Tencent Music Entertainment misses revenue estimates as users switch to competing platforms

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Tencent Music Entertainment Group (TME) reported third-quarter financial results below expectations due to lower revenue from its social entertainment unit.

The company posted revenue of 7.81 billion RMB ($1.21 billion) in the third quarter, up 3% year-on-year, but misses analysts’ estimate of 1, $23 billion. This was down from RMB 8.01 billion ($1.25 billion) in second-quarter earnings. TME generated 788 million RMB (122 million USD) in net profit, compared to 1.135 billion RMB (177 million USD) in the same period last year.

TME now has 71.2 million paying users for its music streaming services, an increase of 37.7% over the previous year. Of this user base, 5 million people started using TME’s services in the third quarter. Online music services generated 2.88 billion RMB (448 million USD) in revenue, a year-on-year increase of 24.3%. Music subscription revenue was RMB 1.90 billion (USD 295 million), a year-on-year increase of 30.2%.

Although its music streaming unit has seen steady growth in user numbers, TME’s core business – social entertainment services, such as karaoke apps – saw a sizable decline year-over-year and quarter-over-quarter. in terms of monthly active users and paid users. Company executives attributed this to the impact of new regulations as well as increased competition from other entertainment platforms.

Revenue from social entertainment and other services fell to 4.91 billion RMB ($763 million), from 5.25 billion in the same period last year. Paid social entertainment subscribers have fallen from 10.5 million a year ago to 10 million. Meanwhile, monthly active mobile users of TME’s social entertainment platforms declined 12.8% over the past year to 205 million, primarily due to “rotation of our casual users served by other pan-entertainment entertainment platforms,” according to a company representative.

“We will continue to invest in the operations of our social entertainment services through audio live streaming, virtual live streaming rooms, as well as cross-platform live streaming events,” a TME representative said Monday.

Entertainment options abound for the Chinese. Short-form video apps like TikTok sibling Douyin and Kuaishou hold their users’ attention for hours every day, negating the allure of music streaming. TME said it would differentiate itself by continuing to develop social features in its offerings and cultivating independent musicians and original music.

In September, TME removed all exclusive music licensing agreements under the order of market regulators. This means that music that was only available on TME’s platforms in China can now be streamed on other apps, like Kuaishou and NetEase Cloud Music.

Shares of TME on the New York Stock Exchange closed slightly higher at $7.96 on Monday, with after-hours trading slightly higher. However, anti-monopoly regulations by the Chinese government sent TME’s share price to record lows, falling more than 75% from the year’s high in March.

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