More ads, paying users help China’s Tencent Music beat Q3 estimates

REUTERS/Florence Lo/Illustration
The logo of China’s Tencent Music Entertainment Group is seen next to an earphone in this illustration picture taken March 22, 2021.

Nov 16 (Reuters) – Tencent Music Entertainment Corp TME.N beat analyst estimates for third-quarter revenue and profit, boosted by a recovery in advertising sales and an increase in the number of paying users on the Chinese music streaming company’s platform.

Excluding items, the company earned 86 yuan per American depository share (ADS), above expectations for a profit of 71 yuan per ADS, it said in its quarterly earnings announcement.

Total revenue, however, was nearly 6 percent lower year-on-year, amid an economy where growth has slowed this year due to China’s “zero-COVID” policy that has locked down swathes of the population under some of world’s strictest COVID-19 restrictions.

“Even though for the full year, we saw revenue decline on a year over year basis, we are looking forward … to achieving positive revenue growth next year, and as a result, positive growth for profitability as well,” Cheuk Tung Yip, Tencent Music’s chief strategy officer, said in a call after the results were released.

Tencent Music’s shares in Hong Kong jumped more than 30% on open on Wednesday in thin trading volume.

Tencent has been ramping up its original content slate to help put more users behind a paywall.

Paying users at its online music streaming service rose to 85.3 million in the quarter from 82.7 million in the second quarter, the earnings statement showed.

Total revenue fell 5.6% to $7.37 billion yuan ($7.37 billion) in the quarter ended Sept. 30, but beat analysts’ average estimate of $7.07 billion, according to Refinitiv data.

Net profit attributable to equity holders was 1.06 billion yuan, up from 740 million yuan in the same period last year.

Yip added that the third quarter marked the second straight quarter of advertising revenue growth.

“Provided that the macroeconomic conditions continue to improve,” he said, “We are optimistic about the outlook on the advertising business” in China.

Yip said Tencent Music expects its long-form audio content to break even on a gross margin basis by the end of next year.

The company was paying close attention to competition from short video platforms such as ByteDance’s Douyin, TikTok’s sister app in China but Tencent Music still offered content that was different from those platforms, Yip said.

“There continues to be a wide gap between the content offerings by their service compared to our service,” he said, “So obviously, we watching the competitive dynamics extremely carefully … and we stand ready to react.”