Tencent Music Entertainment Group - Earnings Call - Q4 2024

Transcript

Millicent Tu (Head of Investor Relations)

Good evening and good morning, and welcome to Tencent Music Entertainment Group's Q4 and full year 2024 earnings conference call. I'm Millicent Tu at IR. We announced our quarterly financial results earlier today before the U.S. market opened.

The earnings release is now available on our IR website and via NewsWire services. During today's call, you'll hear from Mr. Cussion Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our operations and business strategy updates. Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statements in our earnings release, which applies to this call as we are forward-looking statements.

Please note that we discuss non-IFRS measures today, which are supplementary, and reconciled to the most comparable measures reported under IFRS in our earnings release and filings with the SEC. All participants are muted at this time. After management's remarks, there will be a Q&A session. Please be advised that today's call is being recorded. With that, I'm very pleased to turn the call over to Cussion, Executive Chairman of TME. Cussion.

Cussion Pang (Executive Chairman)

Thank you, Millicent. Hello everyone, and thank you for joining our call today. 2024 marked a year of significant progress for TME, characterized by a return to top-line growth and impressive profit margin expansion, fueled by robust performance in online music services. Our pioneering initiatives to grow and diversify our services across the music value chain have successfully reshaped the industry landscape and enriched our ecosystem.

This, in turn, has effectively boosted our subscriber conversion efficiencies and lifetime value. We closed the Q4 with advancements across key areas of online music business. As an example, in addition to continued strength in music subscriptions, our advertising and artist-related services will deliver strong growth, laying a stronger foundation for future development. As we enter 2025, we are building on this momentum to unlock further value for both creators and users alike.

Our dual engine strategy, combining rich content and platform innovation, positions us to capture emerging opportunities and efficiency gains across our platform. We are optimistic in the company's future growth prospects, which is reflected in our announcement of an annual dividend of $273 million and a new and expanded share repurchase program of up to $1 billion. At the heart of our mission is empowering musicians and delighted users with exceptional content.

Our vast library of content covers all music genres and almost every aspect of the music industry, providing a seamless and holistic user experience on our platform. By the end of 2024, our music and audio library exceeded 260 million licensed and co-created tracks from domestic and international labels, up from 200 million at the end of the prior year.

To enhance our users' music listening experience, here are a few highlights worth sharing, which help contribute to new record highs of users' average daily time spent. First, we recently renewed our strategic contract with international labels, including SM Entertainment and Kakao Entertainment, expanding our coverage of high-quality music content libraries. These collaborations have also fostered a deeper cooperation in areas such as premium sound effects, live concerts, and artist merchandise.

Additionally, we have established partnerships with renowned Chinese artists such as Zhao Lei and Luo Dayou, enriching our music library with hundreds of Chinese classics and providing TME's users head-start access to new songs' releases. Our industry insights and extensive resources continue to support artists in their creative journey. For example, in the Q4, we collaborated with our strategic partner, artist Angela Zhang, to produce, release, and promote her album, Conflict, with [Foreign language].

With our platform elevated influence, we expanded her reach to a broader audience of music lovers, earning widespread acclaim. Additionally, we produced theme songs and original soundtracks for Tencent Video blockbusters, including Blossom, Chong Zi, and Guardians of the Dafeng, Dafeng Da Geng Ren, as well as for movies such as A Tapestry of a Legendary Land, Zhi Ci Qing Lu, and Tiger Wolf Rabbit, Yu Huo Zhi Lu.

These songs quickly garnered praise from music lovers and movie viewers alike. Second, we remain at the forefront in music consumption when it comes to innovation. As an example, we transformed fan engagement through unique digital and physical experiences such as artist merchandise and live experiences.

In the Q4, while we produced physical albums for Xiao Zhan and Zhang Yixing, we also provided options for users to purchase Yu Shuxin merchandise along with her digital albums and create immersive experiences. Such an approach not only boosted album sales but also opened new avenues for artists to connect with fans. We also partnered with Mayday Wu Yue Tian to host a groundbreaking online New Year's Eve concert, which was promoted across multiple short video platforms and social media channels.

The concert's success and popularity earned us broad recognition and reinforced our commitment to delivering innovative music experiences. Third, our SVIP membership remains a cornerstone of our strategy. Catering to the unique needs of our most dedicated users by adding comprehensive privileges to our SVIP experience, we saw a strong sequential growth in membership and ARPPU.

For example, JJ Lin's latest album, Turn of a Page, Guāngyīn Fùběn, is now available to SVIP members. We have also introduced new SVIP perks, including high-definition viewing of Mayday Wu Yue Tian's and Jackson Yee Yi Yang Qian Xi's online concerts, delivering an unparalleled experience for our most loyal members. We will roll out more VIP access, meet-and-greet opportunities, limited-edition merchandise, personalized experiences, and more, while empowering artists and record labels to explore new ways to interact with targeted audiences.

Last but not least, we recognize that our success is deeply tied to the well-being of our planet, people, and communities. As such, our commitment to ESG excellence is ingrained in our culture and business practice. In 2024, we made significant strides in supporting female musicians to foster a more diverse and inclusive music community. The number of female artists we supported reached 192,000.

