Tencent Music Entertainment Group Announces Third Quarter 2019 Unaudited Financial Results
SHENZHEN, China, Nov. 11, 2019 /PRNewswire/ -- Tencent Music Entertainment Group ("Tencent Music," "TME," or the "Company") (NYSE: TME), the leading online music entertainment platform in China, today announced its unaudited financial results for the third quarter ended September 30, 2019.
Financial and Operational Highlights
In the three months ended September 30, 2019:
-- Online music paying users reached 35.4 million, indicating an increase
of 42.2% year-over-year. On a sequential basis, the number of online
music paying users grew by 4.4 million, up from 2.6 million in the
second quarter and 1.4 million in the first quarter of 2019,
representing the largest net increase since 2016 and continuing the
accelerating growth trend.
-- Total revenues were RMB6.51 billion (US$910 million), with an increase
of 31.0% year-over-year.
-- Operating profit was RMB1.19 billion (US$166 million), with an increase
of 11.9% year-over-year.
-- Net profit attributable to equity holders of the Company was RMB1.03
billion (US$144 million), with an increase of 6.4% year-over-year.
-- Non-IFRS net profit attributable to equity holders of the Company
(excluding amortization of intangible assets and other assets arising
from business combinations, share-based compensation expenses, net gains
or losses from investments, fair value change on puttable shares and
income tax effects) increased by 8.0% year-over-year to RMB1.24 billion
(US$173 million).
"We continued our solid performance in the third quarter, driven by healthy growth from both online music and social entertainment services. We are particularly pleased to report accelerating growth of our online music paying users, representing a 42.2% year-over-year increase, as the net increase in the third quarter reached 4.4 million, achieving another quarterly high and outpacing the record growth in the second quarter. More importantly, the high quality of this growth was demonstrated by the ARPPU expansion of 3.5% quarter-over-quarter. This is a strong endorsement of our continuous efforts to unlock the intrinsic value of music through our integrated music platform, and to cultivate the willingness of users to pay for premium music services," said Mr. Cussion Pang, Chief Executive Officer of Tencent Music. "Thanks to our vast user base, deep understanding of music trends and user insights, we continued to develop our platform as the go-to destination for artists to build a fan-based economy. This strength, coupled with further investment in various forms of content, technology and services, will solidify our platform as an all-in-one music entertainment destination."
Mr. Tony Yip, Chief Strategy Officer of Tencent Music, said, "In the third quarter, we continued to invest in product innovations to further expand our user base and increase user engagement. We pioneered the introduction of short videos to music streaming pages for users to enjoy while listening to music. We also added new social and gamification features within our social entertainment applications to facilitate connections among users. In addition, we continued to enrich our content ecosystem to extend further beyond songs to include a wider range of offering, including long-form audio, PGC and UGC short videos, music-centric variety shows and original music for games, films and TV shows as well as from our musician program. From talent discovery, content distribution and promotion, to fan-based economy, our platform continues to benefit from the unique virtuous cycle of synergies between online music and social entertainment."
"We delivered strong financial performance in the third quarter with a top-line growth of 31.0%, along with solid operating margins and cash flow," commented Ms. Shirley Hu, Chief Financial Officer of Tencent Music. "Our online music subscription revenue increased significantly by 48.3% year-over-year, driven by strong growth of paying users and ARPPU expansion. New album releases boosted our revenue from digital albums to double in this quarter compared to the third quarter of last year. Our social entertainment and others revenues grew at a healthy rate of 32.9% as we continued to expand the paying user base of our social entertainment services. Our investments in premium content have not only resulted in sound financial return, but also solidified the leadership of our platform. Looking forward, we will strengthen the synergies between our online music and social entertainment businesses and continue to invest in long-term growth initiatives."
Operational Highlights
-- TME's key operating metrics* continue to grow across both online music
and social entertainment services.
