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Tencent Music Entertainment hits 55.5 million paying users in Q1, but profits decline

Tencent Music Entertainment says it has started seeing a moderate bounce back in the industry as China recovers form the pandemic.

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Tencent Music Entertainment (NYSE: TME) reported on Monday a record figure of 55.5 million paying users, driven by strong growth in its online music services on apps like QQ Music, Kugo, and Kuwo, which saw paying users grow 50.4% year-on-year (YoY) in the last quarter to 42.7 million.

The company hit total revenues of USD 891 million, a YoY increase of 10%, missing the consensus estimate of USD 898.16 million. Notably, revenues from online music subscription climbed 70% YoY to USD 170 million, and revenues of the online music services segment also grew at a steady pace to USD 289 million. Net profit attributable to equity holders decreased by 10% YoY and 25% quarter-on-quarter (QoQ) to USD 125 million.

However, Tencent Music Entertainment’s main revenue driver, social entertainment services, generated USD 603 million in revenue, with a sagging YoY growth of 3.3%, due to “the impact from the outbreak of COVID-19 and adjustments to certain interactive features in livestreaming,” the report said.

Although the paying userbase of social entertainment services expanded, the average revenue per paying user (ARPPU) of this business line was down by 12.9% YoY to RMB 111.1 (USD 16). This segment includes online karaoke and livestreaming.

The firm’s gross profit slightly declined by 2.8% YoY to USD 279 million. Gross margin was 31.3% for the first quarter of 2020, compared with 35.4% form the prior year’s level, since revenue sharing fees and promotion spending rose, according to the company.

TME also reported a non-IFRS diluted profit of RMB 0.66 per American depository share (ADS), above estimates of RMB 0.63 per ADS.

“While acknowledging the impact on our social entertainment services from the COVID-19 pandemic, we have started to see a moderate recovery recently,” said TME’s CEO Cussion Pang in the latest financial report.

Tony Yip, CFO of TME, added that the company has made significant progress in expanding its long-form audio content offering, underpinned by its partnership with online reading platform China Literature, which is also backed by Tencent.

In April, TME introduced an Audible-style audiobook and podcast app, dubbed “Kuwo Changting,” on track to strengthen its presence in the Chinese audio streaming market, KrASIA reported.

Apart from the long-form audio market, TME also taps into the business-facing music industry. It announced last month an investment in Radio Music Warehouse, a Chinese offline music solution provider, whose service cover hundreds of thousand spots such as hotels, restaurants, chain stores and commercial real estate.