Tencent Music Revenue Hit New Highs in Q1 as Coronavirus Spread Through China

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The Chinese music streaming company took a hit, but still grew earnings 27.4% year-over-year.

Tencent Music Entertainment (TME), the Chinese music streaming company with 657 million monthly listeners, took a hit from the coronavirus pandemic in the first quarter but was able to grow both music subscribers and revenue.

According to the company’s earnings report released Monday, Q1 music revenues leapt 27.4% year over year to $288 million while monthly average users grew 0.5%. Even though the pandemic led people to spend more time with entertainment, TME’s social media revenue rose just 3.3% even though 256 million people, a 13.3% gain, used its social app, WeSing. Still, music is a relatively low earner for TME; social media delivered an average revenue per media revenue per user of $15.65 compared to a music ARPU of $1.32.

TME’s total revenue increased 10% to $889 million while net income fell 10.1% to $125 million. Q2’s results will benefit from “a moderate recovery” seen recently in social media services, said Cussion Pang, TME’s CEO. China is returning to normal after much of the country was in lockdown in Q1, causing Q1 gross domestic product to fall 6.8% from Q1 2019, the first decline since the country began reporting GDP figures in 1992. New coronavirus cases virtually disappeared in Q2 as businesses reopened and governments eased social distancing restrictions.

Shares of TME closed up 1.75% on Tuesday, bringing its year-to-date improvement to 22%. TME was spun off from Tencent Corp. in Dec. 2018 and trades on the New York Stock Exchange.

Notable product expansions and deals in Q1:

  • TME Live, a live streaming model, will launch in June. TME Live had a soft launch in Q1 with five concerts.
    Kugou Changchang, an interactive singing mobile app for users of Kugou Music.
  • In March, TME signed a five-year licensing deal with China Literature (also controlled by Tencent Corp.) that gives Tencent Music a global license to create audiobook versions of its titles and distribute its existing audiobooks.
  • In April, TME invested in Radio Music Warehouse, a Chinese company that provides TME’s licensed music to the brick-and-mortar locations, such as grocery stores and music venues, services by Radio Music Warehouse.
  • In May, TME continued its push into spoken word audio by launching Kuwo Changting, an app dedicated to long-form audio (think, Amazon’s app for audiobooks and podcasts). Kuwo Changting costs the equivalent of $0.85 per month.

TME’s metrics show huge number of listeners, a small number of subscribers and a low ARPU:

  • Mobile MAUs rose 0.5% to 657 million.
  • Music subscribers grew 50.4% to 42.7 million.
  • Average revenue per music subscriber grew 13.3% year-over-year to $1.32 from $1.17.
  • TME could have more than 657 million MAUs but it either doesn’t know or will not say. It provides only mobile users and leaves out use of home devices such as smart TVs.

Why Tencent Music matters:

  • TME has the four most popular music apps in China: QQ Music, Kugou Music, Kuwo Music.
  • China’s recorded music market became seventh-largest in the world in 2019 at $590.9 million.
  • China is a streaming-first market that ranks fourth globally with $537 million in 2019.

Tencent Music vs. Spotify in Q1 2020:

  • TME’s 657 million MAUs is 2.3 times greater than Spotify’s 286 million MAUs.
  • Spotify’s average revenue per user was 3.6 times greater than Tencent Music’s $1.32.
  • Spotify’s Q1 revenue was $2.0 billion, 6.9 times greater than Tencent Music’s $288 million.