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Tencent Music grows its revenues by 31% and beats analysts expectations in Q3 (updated)

The firm reached 35.4 million online music paying users, 4.4 million more than last quarter.

Tencent Music Entertainment Group (TME) announced on Monday a better-than-expected earnings report for its 2019 third quarter, supported by solid growth in paid user subscriptions across its apps, up 42% from last year.

The firm’s stock price inched 2.64% up to USD 14.37 per share after the report.

For the quarter ended September 30, 2019, the company reported total revenues of RMB 6.51 billion (USD 910 million), with a 31.0% increase of year-over-year, striking estimates of RMB 6.45 billion, according to Reuters. The firm also reported a net income of RMB 1.03 billion (USD 144 million), up 6.4% over last year.

“We continued our solid performance in the third quarter, driven by healthy growth from both online music and social entertainment services. We are particularly pleased to report accelerating growth of our online music paying users, representing a 42.2% year-over-year increase, as the net increase in the third quarter reached 4.4 million, achieving another quarterly high and outpacing the record growth in the second quarter,” said Tencent Music CEO Cussion Pang.

As China’s top music streaming and entertainment company, Tencent’s TME operates four platforms: QQ Music, Kugou Music, Kuwo Music, and online karaoke app WeSing. The firm’s core business consists of two divisions, online music streaming services, and social entertainment with online karaoke and music live-streaming platforms.

Revenues in Q3 from online music services increased by 26.2% to RMB 1.85 billion (USD 258 million), driven by growth in revenues from music subscriptions and sales of digital music albums, and offset by a decrease in sublicensing revenues from other music platforms.

Monthly active users (MAUs) of music streaming services reached 661 million, after growing by 42.2% compared to last year. Tencent’s added 4.4 million paying subscribers in this quarter, lifting its overall base to 35.4 million—the largest quarter-on-quarter net increase since 2016. The monthly average revenue per paying user (ARPPU) increased by 4.7% to RMB 8.9 (USD 1.27) over the prior year.

With 242 million MAUs, Tencent’s social entertainment services generated a revenue of RMB 4.66 billion (USD 652 million), up 32.9% year-over-year, making up nearly 72% of the company’s total revenue, propelled by revenue growth in both online karaoke and music-centric live streaming services. Paying users for these services rose 23.2% compared to last year. The ARPPU growth of 7.4% year-on-year for this section represents a decrease in comparison with the previous two quarters, where the company reported a 16.5% growth in Q2 and 28% up in the first quarter of the year.

Although the New York-listed TME performed well during this quarter, difficulties still lie ahead, as most Chinese consumers still close their wallets for music and competition from younger rival NetEase Cloud Music has increased.

Tencent’s Q3’s solid performance was partly owed to Won’t Cry, a hit song by Chinese super pop star Jay Chou, released earlier in September, which huge traffic even crashed QQ Music’s server after its debut. Jay’s fans purchased the track for a price of RMB 3 (USD 42 cents) over 8.53 million times in less than three days, bringing Tencent RMB 25.64 million in revenue.

However, Chinese Internet users are still not into the habit of paying for music. Tencent’s paying subscribers only took up 5% of the platform’s whole monthly active user base in the third quarter. In contrast, Swedish-headquartered Spotify reported in its 2019 Q3 earnings report released in October that nearly half of its 248 million MAU are paying users.

Therefore, some analysts say that Tencent is trying to attract users with music content and guide them to its social entertainment platforms, such as the popular app WeSing, to further entrench the traffic under its ecosystem.

Other competitors in China’s digital music market also set sights on the combination of music and social-networking to monetize their businesses.

Alibaba-backed NetEase Cloud Music, the runner-up in the sector with over 132 million MAUs, is catching up with Tencent at a fast pace. It launched a feature dubbed “Cloud Village” this year, which highlights a sense of community and allows listeners to share thoughts. The firm is reportedly seeking to spin-off Cloud Music and set it as a publicly-traded company, KrASIA reported.

Back to Jay Chou, the legendary idol has been the subject of a copyright lawsuit between Tencent and Netease. The latter was ruled to compensate TME RMB 850,000 (USD 121,487) for violating music copyrights that TME owns exclusively, KrASIA reported last week.

This article was updated to reflect developments.