Additionally, in the Q4, we partnered with the Ministry of Education and multiple NGOs to launch the Writing Songs for Pandas initiative, designed to promote public biodiversity awareness through the influence of music. Overall, we are pleased with solid performances that we have achieved in 2024. We are looking forward to delivering more high-quality growth in 2025, and we will continue to collaborate with industry partners to nurture a vibrant music ecosystem that brings people together. Now, I would like to turn the call over to Ross for more details on your overall platform development. Ross, please go ahead. Thank you.

Ross Liang (CEO)

Thank you, Cussion. Hello everyone. In addition to our enriched content offering, our ongoing focus on exceptional user experiences and music consumption scenarios innovation has been a key driver of our growth. These efforts have propelled us to the forefront of China's music streaming industry and will remain central to our future growth strategy, further enhancing the value of music. Benefiting from our ever-expanding content ecosystem and stronger user engagement, our online music services have again delivered robust growth in the Q4.

Our subscriber base continued to expand, and ARPPU showed solid growth year-over-year and quarter over quarter. Our SVIP membership has also made good progress, with user statements notable here and ARPPU steadily expanding. To foster user loyalty, we have optimized the efficiency of our recommendation algorithm, harnessed AI to bolster novel user experiences, and enriched music consumption scenarios to expand our reach.

These efforts led to a substantial increase in user time spent on our platform in the Q4. Let me give you some key examples. First, we empowered users to curate and accumulate personal music assets, which helped enhance their sense of belonging and stickiness. By optimizing algorithms and improving the user interface, we made music discovery more fun and efficient. This led to the steady growth of recommendation-driven streams year-over-year and quarter over quarter, alongside a 10% year-over-year increase in user song collections.

The latest revives to QQ Music and KuGou Music also provide users a more intuitive and personalized way for navigation. Second, we further elevated sound quality with our AI-powered audio effects and voice extraction technology, which are resonating very well with users. These features have become an important draw for our SVIP membership program.

Our sound effect LLM analyses the audio to match each song with the most suitable audio setting, ensuring optimal audio streaming performance. Our AI voice extraction filters allow users to separate original vocals and instrumental tracks with a single click. Users can either sing alongside their favorite artists or enjoy instrumental-only mode for karaoke sessions. Third, we continue to expand music consumption scenarios, allowing users to enjoy music wherever they are, however they listen, and whatever moment they are in.

During the Q4, we broadened the partnership with mapping service AMap and Baidu Maps to roll out a music navigation feature, providing users with a smooth and uninterrupted music streaming experience on their road. Through our in-depth collaborations with electric automakers such as BYD and XPeng, we enriched the users' in-car entertainment experience by introducing AI voice extraction and karaoke features.

We are pleased to see that our IoT space recorded steady growth with year-over-year and quarter-over-quarter increases in the Q4. To better serve users on multiple terminals on TME, we also refined the PC streaming user interface and introduced an innovative lyric display function in the Windows Taskbar all of which helped enhance users' music companionship. Moving on to some novel features and fresh experiences we brought to users through constant innovations.

First, we integrated the advanced capability of DeepSeek LM to enjoy a more tailored and inclusive music creation experience. For instance, leveraging DeepSeek's lyric generation capabilities along our AI songwriting feature, users can quickly create songs tailored to specific contexts or moods. We also integrated DeepSeek into our AI assistants, comment sections, recommendation pages, and other user touchpoints.

This allows users to easily access interesting music information, research song comments in diverse styles, and enjoy a more personalized music experience. Second, we launched a virtual fan community that empowers users to express their feelings for artists and music. This immersive platform, co-created by fans and artists, enables users to personalize profiles, design communities, and engage in multi-user synchronized screen sharing and voice chat.

It has cemented the bond between artists and their followers while driving user engagement and ecosystem vitality. Notable examples in the Q4 include the virtual communities of NCT, Tan Jian Ci, and Teens in Times Shi Dai Shao Nian Tuan, with their fan base growing significantly since launch. Third, our interactive and incentivized advertising has been effective in enabling advertisers to reach a broad music audience, increasing adoption strength of our users and brand connections.

It in turn contributed strongly to our advertising revenue growth in the Q4. Altogether, we have progressively redefined the music experience for our users and grew our ecosystem into a thriving hub for music creation, promotion, and consumption. As we look ahead to 2025, we will continue to embrace AI technologies to empower innovation, always the goal of creating the most beloved music platform for our users and creators. With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Shirley Hu (CFO)

Thank you, Ross. Greetings to everyone. Let me now turn to our financial results. In the Q4 of 2024, our effective monetization of online music services and operational efficiency management continued to drive robust financial results. With strong performance in our music subscription and advertising business, revenues continued its growth trajectory and achieved an 8% year-over-year growth.

IFRS net profit increased by 47% year-over-year to RMB 2.2 billion, and non-IFRS net profit rose by 43% year-over-year to RMB 2.4 billion, marking the highest quarterly profit in our history. Total revenues in the Q4 of 2024 were RMB 7.5 billion, up by 8% year-over-year. Online music revenues increased by 16% year-over-year to RMB 5.8 billion. The increase was mainly driven by strong growth of our music subscription revenues, supplemented by growth in advertising revenues.

Music subscription revenues in the Q4 of 2024 reached RMB 4 billion, representing an 18% increase year-over-year and a 5% rise sequentially. Monthly ARPPU was RMB 11.1 compared with RMB 10.7 in the same period of last year. The number of online music paying users was 121 million, representing a 13% increase year-over-year, with quarterly net adds of 2 million users.

