Q3 2024 Earnings Summary
- Strong growth in paying user base and SVIP memberships: Tencent Music Entertainment (TME) added 2 million new paying subscribers in Q3 2024, surpassing 10 million SVIP members by the end of September 2024. This growth outperformed expectations and demonstrates the effectiveness of TME's strategies in subscriber acquisition and retention.
- Positive revenue growth and optimistic outlook for 2025: TME has resumed positive revenue growth in 2024 and is optimistic about growth prospects in 2025. The company expects an acceleration in both top-line growth and profits, driven by a steady increase in the number of subscribers and ARPPU (Average Revenue Per Paying User).
- Improved gross margin and operating efficiency: In Q3 2024, TME's gross profit margin reached 42.6%, continuing its growth trend over several quarters. This improvement is attributed to increased music revenue, effective content cost management, higher contributions from self-commissioned content, and growth in VIP and advertising revenues within social entertainment. Adjusted net profit and margin are expected to continue growing in 2025.
- Despite surpassing 10 million SVIP members, ARPU is not performing well, especially on a monthly basis, which may negatively impact revenue growth.
- Monthly Active Users (MAUs) have stabilized around 570 million over the past four quarters, indicating that user growth has plateaued, potentially limiting future revenue expansion.
- Management expects Gross Profit margin growth in 2025 to be lower than in 2024, suggesting a potential slowdown in profitability improvements.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Guidance | Q4 2024 | no quarterly guidance provided in Q2 2024 | no specific guidance metrics provided | no prior guidance |
Guidance | FY 2025 | no annual guidance provided in Q2 2024 for FY 2025 | no specific guidance metrics provided | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Online music subscriber growth and paying user base | In Q4 2023, paying users reached 106.7M (+21% YoY). In Q1 2024, they reached 113.5M (+20% YoY). In Q2 2024, they reached 117M (+18% YoY). | Paying users reached 119M (+16% YoY), with a net addition of 2M. The company surpassed 10M SVIP members. | Consistent growth, though YoY addition rate slightly slowed. |
Monthly Active Users (MAUs) and user retention | Q4 2023 saw a slight MAU decline due to short-form video competition; highly active users remained stable. Q1 2024 showed sequential MAU recovery. Q2 2024 had no specific MAU figures but stressed high-quality user retention. | MAUs stabilized around 570M and rose by 5M in Q3 2024; strategies focused on collaborations and innovative features. | Steady MAU base, with improved retention efforts and moderate growth. |
ARPPU performance and SVIP membership adoption | In Q4 2023, ARPPU was RMB 10.7 (+20% YoY), boosted by enhanced privileges. Q1 2024 ARPPU reached RMB 10.6, up from 9.2 YoY. Q2 2024 ARPPU was RMB 10.7 (+10.3% YoY), and SVIP traction contributed to elevated user spending. | ARPPU at RMB 10.8 (+5% YoY). SVIP members exceeded 10M. Management aims for larger ARPPU gains as SVIP scales. | Continued ARPPU increase, with SVIP penetration driving premium revenue. |
Gross margin and net margin expansion trends | Q4 2023 gross margin was 38.3% (+5.3 ppts YoY). Net profit rose 36% YoY. Q1 2024 gross margin reached 40.9% (+7.8 ppts YoY). Q2 2024 gross margin was 42%, aided by advertising and SVIP. | Gross margin hit 42.6% (+6.9 ppts YoY); adjusted net profit rose 29% YoY. | Margins continue improving, reflecting cost discipline and premium user growth. |
Advertising revenue momentum and non-subscriber traffic | Q4 2023 saw strong ad growth via diversified formats. Q1 2024 highlighted robust ad-supported revenue, though non-subscriber traffic was shrinking as more users convert to paid. Q2 2024 showed advertising growth from interactive ads, festivals, and offline sponsorship. | Strong YoY advertising growth from ad-supported music. The company leveraged non-subscriber traffic to boost ad revenue. | Advertising remains a growth driver. Non-subscriber traffic still meaningful for ad monetization. |
Social entertainment segment performance | Q4 2023 revenue was RMB 1.9B, down 52% YoY. Q1 2024 declined 15% YoY to RMB 1.8B. Q2 2024 slid 43% YoY to RMB 1.7B. | Down 24% YoY to RMB 1.5B. Management prioritizes stability and improves features for engagement. | Ongoing revenue decline, but efforts to innovate and stabilize continue. |
AI-powered initiatives and AIGC implementation | Q4 2023 saw AIGC-based tools for music creation and recommendation enhancements. Q1 2024 mentioned AI-driven retention and large audio models for content creation. Q2 2024 expanded AI recommendation and introduced SQ Lite Mode. | Leveraged TTS and large language models for audiobooks and content creation. | Continued AI integration, enhancing content production and personalization. |
2025 outlook for revenue and profit growth | No Q4 2023 or Q1 2024 guidance. Q2 2024 mentioned confidence in long-term profit growth but no detailed 2025 figures. | Accelerating top-line growth and margin improvement expected in 2025, with ARPPU and SVIP scaling. | New guidance emerges, reflecting bullish sentiment on sustained growth. |
Competition from short-form video platforms | Mentioned in Q4 2023: some MAU losses among low-active users; stable active core. Not mentioned in Q1 or Q2 2024. | No mention in Q3 2024. | Previously raised concern, but no new developments. |
-
Growth Outlook and 2025 Guidance
Q: What is your outlook for Q4 and 2025 growth?
A: Management is optimistic about growth prospects for 2025, expecting acceleration in top-line growth driven by a steady increase in subscribers and ARPPU, along with improved profits and margins. Assuming a stable external environment, they anticipate both revenue and net profit to improve in 2025. -
SVIP Program Impact on ARPPU and Subscribers
Q: How is the SVIP program affecting ARPPU and subscriber growth?
A: The SVIP user base reached over 10 million subscribers as of September 2024, primarily upgraded from basic VIP users, many of whom are young users. Management believes that as SVIP penetration increases to 20–30 million, there will be a more significant impact on ARPPU. Currently, SVIP users have higher ARPPU than basic subscribers, and the focus is on promoting users to SVIP to drive future ARPPU growth. -
Gross Profit Margin Trends and Operating Expenses
Q: What are the trends in GP margin and operating expenses, and outlook for 2025?
A: In Q3, the GP margin was 42.6%, with continued growth over several quarters, driven by increased revenue from the music business, rapid growth from advertising, managed content costs, and contributions from self-commissioned content. For 2025, management expects these factors to continue but anticipates the GP margin growth rate might be lower than in 2024. Operating expenses, including S&M and G&A, are expected to grow slightly but at a rate lower than revenue growth, supporting good momentum in adjusted net profit. -
Social Entertainment Business Performance and Outlook
Q: Why did social entertainment revenue perform better than expected, and what's the outlook?
A: The social entertainment business saw a narrower revenue decrease in Q3, better than expected, due to growth in platforms like WeSing and Kugou Live. Initiatives such as interactive games and innovative features boosted user engagement and revenue. Management believes the social entertainment business will maintain stable growth in the future, contributing positively to total revenue. -
MAU Trends and Growth Strategy
Q: How do you plan to drive MAU growth, and can we expect it to return to growth?
A: Management focuses on content, particularly self-commissioned and unique content, to drive MAU growth. Collaborations with celebrities, launching albums, and self-made hits are key strategies. Optimizing user experience and expanding into in-car and IoT devices are expected to contribute to MAU growth. While MAUs have stabilized, these efforts aim to return MAU to growth. Strategic integration with the WeChat ecosystem is also expected to support future content distribution and user engagement.
Research analysts covering Tencent Music Entertainment.