Why Is Tencent Music Stock Trading Higher on Monday?

Zinger Key Points
  • TME's Q1 revenue fell 3.4% Y/Y to $937M, outpacing estimates; online music revenue up 43%, social entertainment down 49.7%.
  • Adjusted EPADS reached $0.15, beating estimates; online music users at 578M, ARPPU up 15.2%, paying users grew 20.2% Y/Y.

Tencent Music Entertainment Group TME reported a fiscal first-quarter 2024 revenue decline of 3.4% year-over-year to $937.0 million (6.77 billion Chinese yuan), beating the analyst consensus estimate of $917.6 million

The decline reflected a fall in revenues from social entertainment services, partially mitigated by strong year-over-year growth in revenues from online music services.

China’s leading online music and audio entertainment platform’s adjusted EPADS of $0.15 (CNY1.09) beat the analyst consensus estimate of $0.14.

Key Metrics: Monthly active users (MAUs) for online music declined by 2.4% year over year to 578 million, and mobile MAUs for social entertainment decreased by 28.7% year over year to 97 million.

The monthly average revenue per user (ARPPU) for online music grew by 15.2% year over year to CNY10.6, Monthly ARPPU for social entertainment declined by 55.4% year over year to CNY73.4, and Online music paying users increased by 20.2% year over year to 113.5 million. 

Online music service revenues grew by 43% year over year to $693 million, while revenues from music subscriptions were $501 million, an increase of 39.2% year over year.

Revenues from social entertainment services and others decreased by 49.7% Y/Y to $244 million.

The gross margin increased by 780 bps to 40.9%, primarily due to the strong growth of revenues from music subscriptions and advertising services and the ramp-up production of original content. The operating profit increased by 41.9% Y/Y to $271 million.

Operating cash flow was $372 million for the quarter. The combined balance of the company’s cash, cash equivalents, term deposits, and short-term investments amounted to $4.73 billion as of March 31, 2024.

Dividend: On May 11, 2024, the board adopted an annual cash dividend policy. For fiscal year 2023, the company’s board declared a cash dividend of $0.1370 per ADS.

Mr. Cussion Pang, Executive Chairman of TME, commented, “We kicked off 2024 with impressive results. Online music continued to grow robustly, registering record-high net adds of 6.8 million music subscribers with healthy ARPPU for the first quarter. Our focus on high-quality growth also yielded solid net profit margin expansion. By broadening content and introducing more tailored platform offerings that resonate deeply with users, we continue to strengthen our vibrancy and competitiveness in this dynamic industry.”

The stock gained over 68% in the last 12 months. Investors can gain exposure to the stock via KraneShares Trust KraneShares CSI China Internet ETF KWEB and Invesco Golden Dragon China ETF PGJ.

Price Action: TME shares are trading higher by 1.65% at $13.56 premarket at the last check Monday.

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