We have made good progress in our SVIP membership program, driven by the further expansion of comprehensive user privileges, including enhanced audio quality and effects, an expanded digital album library, and exclusive benefits for online concerts. Advertising revenues also achieved strong year-over-year growth, primarily due to the growth in ad-supported model revenues. We continued to optimize our product offerings and advertising formats.

The introduction of attractive interactive filters and enriched benefits boosted the entrance rate for our ad-supported advertising, enhanced user engagement and ECPM, and attracted a great number of advertisers this quarter. Social entertainment services and other revenues were RMB 1.6 billion, down by 13% year-over-year. We continue to innovate and develop new products and interactive filters for social entertainment services.

Our gross margin for Q4 reached 43.6%, representing an increase of 5.3 percentage points year-over-year, driven by several factors. First, the robust growth of our subscription revenue, including SVIP memberships, advertising revenues in both online music and social entertainment, and WeSing memberships have positively impacted our gross margin. Second, the scaling of our own content further improved our gross margin. Third, ROI continues to be a key metric in managing our content royalties costs.

Finally, for social entertainment services, the decline in revenues showed increase outpaced the decrease in revenues. Moving on to operating expenses, in the Q4 of 2024, they amounted to RMB 1.2 billion, representing 15.7% of our total revenues, compared with 18.4% in the same period of last year. Selling and marketing expenses were RMB 248 million, down by 3% year-over-year. We will maintain our ROI-focused approach for promotion expenses while directing investments toward areas with long-term growth perspective,

such as online music and content promotion. General and administrative expenses were RMB 926 million, down by 8% year-over-year, primarily driven by non-employee-related expenses. The finance cost in the Q4 of 2024 reflected an unrealized foreign exchange gain arising from treasury management activities, which was largely affected by the fluctuation of exchange rate between RMB and USD as of September 30 and December 31st, 2024.

Our effective tax rate for Q4 2024 was 16.9%, compared to 17.3% in the same period of 2023. We accrued withholding tax of RMB 110 million in the Q4 of 2024. In Q4 2024, our net profit increased by 47% to RMB 2.1 billion, and the net profit attributable to equity holders of the company increased by 50% to RMB 2 billion. Non-IFRS net profit increased by 43% to RMB 2.4 billion, and the non-IFRS net profit attributable to equity holders of the company increased by 45% to RMB 2.3 billion, respectively.

Our diluted earnings per ADS this quarter was RMB 1.26, up 52% year-over-year. Non-IFRS diluted earnings per ADS increased to RMB 1.47, up 47% year-over-year. These results underscored our effective monetization, enhanced operating efficiency, and the benefit from our share repurchase program.

As of December 31st, 2024, our combined balances of cash equivalents, term deposits, and short-term investments were RMB 37.6 billion, as compared with RMB 36 billion as of September 30, 2024. This combined balance was also affected by changes in the exchange rate of the RMB to USD at different balance sheet dates. In January 2025, we completed the $500 million share repurchase program announced in March 2023, of which approximately $100 million were repurchased in the Q4 of 2024.

Today, we are announcing another share repurchase program to repurchase up to $1 billion during a 24-month period, commencing from March 2025. Next, I'll briefly discuss our performance for the Q4 of 2024. Total revenues were RMB 28.4 billion, up by 2% year-over-year. Revenues from online music services were RMB 21.7 billion, up by 25% year-over-year.

The increase was driven by strong growth in music subscription revenues and revenues from advertising services, supplemented by growth in revenues from offline performances. Our music subscription revenues were RMB 15.2 billion, up by 26% year-over-year, driven by growth in both paying users and monthly ARPPU. Revenues from social entertainment services declined by 36% year-over-year. Gross margin in 2024 was 42.3%, up by 7 percentage points year-over-year, due to the reasons discussed earlier.

Total operating expenses for 2024 were RMB 4.7 billion, down by 7% year-over-year. Selling and marketing expenses in 2024 were RMB 0.9 billion, down by 4% year-over-year. General and administrative expenses were RMB 3.8 billion, down by 8% year-over-year, primarily due to lower employee-related expenses. In 2024, we achieved record high annual net profit of RMB 7.1 billion, up by 36% year-over-year. Net profit attributable to equity holders of the company was RMB 6.6 billion.

Non-IFRS net profit and non-IFRS net profit attributable to equity holders of the company was RMB 8.1 billion and RMB 7.7 billion, respectively. Finally, I'll conclude with some remarks on our outlook for 2025. Looking ahead, we will focus on driving high-quality growth in our music business through expanding SVIP memberships and growing our advertising business. We will also continue to diversify our offerings across the music value chain.

We will continue to invest in areas such as original content production, high-quality content, and innovative technologies globally to further boost the user engagement, elevate user experience, and enrich our ecosystem. We remain confident in the healthy growth prospects of both the music industry that we are part of, and we remain committed to delivering strong returns for our shareholders. This concludes our prepared remarks. We are now open for your questions.

Millicent Tu (Head of Investor Relations)

Thank you, Shirley. If you are dialing in by phone, please press five to ask a question and then six to unmute yourself. If you are accessing the call from the Tencent Meeting or VooV Meeting application, please click the raise hand button on the bottom left. For the benefit of all participants on today's call, please can you limit yourself to one question, and if you have an additional one, please re-enter the queue. If you ask your questions in Chinese, please repeat in English. The first question comes from Alicia Yap from Citi. Alicia, please.