3Q19
3Q18 YoY %
Mobile MAU - online music (million) 661 655 0.9%
Mobile MAU - social entertainment (million) 242 225 7.6%
Paying users - online music (million) 35.4 24.9 42.2%
Paying users - social entertainment (million) 12.2 9.9 23.2%
Monthly ARPPU - online music (RMB) 8.9 8.5 4.7%
Monthly ARPPU - social entertainment (RMB) 127.3 118.5 7.4%
-- In the third quarter of 2019, the Company further strengthened its
industry-leading content offering through the following initiatives: (i)
adding strategic partnerships with more music labels in both mainstream
and long tail genres and (ii) adding a wider range of content including
music-centric variety shows, premium original music for games, films and
TV shows, short-form videos, as well as long-form audio such as podcasts
and audio books.
-- The Company further penetrated a younger demographic of music users by:
(i) expanding partnerships to reach hundreds of universities and higher
education institutions in China, (ii) adapting to the preferences of
younger music users by adding genres such as Urban, EDM, Animation,
Comic and Gaming, as well as Chinese ancient style, which has enjoyed a
rising trend of popularity among young people as it combines China's
traditional culture with popular trends and provides the young
demographic a strong sense of cultural identity, and (iii) launching
special promotion events for the monthly subscription plan as well as
live streaming new song releasing events for students.
-- The Company further solidified its promotional capabilities and became
the preferred destination for artists to build a long-term, stable and
reciprocal fan-based economy. Through interactive activities, the
Company helps established, up-and-coming, domestic and international
artists to promote music to a broader audience in an engaging manner and
through both online and offline channels: (i) TME not only aided Jay
Chou's new single, Won't Cry, to achieve record sales result, but also
facilitated the viral spread of social buzz, and inspired more than 12
million karaoke recordings by the Company's WeSing users within 10 days
after its release, further extending the single's popularity; (ii)
created an interactive environment for Taylor Swift and her fans in
China to engage and to express views on its music platform. The title
song of her new digital album Lover sold nearly 6 million copies within
24 hours on its platform after release, and (iii) for TFBOYS' 6-year
anniversary concert, TME live streamed the event to promote greater
participation online and offline amongst fans across the country and
provided an opportunity for fans to show appreciation to their idols
through virtual gifts.
-- TME's musician program has become a leading online music platform for
original music in China, offering a full suite of services to nurture
and promote up-and-coming independent artists. Its open platform not
only significantly simplifies the process for artists to upload and
manage their soundtracks, but also provides them with user data analysis
and actionable intelligence on music trends. The total number of
uploaded songs by up-and-coming musicians for the first nine months of
this year more than doubled year-over-year. The average number of daily
streams of original songs on TME's integrated music platform including
QQ Music, Kugou Music and Kuwo Music was up almost 200% compared with
the same period a year ago.
-- The Company continued to offer comprehensive online and offline
resources to uphold copyright protection and continues its journey of
educating users by unlocking the intrinsic value of music to hundreds of
millions of music lovers in China.
-- The Company continued to improve the efficiency in content curation and
accuracy of personalized recommendation by utilizing deep learning and
data mining, which has resulted in a substantial increase in average
daily streams and user engagements for both its online music and social
entertainment services.
-- The Company continued to make concerted efforts in product enhancement
and innovation to cater to user demands, which has led to improved user
engagement. These efforts include: (i) adding a wide range of
professionally generated and user generated short videos to music
streaming platform; (ii) bolstering social and young attributes on the
WeSing platform by adding new forms of content such as mini
live-streaming reality shows and new features such as universal duet
that encourage users to interact, and (iii) developing a song
recognition tool which enables users to recognize within seconds songs
embedded in short videos.
[*] For the definitions of the
above operating metrics,
please refer to the
introduction section in the
Company's 20-F filed on April
19, 2019.
THIRD Quarter 2019 Financial Results
Revenues
Total revenues for the third quarter of 2019 increased by RMB1.54 billion, or 31.0%, to RMB6.51 billion (US$910 million) from RMB4.97 billion in the same period of 2018.
