Revenue has declined for two consecutive quarters, what happened to Tencent Music?
Recently, Tencent Music Entertainment Group (hereinafter referred to as "TME" or "Tencent Music", HK: 01698, NYSE: TME) released its financial results for the first quarter of 2024 ended March 31. According to the financial report, Tencent Music's total revenue in the first quarter of 2024 was 6.77 billion yuan ($937 million), down 3.4% year-on-year.
It is not difficult to see that Tencent Music's revenue has declined again. In this regard, Tencent Music explained in its financial report that it was mainly due to the decline in revenue from social entertainment services and other services, partially offset by the growth of revenue from online music services. In the past 2023, the company's revenue also decreased by 2.1% year-on-year.
It is worth noting that 2023 is the second consecutive year that Tencent Music's revenue has declined. According to the data, the company's revenue scale briefly exceeded the 30 billion yuan mark to 31.244 billion yuan in 2021, and then fell by 9.3% to 28.339 billion yuan in 2022 and 27.752 billion yuan in 2023.
In terms of separation, in the first quarter and second quarter of 2023, Tencent Music's revenue will be 7.004 billion yuan and 7.286 billion yuan respectively, a year-on-year increase of 5.4% and 5.5% respectively, maintaining a growth trend. In the third quarter of 2023, this trend has undergone a "big reversal", with revenue of 6.569 billion yuan during the period, a year-on-year decrease of 10.8%.
In the fourth quarter of 2023, Tencent Music's revenue continued its downward trend, generating revenue of 6.89 billion yuan, a year-on-year decrease of 7.2%. However, Tencent Music's profit scale has continued to grow, with net profit attributable to equity holders of the company in the first quarter, second quarter, third quarter and fourth quarter of 2023 of 1.148 billion yuan, 1.298 billion yuan, 1.168 billion yuan and 1.306 billion yuan respectively.
Whether it is in terms of the performance in the third and fourth quarters of 2023, or in terms of the scale changes in total revenue and net profit, the official financial data is enough to prove that there is indeed an objective situation of "increasing profits but not increasing income" in the 2023 report card handed over by Tencent Music.
Tencent Music's executive chairman Peng Jiaxin said in the release of the fourth quarter of 2022 financial report that the company is confident that it will achieve year-on-year growth in total revenue and profit in 2023. However, judging from the results, Tencent Music's performance in 2023 did not meet the optimistic expectations of the management.
Even so, Tencent Music still emphasized in the letter to Beduo Finance that the conclusion of "increasing profits without increasing revenue" is a partial generalization, and believes that we have maliciously smeared Tencent Music's executives' expectations and prospects for the future, damaged the image of senior executives as entrepreneurs, and maliciously speculated on the reasons for "increasing profits".
In the first quarter of 2024, Tencent Music's net profit attributable to equity holders was 1.42 billion yuan (US$197 million), up 23.9% year-on-year. Non-IFRS net profit was 1.81 billion (US$251 million), up 23.9% year-on-year; Non-IFRS net profit attributable to equity holders of the company was RMB1.70 billion (US$236 million), up 20.8% year-on-year.
Bedo Finance has learned that Tencent Music's social entertainment services and other service revenues are still declining. In the first quarter of 2024, the company's revenue from social entertainment services and other services was 3.50 billion yuan, a year-on-year decrease of 49.7%. In contrast, the revenue of online music services was 5.01 billion yuan, a year-on-year increase of 43.0%.
Peng Jiaxin has predicted that 2023 will be a critical year for Tencent Music's transformation, and it is expected that the company's online music service revenue will exceed the social entertainment service revenue in a single quarter. Judging from the multiple financial reports released by Tencent Music, the structural changes in its product and service matrix have become an established fact.
In 2023, Tencent Music's social entertainment service revenue will be 10.427 billion yuan, a year-on-year decrease of 34.2%, and the proportion of total revenue will also decrease from 56.0% to 37.6%. In this regard, the company explained that it has adjusted some of the live interactive functions and implemented stricter compliance procedures to improve services and strengthen risk control management.