Alicia Yap (Equity Research Analyst)

Thank you, Millicent. 管理层晚上好。感谢接受我的提问。我想管理层能否就分享一下我们如何看待2025年增长的一些前景跟这个指引，比如说音乐订阅收入的增长，会员的净增长的一些预期，然后还有这个非订阅音乐的收入增长，尤其是在广告这边的收入增长，是我们这应该如何看待。然后还有就是我们25年的这个毛利率和净利润率的一些趋势，我们应该怎么去做我们的这个预期。我自己翻译一下。

Good evening, Management. Thanks for taking my questions. I wonder if Management can share some guidance and direction of how we should be thinking about the 2025 growth outlook, especially in terms of the music subscription revenue growth, the net expectation, and the non-subscription music revenue, especially on the online advertising growth, as well as the gross margin and also the net margins trends that we should be expecting for 2025. Thank you.

Cussion Pang (Executive Chairman)

Thank you, Alicia. Thank you so much for your questions. Before we are going to dive into the 2025 outlook, I think it would be good for us to have a quick recap on the key strategy and achievement that we have done in 2024. As I mentioned earlier during today's call, I think that 2024 was a very standout year for us.

The strong performance of the online music services, which drove the high-quality growth of the company, and we saw the higher fee revenue growth and notable margin expansion, which highlights the potential of our rich service offerings as well. Our focus on user experience and continuous product and service innovation has been crucial for our success. This has been evidenced by a balanced expansion in both the subscribers' database and also the ARPPU over the past few quarters.

Both the subscription and other music-related businesses record a very strong performance. In particular, our robust content ecosystem continued to be the cornerstone of our subscription service and has fueled the growth of emerging businesses like artist merchandise and also concerts, both of which saw strong top-line growth in 2024. Secondly, we are also seeing that our innovative reward-based advertising enhances user engagement and enables advertisers to efficiently reach their target audience and optimizes the ROI.

Last but not least, I think that our SVIP services have gained very significant recognition from both users and the music industry, driving higher user stickiness and ARPPU, further demonstrating our strong execution capabilities. All of this has really laid a very solid foundation for the future development of our business.

I think in a nutshell, in the year of 2025, we will continue to focus on strengthening our business presence across the music value chain to offer the users more diverse and engaging music entertainment experiences. We are optimistic about our growth trajectory for the year and continue to expand accelerated top-line growth and better margins for 2025 as well. Also, the online music is expected to achieve a healthy growth and is driven by a steady increase in paying users and ARPPU. We will continue to explore new business opportunities like the content ecosystem, IoT, long-form audio, and international markets as well. Thank you.

Shirley Hu (CFO)

Gross margin is 43.6% in Q4 2024, increased by 5.3% year-over-year and increased 1% quarter over quarter. Our gross margin has been expanding over the past several quarters due to a few key factors. First, the rapid growth of our subscription revenue, including SVIP memberships, advertising revenues in both online music and social entertainment, and raising memberships has contributed to gross margin expansion. Second, the scoring of our own content further improved our gross margin.

Third, we have continued to optimize our content cost structure and remain focused on improving our ROI on all cost items. Fourth, the optimized live streaming revenue sharing cost strategy, the live streaming revenue sharing ratio decreased. The decline in revenue sharing fees outpaced the decrease in live streaming revenues. Looking forward to 2025, we believe the above factors will continue to play an important role in further expanding our gross margin.

About the adjusted net profit margin, we will continue to manage our S&M expenses rationally using an ROI-based approach while increasing investments in online music and content promotions. We will continue to focus on technology empowerment and explore industry innovations and new opportunities brought by emerging technologies. Operating expenses are expected to increase slightly, with the operating expense ratio remaining flat in 2025. Looking forward to 2025, assuming a stable external environment, we expect our revenue growth to accelerate with room for improvement in both adjusted net profit and margin.

Ross Liang (CEO)

对，那广告方面，因为我们目前的广告形态主要是应该有三种主要的形态，一个是闪屏，一个是免费的听歌模式，以及我们现在的新的网赚模式。

I also would like to comment on the advertising business. For our existing advertising business, we have three forms. The first one is a splash screen. The second one is a free listening mode by watching the ads. At the same time, we also have the website model.

所以在未来的时候，我们应该在25年我们预期在网赚模式和就新的这个模式的驱动下，我们的竞价广告还是能取得非常健康的增长。

Where I believe that in the future, especially in 2025, with our website model and the online earning model, our model will help to drive the bidding advertising to achieve a healthy growth.

所以我们同时也会关注对于广告主的运营，包括我们在消费品市场以及奢侈品市场，包括在现在的网服跟游戏部分去拓展广告主领域的去拓展我们的广告主，让他们能够在我们这个整个的平台上获得更高的用户，同时也能够我们达成一个非常好的一个合作的模式。

At the same time, we will also pay much attention to the operation of the advertisers, especially in the consumable market and the luxury product market, and also serving the online service and the game industry. We will continue to engage advertisers from different industries, help them to further enrich their reach to the target audience so that we can work with them to help to establish a good cooperation model.