-- Revenues from online music services for the third quarter of 2019
increased by 26.2% to RMB1.85 billion (US$258 million) from RMB1.46
billion in the same period of 2018. The increase was driven by strong
growth in revenues from music subscriptions and sales of digital music
albums, offset by a decrease in sublicensing revenues from other music
platforms. Revenues from music subscriptions were RMB942 million (US$132
million), a 48.3% increase from RMB635 million in the third quarter of
2018, primarily due to improved paying user retention rate and increased
number of paying users.
-- Revenues from social entertainment services and others for the third
quarter of 2019 increased by 32.9% to RMB4.66 billion (US$652 million)
from RMB3.51 billion in the same period of 2018, primarily driven by
revenue growth in both online karaoke and music-centric live streaming
services. The Company expanded the paying user base of its social
entertainment services by 23.2% and increased ARPPU by 7.4% in the third
quarter of 2019, compared with the same period of 2018.
Cost of Revenues
Cost of revenues for the third quarter of 2019 increased by 42.9% to RMB4.30 billion (US$601 million) from RMB3.01 billion in the same period of 2018, primarily due to the increase in content expenses and revenue sharing fees. The increase in content expenses was mainly attributable to the increase in market prices and amount of licensed and original music content. The increase in revenue sharing fees reflected the growth in the Company's social entertainment services.
Gross Profit
Gross profit for the third quarter of 2019 increased by 12.6% to RMB2.21 billion (US$309 million) from RMB1.96 billion in the same period of 2018. Gross margin was 34.0% for the third quarter of 2019.
Operating Expenses for the Period
Total operating expenses for the third quarter of 2019 increased by RMB260 million, or 26.6%, to RMB1.24 billion (US$173 million) from RMB977 million in the same period of 2018. Operating expenses as a percentage of total revenues was 19.0% in the third quarter compared with 19.7% in the same period of 2018.
-- Selling and marketing expenses for the third quarter of 2019 were RMB517
million (US$72 million), representing an increase of 19.1%
year-over-year from RMB434 million in the same period of 2018. The
increase was primarily due to increased spending on branding and paying
user conversion.
-- General and administrative expenses for the third quarter of 2019 were
RMB720 million (US$101 million), representing an increase of 32.6%
year-over-year from RMB543 million in the same period of 2018. The
Company continued to increase its investment in research and development
to expand its competitive advantages in product and technology
innovations.
Operating Profit for the Period
Operating profit increased by 11.9% to RMB1.19 billion (US$166 million) in the third quarter of 2019 from RMB1.06 billion in the same period of 2018.
Net Profit and Non-IFRS Net Profit for the Period
Net profit attributable to equity holders of the Company for the third quarter of 2019 was RMB1.03 billion (US$144 million), compared with RMB964 million in the same period of 2018. Non-IFRS net profit attributable to equity holders of the Company was RMB1.24 billion (US$173 million) for the third quarter of 2019, compared with RMB1.15 billion in the same period of 2018. Please refer to the section titled "Non-IFRS Financial Measure" for details.
Earnings per ADS
Basic and diluted earnings per American Depositary Shares ("ADS") were RMB0.63 (US$0.09) and RMB0.62 (US$0.09), respectively, for the third quarter of 2019. Excluding amortization of intangible assets and other assets arising from business combinations, share-based compensation expenses, net losses from investments, fair value change on puttable shares and income tax effects, non-IFRS basic and diluted earnings per ADS were RMB0.76 (US$0.11) and RMB0.74 (US$0.10), respectively, for the third quarter of 2019. During the third quarter of 2019, the Company had weighted averages of 1.63 billion basic and 1.67 billion diluted ADSs outstanding, respectively. Each ADS represents two of the Company's Class A ordinary shares.