For the decline in revenue from social entertainment services and other services in the first quarter of 2024, Tencent Music gave the following reasons: "Mainly due to the adjustment of some live interactive functions and the implementation of stricter compliance procedures since the second quarter of 2023, as well as competition from other platforms."
Over a long period of time, it can be seen that Tencent Music's social entertainment service revenue has been declining since 2020, from 19.804 billion yuan in 2020 to 19.777 billion yuan in 2021, and further declined to 15.856 billion yuan in 2022 and 10.427 billion yuan in 2023, accounting for 67.9% in 2020 and gradually decreasing to 37.6% in 2023.
At the same time, the indicators of Tencent Music's social entertainment service sector are also taking a "big bath". In the fourth quarter of 2023, the number of monthly active users (MAU) of its online music services segment was 576 million, a decrease of 4.2% from 601 million in the fourth quarter of 2022 (year-over-year) and a decrease of 3.0% from 594 million in the third quarter of 2023.
However, the paying users of the online music services segment came to 106 million in the fourth quarter of 2023, an increase of 20.6% from 89 million in the same period of 2022 and 103 million in the third quarter of 2023, and the average monthly revenue per paying user (ARPPU) was 10.7 yuan, compared with 8.9 yuan in the same period of 2022, a year-on-year increase of 20.2%, and 10.3 yuan in the third quarter of 2023.
In terms of the social entertainment services segment, Tencent Music's mobile monthly active users in the fourth quarter of 2023 were 104 million, a decrease of 28.8% year-on-year and 19.4% quarter-on-quarter. The number of paying subscribers was 8.0 million, up 6.3% from 7.6 million in the same period in 2022 and up 2.6% from 7.8 million in the third quarter of 2023.
Correspondingly, the average monthly income of a single paying user in Tencent Music's social entertainment service segment continued to decline sharply. In the fourth quarter of 2023, this indicator will be 78.0 yuan, a year-on-year decrease of 54.0%, which is relatively "halved". Not only that, in the third quarter of 2023, this indicator will be 86.2 yuan, a year-on-year decrease of 51.4%.
In the long run, the number of monthly active users of Tencent Music is also declining. According to Tencent Music's prospectus disclosed on the Hong Kong Stock Exchange in September 2022, the number of monthly active users of the company's online music service was 653 million in 2019, which decreased to 644 million in 2020 and 622 million in 2021, and further decreased to 604 million in the first quarter of 2022.
In contrast, the number of monthly active users of Tencent Music's social entertainment service segment in 2019, 2020 and 2021 was 240 million, 240 million and 203 million respectively, showing a downward trend. In the first quarter of 2022, this indicator was 162 million, a decrease of 27.7% year-on-year.
According to Bedo Finance, the number of monthly active users of Tencent Music's social entertainment services from the second to the fourth quarter of 2022 was 166 million, 155 million, and 146 million respectively, a year-on-year decrease of 20.6%, 24.4%, and 16.6%, respectively. In the first to third quarters of 2023, this indicator was 136 million, 136 million and 129 million, respectively, and in the fourth quarter of 2023, it was 104 million.
In 2024, the number of monthly active users of Tencent Music's products is still decreasing. In the first quarter of 2024, the number of monthly active users of its online music services was 578 million, a decrease of 2.4% from 592 million in the same period in 2023; The number of mobile monthly active users of social entertainment services was 97 million, down 28.7% from 136 million in the same period in 2023.
However, the number of paying users of Tencent Music is growing. In the first quarter of 2024, the number of paid subscribers of its online music service was 113.5 million, a year-on-year increase of 20.2%; The number of paying users of social entertainment services was 8 million, a year-on-year increase of 15.2%. Among them, the average monthly income of a single paying user in the online music service sector was 10.6 yuan, a year-on-year increase of 15.2%.
In contrast, Tencent Music's average monthly revenue per paying user of social entertainment services in the first quarter of 2024 was 73.4 yuan, down 55.4% from 164.5 yuan in the same period in 2023, which has been relatively "cut in half".