所以我们预计在应该在25年我们的网赚模式会取得比较好的进展。那么我们将即使在我们非会员DAU在下跌的情况下，我们仍然还是通过我们这样的一个广告形式的多种布局能够让我们广告收入取得比较良好的增长。

We believe that in 2025, our website model will continue to make good progress, even if the non-subscriber DAU is dropping. Still, by diversifying the format of the business of advertising, we will continue to improve the stream of the revenue in advertising for healthy growth.

Millicent Tu (Head of Investor Relations)

Thank you. The next question comes from Lincoln Kong from Goldman Sachs. Lincoln, your line is open.

Lincoln Kong (Executive Director)

谢谢管理层接受我的提问，也恭喜公司2024年取得非常强劲的业绩。那我的问题是关于还是关于我们的会员和这个up这一块的。我想问一下，就到2025年，我们应该怎么样去想，就管理层在怎么样去想这两者之间的一个平衡和priority。一是我们看到就是会员可能第四季度是200万的一个新增，那这个速度是一个我们可以往2025年继续期待的一个情况吗？然后up这边，我们之前推出的这个SVIP。不知道目前的这个用户的留存的状况怎么样，应该怎么想2025年的这个up的持续的一个增长。

Thank you, Manager, for taking my question. Congrats on the very strong 2024 result. My question is about the balance between subscriber and up growth and our priority here. First of all, we have seen 2 million adds in the Q4. Should we expect a similar pace of growth into 2025 Q4? For up, how's the sort of the user retention rate for the SVIP at the moment? How should we think about the potential up continue growth into this year? Thank you.

Ross Liang (CEO)

对，正如我们刚才提到的，对于25年的收入跟利润，我们还是非常有信心完成的。就是这个目的，我们自己还是比较乐观的。那么刚才具体具体到包月，在包月用户包月这个业务上，我们认为我们的包月用户数跟up值up这部分仍然会继续保持健康的增长。

Thank you very much. Thanks for your question. As we mentioned earlier, we still remain confident on the revenue and profit growth in 2025. At the same time, in my presentation, we also mentioned about the subscription model and the subscriber. We believe that the subscriber number and ARPPU will continue to grow.

当然我们也会要注意，其实根据确实还是在市场上也存在我们的一些竞争对手，我们也会根据他们的变化，我们自己会平衡好我们的运营的指标来实现我们其实高质量的一个收入跟利润的增长。

Where at the same time, we also keep an eye on the potential competitors in the market. We will keep an eye on their dynamics, therefore to balance our operational metrics to make sure we have a solid growth on revenue and profit.

对，在net ads方面，我们还是希望能够维持我们目前的这样的一个增长的规模。这是我们对于我们无论是团队还是我们自己的对我们的内容本身的优势，这是我们希望能够完成的。

Regarding the net adds, we still would like to maintain our existing growth pace because no matter for the team or for us, we do have great advantage on content. This is also a target we hope we could achieve.

当然我们也确实需要注意它中间确实存在一个平衡，也就是说我们的规模跟up之间它会有一个关联关系，包括说用户其实对于低价本身是比较敏感的。那我们在我们的策略上，我们仍然还不会，我们不会去跟风去通过这种短期的低价手段来获得一个短期的增长。

It is worth our attention that there is indeed a balance, especially the balance between the subscriber base and the ARPPU. At the same time, we notice that subscriber is quite price sensitive. For our strategy, we will not sacrifice our interest by ruling out aggressive low price to gain for the short-term growth.

所以我相当于我们现在目前是在中国内地行业up值最高的这样一个前提之下，我们仍然还是在就这个仍然还是希望能够继续推动up值的增长。那在这样的一个up值增长的基础上，我们也希望通过我们自制内容的差异，然后以及产品的矩阵，以及我们创新的这种音质音效的这种权益跟服务能够成为我们和其他相比的一个我们自己的竞争优势，然后来健康地带来我们的新增的用户。

At the same time, we also have the industry-leading ARPPU, but at the same time, we still hope that we can continue the ARPPU growth. Based upon the ARPPU growth, we hope we could be differentiated on the self-produced content and the product portfolio. We also innovatively introduced some features, including the sound quality and sound effect, to be the privileged features as our competitive edge to continue to leverage the healthy growth and engage more subscribers.

那么从ARPPU方面来看，我们实际上仍然还是因为我们的内容本身具备了自己比较独特性的优势，同时我们的用户体验跟权益也都在持续地丰富。所以我们实际上仍然是两方面。第一方面就是我们是希望对于基础包月这部分，就是我们在15元和18元这样的一个正价会员普通会员这个部分上，我们能够继续去提升我们的价格，让我们自己本这样的规模在这样的一个他认可这个基础之上，能够让我们的基础包月这部分的规模跟up值能够持续地增长。

Regarding the ARPPU, as you may notice, we do have our unique advantage on content itself, where at the same time we also continue to optimize the user experience and enrich the privilege to our users. For us, we have two measures. First of all, we hope for the basic subscription model, especially those users who pay RMB 15-80 per month per account. We hope that we can continue to improve our service by improving the price, and by so doing, we will be able to consolidate this user base by improving the ARPPU for sustainable growth.

