Tencent Music Shares Drop Following Q2 Earnings Miss
Tencent Music Entertainment Group saw its shares fall by 6.4% in premarket trading after reporting earnings for the second quarter that did not meet analysts' expectations. The Chinese music streaming powerhouse posted adjusted earnings per American Depositary Share (ADS) of RMB1.07 ($0.15), falling short of the anticipated RMB1.10. Despite this, revenue was slightly above expectations at RMB7.16 billion ($985 million), just surpassing the forecasted RMB7.15 billion.
Surge in Online Music Services
While the overall revenue experienced a small decline of 1.7% compared to the previous year, there was a significant 27.7% increase in online music services revenue, reaching RMB5.42 billion ($746 million). This growth was largely fueled by a 29.4% rise in music subscription revenue, which amounted to RMB3.74 billion ($515 million). The number of paying users for online music also increased by 17.7%, reaching 117.0 million.
Decline in Social Entertainment Services
In contrast to the growth seen in music subscriptions, the company's social entertainment services and other revenues fell significantly by 42.8%, landing at RMB1.74 billion ($239 million). Tencent Music attributed this decline to changes in their live-streaming features and the implementation of stricter compliance procedures that were introduced in the previous year.
Management's Perspective
Cussion Pang, Executive Chairman of Tencent Music Entertainment, expressed optimism despite the earnings miss. "We are pleased to report another quarter of robust results, driven by the strong performance of our online music services," he stated. Pang highlighted the addition of over 10 million net subscribers in the first half of 2024 and the expansion of ARPPU (Average Revenue Per Paying User), indicating progress in the competitive Chinese streaming market.
Financial Health and Future Outlook
Even with the earnings shortfall, Tencent Music's gross margin improved to 42.0%, up from 34.3% the previous year, thanks to the growth in higher-margin music subscriptions and advertising services. The company concluded the quarter with a strong cash and short-term investments position, totaling RMB35.03 billion ($4.82 billion). This financial stability provides a robust platform for future strategic initiatives and potential market expansion.