Cash Flow
Net cash provided by operating activities for the third quarter of 2019 was RMB1.35 billion (US$189 million), compared with RMB1.64 billion of cash provided by operating activities during the same period of 2018. Net cash used in investing activities for the third quarter of 2019 was RMB680 million (US$95 million), primarily due to investments in term deposits and short-term investments during the quarter, compared with net cash provided by investing activities of RMB333 million during the same period of 2018.
Cash, Cash Equivalents and Term Deposits
As of September 30, 2019, the combined balance of the Company's cash, cash equivalents and term deposits amounted to RMB21.14 billion (US$2.96 billion), compared with RMB19.90 billion as of June 30, 2019. The increase in cash, cash equivalents and term deposits was primarily due to cash flow generated from operations of RMB1.35 billion (US$189 million). The Company's cash and cash equivalents balance was also affected by the change in the exchange rate of RMB to USD at different balance sheet dates. The exchange rate was 7.1477 to 1 on September 30, 2019, and 6.8650 to 1 on June 30, 2019.
Conference Call Information
Tencent Music's management will hold a conference call on Monday, November 11, 2019, at 8:00 P.M. Eastern Time or 9:00 A.M. Beijing Time on Tuesday, November 12, 2019, to discuss the financial results. Listeners may access the call by dialing the following numbers:
United States Toll Free: +1-888-317-6003
International: +1-412-317-6061
Mainland China Toll Free:
400-120-6115
Hong Kong, China Toll Free:
800-963-976
Access Code: 3368975
The replay will be accessible through November 18, 2019, by dialing the following numbers:
United States Toll Free:
+1-877-344-7529
International:
+1-412-317-0088
Access Code: 10135231
A live and archived webcast of the conference call will also be available at the Company's investor relations website at https://ir.tencentmusic.com/.
Exchange Rate
This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.1477 to US$1.00, the noon buying rate in effect on September 30, 2019, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.
Non-IFRS Financial Measure
The Company uses non-IFRS net profit for the year/period, which is a non-IFRS financial measure, in evaluating its operating results and for financial and operational decision-making purposes. Tencent Music believes that non-IFRS net profit helps identify underlying trends in the Company's business that could otherwise be distorted by the effect of certain expenses that the Company includes in its profit for the year/period. Tencent Music believes that non-IFRS net profit for the year/period provides useful information about its results of operations, enhances the overall understanding of its past performance and future prospects and allows for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.
Non-IFRS net profit for the year/period should not be considered in isolation or construed as an alternative to operating profit, net profit for the year/period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-IFRS net profit for the year/period and the reconciliation to its most directly comparable IFRS measure. Non-IFRS net profit for the year/period presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. Tencent Music encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.
Non-IFRS net profit for the year/period represents profit for the year excluding share-based compensation expenses, net loss from investments, amortization of intangible and other assets resulting from the business combinations, fair value change on liabilities of puttable shares and income tax effects.
Please see the "Unaudited Non-IFRS Financial Measure" included in this press release for a full reconciliation of Non-IFRS net profit for the year/period to its net profit for the year/period.
About Tencent Music Entertainment
Tencent Music Entertainment Group (NYSE: TME) is the leading online music entertainment platform in China, operating the country's highly popular and innovative music apps: QQ Music, Kugou Music, Kuwo Music and WeSing. Tencent Music's mission is to use technology to elevate the role of music in people's lives by enabling them to create, enjoy, share and interact with music. Tencent Music's platform comprises online music, online karaoke and music-centric live streaming services, enabling music fans to discover, listen, sing, watch, perform and socialize around music. For more information, please visit ir.tencentmusic.com.
Safe Harbor Statement
This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.
Investor Relations Contact
Tencent Music Entertainment Group
ir@tencentmusic.com
+86 (755) 8601-3388 ext. 857811
The Piacente Group, Inc.