所以第二方面就是我们刚才确实你问到的是SVIP这部分。那么我们也在Q4其实看到了我们SVIP的无论是规模还是价格，整个up值都有比较好的提升，也驱动了我们一个整个ARPPU的一个超预期的一个增长。

Where secondly, just now you also asked about SVIP. In Q4 2024, we also see that for SVIP, no matter for the size or for the price, we also see the upward trending, which helps us to register a growth exceeding our expectation.

所以从体验来看，SVIP本身对于长音频部分，然后音质音效部分，以及对于树砖等这些特权，他们用户还是非常认可的。我们也因为这些权益，然后达到了比较好的一个开通的效果。

From the user experience perspective, SVIP does provide the long-form audio as well as sound quality and sound effect features. The user likes it. Because of the privilege, we will continue to advance our SVIP business.

所以最后值得一提的就是我们会员的目前人均听歌时长也创了历史新高，然后留存率也在高位。所以我们也相信我们对于会员跟普通会员和SVIP的运营也能使我们本身的平台留住更健康的用户。

It is also worth mentioning that the time spent on our platform per subscriber and the cable rate is always kept at a historical high level. No matter for the general subscriber or our SVIP, we will be able to continue to optimize our operations to retain more healthy subscribers with us.

Millicent Tu (Head of Investor Relations)

Thank you. The next question comes from Mizuho Fang Wei. Your line is open. Please go ahead.

Fang Wei (Director)

好，谢谢管理层接受我的提问。那我想问一下，就是管理层最近有没有看到我们的用户在这个非必需品的消费上面，比如音乐，比如演唱会这一部分，他们的消费有没有一些变化？另外想问一下，就是最近这个线下的一些演唱会，他们的平均的票价是有些什么样的变化？是在变更贵呢，还是比较平稳？那用户的反馈是怎么样子的？就是看你们的观察。我自己 translate 一下。

Thank you, Management, for taking the question. Curious if Management can call out any consumer sentiment changes towards discretionary spending, such as music and concerts. By the way, is the average concert ticketing price recently trending up or trending down? Also, how is the reception based on your observations so far? Thank you.

Cussion Pang (Executive Chairman)

Thank you so much for your questions. We have observed that simply listening to songs online no longer satisfies all the demand of music lovers on music-related entertainment. They basically will increasingly seek the live atmosphere and enjoyment that comes from experiencing the live concerts and music festivals.

In addition, we are also seeing that fans also want to show their support to their idols through purchasing official merchandise as well. By attending all of the live shows, fans gain a more diverse and in-depth understanding of the artists, which in turn strengthens their forelights for the artists and encourages more songs listening on our platform as well. It is going to create a positive cycle for music content consumption, which benefits all parties.

Over the last two years, I think the music performance industry in China has experienced a robust growth, and the willingness of users to spend on such events has surged dramatically, with tickets for many top-tier artists' concerts and music festivals selling out in seconds. We believe that the music live shows business in China will continue to have a strong performance, and the overall market size and ticket price will remain relatively stable in 2025.

However, I think as more and more live shows are being held, users' expectations for the quality of these shows have also increased. The industry has now entered a phase where only the strongest survive and the weaker are left behind. TME is committed to team up with the industry leading partners to organize high-quality live performance shows for our users. Thank you for your questions.

Millicent Tu (Head of Investor Relations)

Okay. The next question from UBS Wei Xiong, your line is open.

Wei Xiong (Equity Research Analyst)

好的，谢谢管理层接受我的提问。我想请教一下咱们AI方面的战略，因为公司刚才也提到了，我们其实一直在积极尝试把AI用于不同的业务场景，然后也带来了更好的用户体验。那想请教一下25年咱们在AI方面的战略和规划，比如说有什么新的产品或者功能的计划会推出。那另外我也想请教一下咱们应该怎么考虑AI对于财务的影响，比如说一方面是不是能看到AI对于收入和利润端带来一些帮助。那另外我们会不会对AI也加强一些投入。我自己翻译一下。

Thank you, Management, for taking my question. My question is regarding our strategy around AI in 2025. Are there any new products or features that we plan to launch for the new year to drive better user experience? Also, how should we think about the financial implication of our AI strategy? On one hand, could we see some help from AI in terms of revenue or margins? On the other hand, how should we think about maybe the increasing investment around AI for this year? Thank you.

Ross Liang (CEO)

对，因为我们所以我们在大模型基座这一部分，我们肯定是不会有太多的投。这个我们其实讲过，因为毕竟我们是属于腾讯，所以我们还是仍然会使用跟腾讯的火源这个体系和火源这个大模型去做更多的合作。那我们重点主要还是关注在我们，因为我们毕竟是科技部分，我们还是希望能让这种大模型能力能融入到我们的产品里面去。

Thank you very much. Thanks for the question. As I have already mentioned, we won't invest too much on the large language model, and we're going to use Hunyuan from Tencent and continue to work with Hunyuan large language model. It is worth mentioning that we are a tech-driven company, so we do hope that large language model capacity could be a part of our product portfolio.

当然最近的这个变化是我们确实也我们也成为第一批在腾讯系里面去把DeepSeek融入到我们产品中的一个产品序列。那从我们实际的使用上来看，DeepSeek在我们目前Q音乐里面的AI助手提供给用户提供了更多，就是从我们实际数据上来看，用户更完成了更多轮的这种交互。

A recent notable change we see is that we're probably among the Tencent ecosystem to first adopt DeepSeek into our product. From the actual practice, we can see that in QQ Music, we do have the AI-empowered assistant who can offer the users more interactions.

