now market manner. of think a seeing opportunity music that that on content as us event focusing of can lot the co-productions in continuing do meeting with coming in some a the up. long-term also to – help reopened,

going music we labels. quality Live, But to and our that of we some festivals for house expecting live in we year, of we are extremely last as like with well. offline them are more are events artist And shows partners have top in have the events concepts, can are shows music also this online. more TME that So, year. music doing Most good

think world we that over partner all a the the I and music the also and we partnership most trustworthy the that really demonstrated with are So, have people good them. labels long-term of with

So, more we future. coming the expected to have in-depth cooperation in have

Operator

you. Thank

closing I are call now turn We host, will Yip remarks. for end Tony approaching over of our call. Mr. conference the the the to

Tony Yip

for everyone us today. you joining Thank

you If team. This you to IR do have to our free further questions, you call. concludes today’s time. talk Thank feel next please and contact

Tencent Music Entertainment (TME) 21 Mar 232022 Q4 Earnings call transcript