Brandi Piacente
Email: TME@tpg-ir.com
Tel: +1 (212) 481-2050
Ross Warner
Email: TME@tpg-ir.com
Tel: +86 (10) 6508-0677
Media Relations Contact
tme.pr@icrinc.com
+1 (646) 992-2986
TENCENT MUSIC ENTERTAINMENT GROUP
CONSOLIDATED INCOME STATEMENT
Three Months Ended
Nine Months Ended
September 30, 2018 September 30, 2019
September 30, 2018 September 30, 2019
RMB
RMB
US$
RMB
RMB
US$
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
(in millions, except per share data) (in millions, except per share data)
Revenues
Online music services 1,463 1,846 258 4,016 5,013 701
Social entertainment services and others 3,506 4,661 652 9,572 13,128 1,837
4,969 6,507 910 13,588 18,141 2,538
Cost of revenues (3,006) (4,296) (601) (8,147) (11,956) (1,673)
Gross profit 1,963 2,211 309 5,441 6,185 865
Selling and marketing expenses (434) (517) (72) (1,172) (1,370) (192)
General and administrative expenses (543) (720) (101) (1,448) (1,956) (274)
Total operating expenses (977) (1,237) (173) (2,620) (3,326) (465)
Interest income 82 154 22 182 442 62
Other (losses)/ gains, net (6) 60 8 6 119 17
Operating profit 1,062 1,188 166 3,009 3,420 478
Share of loss of investments accounted for (4) (2) (0) (11) (10) (1)
using equity method
Finance Cost (9) (18) (3) (26) (57) (8)
Profit before income tax 1,049 1,168 163 2,972 3,353 469
Income tax expense (85) (145) (20) (265) (416) (58)
Profit for the period 964 1,023 143 2,707 2,937 411
Attributable to:
Equity holders of the Company 964 1,026 144 2,709 2,940 411
Non-controlling interests (3) (0) (2) (3) (0)
Earnings per share for Class A and Class
B ordinary shares
Basic 0.31 0.31 0.04 0.89 0.90 0.13
Diluted 0.30 0.31 0.04 0.86 0.88 0.12
Earnings per ADS (2 Class A shares
equal to 1 ADS)
Basic 0.63 0.09 1.80 0.25
Diluted 0.62 0.09 1.76 0.25
Shares used in earning per Class A and
Class B ordinary share computation:
Basic 3,080,492,207 3,269,006,517 3,269,006,517 3,060,847,486 3,264,217,250 3,264,217,250
Diluted 3,169,894,362 3,331,806,938 3,331,806,938 3,139,115,477 3,342,280,671 3,342,280,671
ADS used in earnings per ADS
computation
Basic 1,634,503,259 1,634,503,259 1,632,108,625 1,632,108,625
Diluted 1,665,903,469 1,665,903,469 1,671,140,336 1,671,140,336
TENCENT MUSIC ENTERTAINMENT GROUP
UNAUDITED NON-IFRS FINANCIAL MEASURE
Three Months Ended
Nine Months Ended
September 30, 2018 September 30, 2019
September 30, 2018 September 30, 2019
RMB
RMB
US$
RMB
RMB
US$
(in millions, except per share data) (in millions, except per share data)
Profit for the period 964 1,023 143 2,707 2,937 411
Adjustments:
Amortization of intangible and other assets arising 75 91 13 219 271 38
from business combinations*
Share-based compensation 110 129 18 345 382 53
Losses/(gains) from investments 1 (1) (0)
Fair value change on puttable shares ** 9 9 1 26 27 4
Income tax effects*** (14) (18) (3) (40) (53) (7)
Non-IFRS Net Profit 1,145 1,234 173 3,257 3,563 498
Attributable to:
Equity holders of the Company 1,145 1,237 173 3,259 3,566 499
Non-controlling interests (3) (0) (2) (3) (0)
Earnings per share for Class A and Class B
ordinary shares
Basic 0.37 0.38 0.05 1.06 1.09 0.15
Diluted 0.36 0.37 0.05 1.04 1.07 0.15
Earnings per ADS (2 Class A shares equal to 1
ADS)
Basic 0.76 0.11 2.18 0.31
Diluted 0.74 0.10 2.13 0.30
Shares used in earnings per Class A and
Class B ordinary share computation:
Basic 3,080,492,207 3,269,006,517 3,269,006,517 3,060,847,486 3,264,217,250 3,264,217,250
Diluted 3,169,894,362 3,331,806,938 3,331,806,938 3,139,115,477 3,342,280,671 3,342,280,671
ADS used in earnings per ADS computation
Basic 1,634,503,259 1,634,503,259 1,632,108,625 1,632,108,625
Diluted 1,665,903,469 1,665,903,469 1,671,140,336 1,671,140,336
* Represents the amortization of identifiable assets, including intangible assets and prepayments for music content, resulting from Tencent's acquisition of CMC in
2016, our acquisition of Ultimate Music in 2017, and our acquisition of certain subsidiaries in 2018 and 2019.
