Tencent Music announced second-quarter results late Monday showing flat mobile user growth and a slight dip in how much revenue the firm is squeezing out of each user.
The company reported total revenue of ¥5.90 billion Chinese yuan ($859 million) during the quarter ended June 30, a 33% year-over-year increase, but only a small bump from Q1 when that number was ¥5.74 billion ($855 million).
Of the total revenue, ¥1.56 billion ($228 million) came courtesy of Tencent’s music services (QQ Music, Kugou Music, and Kuwo Music), driven by music subscriptions and sales of digital music albums. Compared to a year ago, the tally is a 20.2% improvement but is actually down from Q1 when music services revenue was $239 million. When isolated, music subscriptions accounted for ¥798 million ($116 million) of Q2 revenue, a 31.9% increase year-over-year.
The company recorded a net operating profit of ¥1.09 billion ($158 million) during the quarter, an increase of 7% year-over-year but down from Q1’s $171 million. Increases in content expenses and revenue sharing fees drove the cost of revenues for Q1 by 46.1% to ¥3.96 billion ($576 million). Gross profit or the quarter increased by 8.1% to ¥1.94 billion ($283 million). Total operating expenses reached ¥1.05 billion ($153 million), down $2 million from last quarter.
TME only managed a 1.2% increase in mobile monthly active users (MAUs) for its online music services year-over-year, from 644 million to 652 million. Last quarter, that total was actually higher — 654 million MAUs. Paid users of TMEs music apps increased 33% to 31 million compared to the same period last year. That’s up from 28.4 million in Q1. Likely a major concern for investors is the monthly average ad revenue per user (AARPU) for those MAUs, ¥8.6 ($1.22), down 1.1% year-over-year but a cent from Q1 when it amounted to $1.21.
ARPPU for Tencent’s social apps, such as WeSing, enjoyed a 16.5 percent increase over last year to roughly $18.39 per user.
As of June 30, the company had combined cash and cash equivalents of ¥19.90 billion ($2.90 billion).
Since the quarter in question wrapped up, TME’s parent company, Tencent Holdings announced plans to purchase a 10% stake in Vivendi’s Universal Music Group, one of its main sources of licensed music. TME doesn’t mention the UMG deal in its Q2 financial disclosure, but does reveal plans to partner with manufacturers of cars, smart speakers and watches in the near term.
“In order to provide users a consistent and cohesive listening experience, we are forging Internet of Things (IoT) partnerships with leading manufacturers of cars, smart speakers and smart watches, which will provide further channels for user acquisition,” said Tony Yip, chief strategy officer of TME. “As part of our internationalization strategy, we are also looking to expand our social entertainment services outside of China, as we take initial steps to explore overseas opportunities for WeSing in South East Asia. These small steps we are pursuing will enable us to better serve users and expand our reach at both home and abroad.”
Added Cussion Pang, CEO: “We continued to expand our music content leadership by partnering with more music labels, as well as adding more content including music-centric variety shows, short-form videos and long-form audio such as audio books and podcasts. We strengthened our alliances to produce and distribute more high-quality original soundtracks, including our partnerships within the Tencent ecosystem to develop original music content for games, films and TV shows. In social entertainment, we not only effectively broadened our user base through mini-program and a lite version app, but also improved user engagement by adding new product features, especially social features with high user participation. We are pleased with our progress and confident that these initiatives will lead to further growth in the second half of the year.”
On Wall Street, shares of Tencent Music (TME) were down 2 percent in morning trading, with the price hovering around $14. That’s down from roughly $16 per share a month ago.