Q4 2023 Earnings Summary
- Strong subscriber growth with positive net adds exceeding expectations and continued momentum into 2024. The company added 3.7 million net subscribers in Q4 2023, bringing total online music paying users to 107 million, a 21% increase year-over-year. Management expressed confidence in maintaining healthy subscription revenue growth in 2024.
- Continued gross margin expansion expected in 2024, driven by higher ARPPU, subscription revenue growth, advertising revenue growth, and efficient content cost management. Gross margin in Q4 2023 increased by 5.3 percentage points year-over-year to 38.3%, and management expects it to keep increasing in Q1 2024.
- Leveraging AI technologies to enhance user experience and drive subscriber growth. The company is integrating AIGC into music streaming and creation, enhancing music recommendations, and improving content creation efficiency. Management believes AIGC is benefiting the industry and helping to improve product performance.
- Decline in Mobile MAUs and Impact from Short-Form Video Platforms: In Q4 2023, TME experienced a slight decline in mobile users, partly due to the impact of short-form video platforms on its mobile business. Management acknowledged that "we also see some impact from the short-form video to our mobile end business" and that they reduced channel promotions, which affected user numbers. This suggests increased competition and potential challenges in user growth.
- Expectations of Slower Gross Margin Expansion: While TME's gross margin increased in Q4 2023, management indicated that in Q1 2024, "the gross margin will keep increasing... [but] the piece will be lower than the Q4 in 2023." This suggests that gross margin expansion may slow down, possibly reflecting increasing costs or challenges in sustaining high profitability levels.
- Potential ARPPU Fluctuations and Need to Balance Growth: Management mentioned that "marginal ARPPU fluctuation is to be expected" as they balance subscriber growth with ARPPU expansion. This indicates that sustaining ARPPU growth may become challenging as TME seeks to expand its subscriber base, potentially impacting revenue growth per user.
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Revenue Growth Outlook
Q: What's the guidance on 2024 revenue growth, especially in music?
A: The company is confident that the online music business will maintain solid growth in 2024, with subscription services as the primary driving force. They anticipate stable revenue from the social entertainment side. -
Gross Margin Expansion
Q: What drove Q4 gross margin expansion, and future drivers in 2024?
A: Gross margin increased to 38.3% in Q4, up 5.3% year-over-year, due to strong music subscription revenue growth, higher ARPPU, and paying user growth. Additional factors include robust advertising revenue, increased self-produced content, and effective content cost management. They expect gross margin to continue increasing in Q1 2024. -
Shareholder Returns
Q: Are you considering any shareholder returns in the future?
A: The company is proactively conducting share buybacks under the current $500 million plan. They are also considering dividends, working on detailed plans to enhance shareholder benefits. -
ARPPU Growth Momentum
Q: Will ARPPU growth momentum continue into 2024?
A: They expect the overall ARPPU trend to be slightly upwards in 2024. The company balances subscriber growth and ARPPU expansion, noting that users in China are increasingly willing to pay more for music. -
Music Subscriber Growth
Q: What is the outlook for music subscriber net adds in 2024 and beyond?
A: In 2023, net added subscription users reached 182 million, providing a solid foundation for future growth. They aim to maintain a healthy online music business and subscription revenue in 2024, with confidence in steady and robust growth. -
User Trend Outlook
Q: How should we view user trends in 2024 after Q4's slight decline?
A: The Q4 decline was due to students returning to school and reduced marketing expenses. Early 2024 may see slight MAU decreases due to the Spring Festival, but improvements are expected in subsequent quarters with product updates and enhanced marketing. -
AI Integration
Q: How is AI leveraged in your business, impacting conversion and retention?
A: AI is integrated into music recommendations, creation, and social features. Features like Listen Together and AI-powered avatars enhance user experience. AI improves content creation efficiency and recommendations, boosting conversion and retention. -
Long-form Audio Strategy
Q: What's the strategy and expectation for long-form audio?
A: The company fully integrates long-form audio into music platforms, focusing on popular content and monetization. They view 2023 as a pivotal year and expect performance better than anticipated. -
New Subscriber Profile
Q: Can you elaborate on the profile of new subscribers?
A: The user base exceeds 100 million, reflecting China's demographics. The most active users are aged 20 to 30 years, mainly in Tier 2 and Tier 3 cities.
Research analysts covering Tencent Music Entertainment.