Music Subscriber Growth Drives 35% Profit Surge for Tencent Music

Tencent Music Entertainment (TME) has reported a significant 35% increase in profits for the third quarter, attributed to the addition of 2 million new subscribers during this period. This remarkable growth reflects the company’s strategic efforts to enhance its music streaming services and attract more paying users, solidifying its position in the competitive Chinese music market. As digital music consumption continues to rise, TME’s ability to expand its subscriber base is crucial for its ongoing success and profitability in the ever-evolving landscape of online music services.

TME disclosed a net profit of RMB1.71 billion (approximately $244 million) for the third quarter, alongside total revenues of RMB7.02 billion (about $1 billion). These figures represent increases of 35.3% and 6.8% respectively, compared to the same quarter last year. The growth in music subscription revenue, which rose by more than 20%, played a crucial role in offsetting the persistent decline in revenue from social entertainment services that TME has experienced for over a year. This shift underscores the evolving preferences of consumers towards music streaming services.

TME’s chief executive officer, Ross Liang, emphasized the significance of the company’s strong performance in music subscriptions, highlighting the impressive net subscriber additions and an expanding average revenue per paying user (ARPPU). He stated, “This quarter’s robust music subscription performance demonstrates the effectiveness of our balanced growth approach, which is critical for driving the expansion of our paying user base in the coming years.” This strategic focus on subscriber growth is expected to position TME favorably in the market.

Over the third quarter, TME welcomed 2 million new paying users, bringing its total subscriber count to an impressive 119 million. This surge in subscribers resulted in a 4.9% increase in the company’s monthly average revenue per paying user (ARPPU), which now stands at RMB10.8 (approximately $1.50). Additionally, music subscription revenue reached RMB3.84 billion (around $547 million), marking a notable 20.3% year-over-year growth. These figures highlight TME’s effective strategies in expanding its revenue streams.

The company’s gross margin—the remaining percentage of revenue after deducting expenses—has increased to 42.6% from 35.7% in the same quarter last year. This improvement can be attributed to the rising revenues from both subscriptions and advertising, indicating a successful monetization strategy. TME’s ability to enhance its profitability, even amidst challenges in other service areas, showcases its resilient business model and commitment to maximizing revenue from its core offerings.

In a noteworthy development, TME reported that its number of SVIP subscribers, a premium tier that costs significantly more than the standard subscription, has surpassed 10 million by the end of the quarter on September 30. This surge in premium subscriptions demonstrates TME’s success in offering differentiated services that cater to the demands of dedicated music fans, thereby enhancing overall user engagement and loyalty to the platform.

Tencent Music’s collaboration with Galaxy Corporation this quarter, particularly for the highly anticipated tour of K-pop sensation G-Dragon, has significantly enriched its content offerings. This partnership not only enhances TME’s appeal to K-pop fans but also strengthens its position in the competitive landscape of music streaming by providing exclusive content that resonates with a diverse audience.

G-Dragon has made a grand return to the music scene with the release of his first single in seven years titled “POWER,” which debuted in October. This release precedes his extensive tour across Southeast Asia, the Middle East, Hong Kong, Macao, Taiwan, Australia, and New Zealand. The combination of new music and a high-profile tour is expected to drive further interest and engagement on TME’s platform, attracting more listeners and potential subscribers.

As of 10:25 a.m. in New York, TME’s stock was trading at $10.46, reflecting a decline of 9.48%. Notably, TME’s stock has experienced a nearly 18% drop over the past month; however, it still shows a positive trend with a 19.7% increase year-to-date. This fluctuation in stock performance highlights the dynamic nature of the market and investor sentiment towards TME’s ongoing developments and future growth potential.