从最近也是通过DeepSeek能够去了解跟去了解用户的这种听歌历史，让他们去让DeepSeek做一个总结，也给用户提供了一个非常有趣的一个互动的方式。

Recently, we also leveraged DeepSeek to understand the music listening history of the users and then to summarize those history and providing very interesting interactions with the user.

除了DeepSeek以外，我们其实现在来说，我们上次应该也提到过我们自己首创的这样一个AI翻唱的功能，能够让用户用自己的音色去翻唱我们现在目前各种歌曲，其实已经我们已经得到了非常好的商业的效果。

Besides DeepSeek, I think for the last meeting we already mentioned about our AI sound cover feature, which allows the users to use their own voice to sing the popular songs, which also be commercialized with very good feedback.

所以我们基本上后面还是会我们当然也不用太强。我重点比如说我们在通过我们的大模型能力，我们可以在我们的目前的音质，我们的音效上面有非常多的发挥。比如我们在音质上，我们通过我们的真品全景声已经得到了非常行业的非常多的行业的认可。

We're in the near future. I think we're going to continue to leverage the capacity and the strength from the large language model, especially on the sound quality and sound effect. For example, regarding the sound quality, our audio 3D has already been approved with great popularity in the industry.

另外我们自己的通过大模型所提升的文字转语音的技术应该也是处在行业领先水准。我们目前通过我们的最新的技术所制作的音乐播客，也在用户的留存跟播放方面取得了非常好的效果。

At the same time, we also leverage large language model to further improve our text-to-audio technology. It's already the leading technology in our industry. Recently, we also have the cutting-edge technology to help to build the music blogger, which is also performing very well regarding the user retention.

所以因为我们充分地利用我们现在腾讯在本身大模型就是这种卡上的投入，同时我们自己在推理方面我们也做了大量的，因为在大模型推理方面其实非常也是非常耗费算力的。我们在大模型这种推理加速上也投入非常多的开发人力，所以我们基本上目前的在这一部分创新领域中的成本部分是还非常有可控的。

We make full use of Tencent investment in the large language model, where at the same time, you know that for large language model inference, it actually can be quite consuming the computing power. We actually made many manpower investment in accelerating the inference of the large language model. Still, we have a controllable cost in this regard.

但是如果我们现在其实在发现新的应用上，我们仍然还是会在这部分领域中加大这个投入，无论在人力在卡上面，在卡以及我们这个研发上，我们仍然在这里面会认为我们自己会加大这部分的投入。

If we identify some new applications, we'll still continue to invest in this. For the manpower, for the large language model, the facilities, or the R&D, we will continue to improve our investment.

Millicent Tu (Head of Investor Relations)

Okay. The next question comes from JPMorgan, Alex Yao.

Alex Yao (Managing Director and Equity Research Analyst)

好的，感谢管理层接受我的提问。我想问一下，就是那个咱们换个角度看这个 social entertainment，我们看到了久违的环比的一个收入增长，也有蛮长时间，其实这条线是相对偏弱。我想请管理层能够帮我们解读解读它这个出现环比增长的一个背后的驱动力，比如说是不是因为我们的相对比较健康的微信占了收入的大部分，那么它未来的这个收入的趋势就会更多地体现在这一行 social entertainment 上面。还是说我们总体的微信加秀场直播现在到了一个相对稳定的状态，那么体现了一些季度性的年底做活动这样的一些因素。反正我们就是请想请管理层给我们多解释解释这条线现在极晚开始回升的原因以及可持续性。那我自己翻译一下。

Thank you, Management, for taking my question. I have a question with regard to the sequential revenue growth for social entertainment. This line item has been on sequential declining trend for many, many years. And this is actually the first time, I think, since the past two, three years that we actually see a sequential improvement. Could you elaborate the reason behind the sequential growth for social entertainment revenue?

Is it because we think now accounts for majority of the segment revenue, so we think will increasingly represent the social entertainment revenue growth outlook? Or is it because everything has stabilized such that it's showing a bit of seasonality trend, i.e., the year-end event leads to stronger monetization? Any color would be helpful. Thank you.

Ross Liang (CEO)

确实你还挺了解我们这个社娱业务的。其实是这样的，确实有个因素是年底确实有盛典，但盛典的可能在K歌部分的收益比酷狗要大很多。

Thank you very much. Thanks for your question. It seems you know our business pretty well. Yes, indeed. By the end of this year, we do have some celebration. Besides these factors, you can see that we actually benefited more from WeSing rather than KuGou.

但是目前这部分的因素已经非常少了，就是相比于其他几年。然后其实增长的一个主要的原因确实第一是因为我们七八月份的从七八月份开始做了更严格的合规，所以那时候可能会处在一个低点。

I have to say that those factors are actually fading away compared with the past few years. A key growth drive is because starting from July and August, we have a more stringent compliance. By then, we are at a low point.

但是在Q4的时候，其实我们看到一个比较好的现象，就是从Kugou直播上面我们增加了一个新的互动玩法。这个互动玩法其实取得了我们超出预期的结果。

Starting from Q4 last year, we do notice something. That is, on KuGou Music streaming, we have a new interactive feature. That interactive feature actually showcases the performance exceeding our expectation.