** Represents the fair value changes on the put liability of certain shares issued in 2018
*** Represents the income tax effects of amortization of identifiable assets, including intangible assets and prepayments for music content, resulting from business
combinations
TENCENT MUSIC ENTERTAINMENT GROUP
CONSOLIDATED BALANCE SHEET
As at December 31, 2018 As at September 30, 2019
RMB
RMB
US$
Audited Unaudited Unaudited
(in millions)
ASSETS
Non-current assets
Property, plant and equipment 168 162 23
Intangible assets 1,763 1,637 229
Right-of-use assets 144 20
Goodwill 17,088 17,140 2,398
Investments accounted for using equity method 236 448 63
Financial assets at fair value through other comprehensive 3,331 3,448 482
income
Other investments 217 217 30
Prepayments and deposits 901 850 119
Deferred tax assets 123 129 18
Term deposits 500 70
23,827 24,675 3,452
Current assets
Inventories 35 32 4
Accounts receivable 1,483 1,734 243
Prepayments, deposits and other assets 1,823 2,811 393
Other investments 39 37 5
Short-term investments 42 16 2
Term deposits 600 84
Cash and cash equivalents 17,356 20,036 2,803
20,778 25,266 3,535
Total assets 44,605 49,941 6,987
EQUITY
Equity attributable to equity holders of the
Company
Share capital 2 2 0
Additional paid-in capital 33,776 34,310 4,800
Shares held for share award schemes (29) (4)
Other reserves 903 1,277 179
Retained earnings 3,040 5,980 837
37,721 41,540 5,812
Non-controlling interests 51 95 13
Total equity 37,772 41,635 5,825
LIABILITIES
Non-current liabilities
Other payables and other liabilities 241 346 48
Deferred tax liabilities 354 242 34
Lease liability 86 12
595 674 94
Current liabilities
Accounts payable 1,830 2,496 349
Other payables and other liabilities 2,742 3,085 432
Current tax liabilities 235 377 53
Lease liability 57 8
Deferred revenue 1,431 1,617 226
6,238 7,632 1,068
TOTAL LIABILITIES 6,833 8,306 1,162
Total equity and liabilities 44,605 49,941 6,987
TENCENT MUSIC ENTERTAINMENT GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
Nine Months Ended
September 30, 2018 September 30, 2019
September 30, 2018 September 30, 2019
RMB
RMB
US$
RMB
RMB
US$
Unaudited Unaudited Unaudited
Unaudited Unaudited Unaudited
(in millions)
(in millions)
Net cash provided by operating activities 1,644 1,352 189 3,700 4,167 583
Net cash provided by/(used in) investing activities 333 (680) (95) (240) (1,530) (214)
Net cash provided by financing activities 37 5 2,855 42 6
Net increase in cash and cash equivalents 1,977 709 99 6,315 2,679 375
Cash and cash equivalents at beginning of the period 9,529 19,350 2,707 5,174 17,356 2,428
Exchange gains/(losses) on cash and cash equivalents 23 (23) (3) 40 1
Cash and cash equivalents at end of the period 11,529 20,036 2,803 11,529 20,036 2,803
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SOURCE Tencent Music Entertainment Group
