Tencent Music Entertainment Group (TME) Q1 2025 Earnings Call Highlights: Strong Growth in Music Subscriptions and Profitability

Tencent Music Entertainment Group (TME) reports robust revenue growth and improved margins, while navigating challenges in social entertainment and podcast segments.

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May 14, 2025
Summary
  • Revenue: RMB7.4 billion, 9% year-over-year growth.
  • Online Music Revenue: RMB5.8 billion, 16% year-over-year increase.
  • Music Subscription Revenue: RMB4.2 billion, 17% year-over-year increase.
  • Monthly ARPPU: Increased to RMB11.4 from RMB10.6 in Q1 2024.
  • Gross Margin: Improved to 44.1%, up 3.2 percentage points year-over-year.
  • Operating Expenses: Decreased to 15.5% of revenue from 16.8% in the same period last year.
  • Effective Tax Rate: 9.2%, down from 19.9% in Q1 2024.
  • Net Profit: RMB4.4 billion.
  • Non-IFRS Net Profit: Increased by 23% to RMB2.2 billion.
  • Diluted Earnings per ADS: RMB2.77.
  • Non-IFRS Diluted Earnings per ADS: RMB1.37, up 26% year-over-year.
  • Cash, Cash Equivalents, and Short-term Deposits: RMB37.7 billion as of March 31, 2025.
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Release Date: May 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Tencent Music Entertainment Group (TME, Financial) reported a strong first quarter performance with robust topline growth and increased profitability.
  • The company renewed multiyear contracts with major record labels like Sony Music Entertainment, enhancing its music library with premium audio features.
  • TME's SVIP membership program saw growth, driven by unique perks such as premium sound quality, early access to merchandise, and exclusive event privileges.
  • Advertising revenues achieved strong year-over-year growth, supported by innovative ad-supported models and interactive features.
  • The company reported a 17% year-over-year increase in music subscription revenues, with a rise in monthly ARPPU, indicating effective monetization strategies.

Negative Points

  • Social entertainment services and other revenues declined by 12% year-over-year, indicating challenges in this segment.
  • The company has ceased disclosing operating metrics for its social entertainment business, suggesting a strategic shift away from this area.
  • Despite strong growth in music subscriptions, the company faces challenges in monetizing nonpaying users, relying heavily on advertising and fan merchandise.
  • The podcast market in China remains limited in coverage, presenting challenges for growth in this segment.
  • While gross margins improved, the company must continue to manage costs effectively to sustain profitability amidst competitive pressures.

Q & A Highlights

Q: Can management share more about the outlook for topline profit growth for the next quarter and full year 2025?
A: Cussion Kar Shun Pang, Executive Chairman, stated that the strong Q1 results give confidence for 2025. The company expects year-over-year growth to accelerate, driven by music subscriptions and SVIP program expansion. Improved advertising performance and deeper partnerships with music labels and artists will also contribute to revenue growth.

Q: How does management view the growth opportunity of podcasts in China, and what are the current long-form audio user metrics and revenue contributions?
A: The company prioritizes long-form audio over traditional podcasts, focusing on content like online literature and children's content. This segment complements the music business and drives SVIP growth, enhancing the overall content library and user experience.

Q: Can management share key KPIs for SVIP, such as retention and ARPPU expansion?
A: The management is satisfied with SVIP progress, noting strong growth in penetration and ARPPU. The SVIP package offers diverse experiences and monetization opportunities, and the company plans to enhance membership systems and privileges to continue growth.

Q: What is the contribution of Super VIP and reduced promotional activities to ARPPU growth?
A: While specific breakdowns weren't provided, the company optimized operations and reduced discounts in Q1, which improved ARPPU. The SVIP business is expected to drive further ARPPU growth, with a focus on maintaining user experience and subscriber growth.

Q: What is the monetization strategy for nonpaying users, and are there updates on advertising?
A: The focus is on converting nonpaying users to subscribers, leveraging incentive-based advertising and fan economy products like digital albums. The company aims to retain nonpaying users while generating advertising revenue and exploring other monetization avenues.

Q: What are the drivers for gross margin expansion, and what are the plans for OpEx this year?
A: Revenue growth, particularly from subscribers and advertising, is a key driver for gross margin expansion. Cost management and strategic partnerships also contribute. Operating expenses will focus on user acquisition and content promotion, with growth expected to be lower than revenue growth.

Q: What are the international opportunities, especially in Southeast Asia?
A: The international market is a strategic focus, with plans to enhance platform development and content ecosystem in Southeast Asia. The company aims to invest in content creation and engage in artist management to support international growth.

Q: What is the outlook for advertising and offline events for the rest of the year?
A: The company sees strong growth in online advertising, driven by innovative formats and the Tencent advertising system. Offline events, such as concerts, are expected to enhance user experience and support SVIP growth, contributing to overall strategy and market value.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.