所以这种因为偏收集类的这样的一种九层腰塔，九层宝塔这个玩法，我们后面在西游记，因为我们抓住了悟空和哪吒这些热点，我们相信后面在基于这种收集的玩法，在直播里面应该还有很大的一个，还有不能是很大，还有一定的空间吧。

It's a feature of the collection, just like the Nine-story Demon Tower. We also take the social trending regarding Wukong as well as Nezha. We do believe such collection feature in the near future will continue to drive the live streaming business growth.

当然另一方面确实很重要，就是全民K歌在目前的这样一个场景下起到非常重要的作用。首先它的规模我们在从目前来看已经有一个起稳的一个趋势。

I have to decline that for WeSing, indeed, it plays a very important role now, especially as the size continues to be stabilized.

所以在全民K歌上，无论是因为又增加了网赚的玩法，网赚这边也取得比较好的结果。同时它的VIP整个会员的规模也呈现了一个比较良好的健康的增长。然后同时它的在歌房跟视频直播这部分是一个保持一个稳定，所以这基本上是我们目前Q4一个比较好的趋势的增长一个核心的驱动力了。

At the same time, for WeSing, we also have new features such as the net earnings. It also registered very good results, and VIP membership size continued to see very healthy growth. At the same time, we also have the sound room and the video live streaming, and the business continued to be stabilized. That is the key reason why we have a good growth momentum in Q4 last year.

但对于25年，我们整体我们的判断仍然还是整个的社娱业务还是应该是处在一个起稳，甚至有些往下的一个趋势，因为还是有这个领域去面临比较多的挑战。我们当然还会基本上还是通过我们刚才在K歌和酷狗上的继续的创新来去能够争取，能够去弥补这边的一些差距。

Look into 2025, according to our overall judgment, regarding the social entertainment business, it's going to be stabilized, but still likely to have some downward trending because we do face many challenges for this business. As I have already mentioned, what we're trying to do is to roll out new innovations on WeSing and on KuGou to complement the possible downward trending.

Millicent Tu (Head of Investor Relations)

Okay. In the interest of time, we take the last question from CICC from Xueqing. Xueqing, your line is open.

Xueqing Zhang (Media Analyst)

Thanks, Management, for taking my question. My question is about capital allocation. The company has announced the cash dividend and new round of share repurchase this quarter. What is your plan for capital allocation, both on dividends and shareholder returns? How should we expect the payout ratio in the future? Thank you.

Shirley Hu (CFO)

随着公司的业务的健康发展，我们其实是一个现金流比较充沛的公司，所以也积累了比较多的现金。

Thank you very much. Thanks for the question. Our company business continued to progress healthily, and we are also a company with net cash flow.

所以我们会比较关注后续我们的现金的这样一些使用。

Indeed, how we're going to use the cash flow would be one of our work priorities.

整体来看，一方面我们会在机会合适的情况下，我们会用来投资在一个未来的一些机会上，包括内容的生态、技术科技和国际业务等有利于我们长期发展的一些领域。

On one side, we're going to find good opportunities at the best timing to invest in the future-driven opportunities. For example, the content and our technologies and international business, those elements are delivering sustainable growth for our overall business.

另一方面，我们也会高度重视股东的回报，会持续评估如何为股东创造更多的价值，包括我们回购和分红的计划。

Where on the other side, we are going to greatly value the return to the shareholders. We are going to evaluate how can we create more value to the shareholders, including our share repurchase plan and the dividend plan.

对，回顾过去，其实我们在回购上其实已经进行了两期，其实我们都已经按照我们的回购计划如期去完成了我们的回购。

Look into our track record. We have already completed two share repurchase programs, and we have already honored our commitment as we promised to the market.

鉴于我们对于未来我们公司运营的信心，我们也会持续地在回购这方面进行做一些回购计划，所以这次也宣布了一个为期两年的10亿美元的一个回购计划。

Based upon our confidence into the company's future operation, we are also going to continue to have the share repurchase plan. That's the reason we also announced a new share repurchase plan with a term of two years and a total value of $1 billion.

关于分红这一块，我们是从去年开始，去年5月份开始进行首次的分红，是为了回馈股东对我们的帮助。

Regarding the dividend or the payout, and we actually started last year in May the initial or the first inaugural dividend to our shareholders to pay back to the support and care from the shareholders to us.

随着我们的经营运营的增长，大家其实也看到这次我们也宣布了一个新的年度的持续的一个分红的一个规划，那其实跟去年来讲，其实在绝对值上还是有比较明显的一个提升。

As we continue to grow our operating profit, as you may notice from our announcement, we're also going to have a new dividend payout plan for the new year. From the absolute value perspective, compared with the previous year, there is a significant improvement.

对，所以我们会根据我们的运营的情况，对未来运营的信心，我们相信我们会持续来回报股东对我们的帮助和关注。

According to our appreciation and our confidence for our future business, we will continue to pay back to the shareholders, and thank you for your long-term support and care.

Millicent Tu (Head of Investor Relations)

Okay. Thank you, Shirley. Thank you, everyone, for joining us today. If you have any further questions, please feel free to contact our team. This concludes today's call. Thank you so much. Look forward to speaking next quarter. Thank you and bye.

Cussion Pang (Executive Chairman)

Thank you so much. Bye-bye.