Tencent Music Q2 2024: Stock Drops 15% Amid Mixed Financial Performance

SHENZHEN, China, August 13, 2024 – Tencent Music Entertainment Group (TME), China’s leading online music and audio entertainment platform, announced its unaudited financial results for the second quarter of 2024. Despite reporting solid growth in online music services, the company's stock has experienced a 15% decline in response to the overall financial performance.

Financial Highlights: Mixed Results

TME reported total revenues of RMB7.16 billion (US$985 million) for Q2 2024, marking a 1.7% year-over-year decrease. This decline was primarily driven by a significant drop in revenues from social entertainment services, despite strong growth in the company’s core online music services.

• Music Subscriptions: Revenues surged by 29.4% year-over-year to RMB3.74 billion (US$515 million), driven by a 17.7% increase in the number of paying users, reaching 117.0 million.
• Net Profit: The company achieved a net profit of RMB1.79 billion (US$247 million), up 33.1% year-over-year. Net profit attributable to equity holders of TME was RMB1.68 billion (US$231 million), representing a 29.6% increase.
• Non-IFRS Net Profit: Non-IFRS net profit rose by 25.7% year-over-year to RMB1.99 billion (US$273 million).

Despite these gains, TME’s overall revenue was impacted by a 42.8% decline in revenues from social entertainment services and others, which fell to RMB1.74 billion (US$239 million) from RMB3.04 billion in the same period of 2023. This segment’s underperformance, coupled with increased competition and regulatory challenges, contributed to investor concerns and the subsequent drop in stock price.

Operational Highlights: Growth in Online Music

TME’s online music segment continues to be a bright spot, demonstrating strong growth in both user numbers and revenue:

• Paying Users: The number of paying users in online music increased by 17.7% year-over-year, totaling 117.0 million.
• ARPPU: The average revenue per paying user (ARPPU) rose to RMB10.7, reflecting a 10.3% increase.
• Content Expansion: The company deepened its record label collaborations and expanded its content library, contributing to the strong performance in music subscriptions.

However, mobile monthly active users (MAUs) in social entertainment services saw a steep decline of 31.6%, dropping to 93 million, down from 136 million in Q2 2023. This decline in user engagement in the social entertainment sector further exacerbated concerns about the company's growth trajectory in this area.

Management Commentary

Cussion Pang, Executive Chairman of TME, expressed optimism despite the mixed results:

"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."

Ross Liang, CEO of TME, emphasized the company's focus on innovation and user retention:

"Our focus on user-centric innovation continued to pay off, as we have seen a steady increase in both online music subscribers and retention. This achievement is the result of further enriched membership benefits as well as unique streaming experiences delivered to a broader user base."

Market Reaction: Stock Falls 15%

Despite the positive growth in the online music segment, investors reacted negatively to the overall financial results, leading to a 15% decline in TME’s stock price. The drop reflects concerns over the continued decline in social entertainment revenues, which have historically been a significant part of TME’s business model. The sharp decrease in social entertainment MAUs and the competitive pressures in the market have raised questions about the company's ability to sustain growth across all its segments.

Source: TME