Tencent Music latest earning result

$Tencent Music Entertainment Group(01698)$ 22Q3 revenue was NT$7.365 billion, down 5.64% YoY; net profit attributable to parents (nonIFRS) was NT$1.379 billion, YoY+75%.

1. Performance gradually rebounded, thanks to cost control and revenue structure optimization, profit release accelerated

The company's gross profit was NT$2.403 billion in Q3, +4.07% YoY, thanks to the optimization of copyright cost and reduction of live streaming share, as well as the increase of advertising and digital album revenue. Operating profit was NT$1,261 million and adjusted net profit increased significantly by 75% to NT$1,379 million, mainly benefiting from a significant reduction in operating costs, with selling expenses declining 58.26% YoY to NT$245 million. As of the end of the third quarter, the Company's cash assets amounted to RMB25.45 billion.

2. Focusing on the operation of stock users, the number of paid users of online music is growing rapidly and the advertising business has more room for growth

22Q3 online music revenue was $3.43 billion, +18.77% YoY, mainly due to the growth of paid subscribers, digital album sales and advertising revenue recovery. The number of paid subscribers reached 85.3 million in 22Q3, a YoY+19.8% increase, and the pay rate continued to increase to 14.5%, with 100 million subscribers expected to be reached in one to two years. ARPPU was NT$8.8, up sequentially for the third quarter in a row.

Other online music business revenue was NT$1.18 billion, YoY +19.43%. 22Q3 advertising revenue achieved positive YoY and YoY growth, of which, ad-supported free listening model grew strongly and now accounts for approximately 10% of online music advertising revenue.

According to estimates, advertising revenue is expected to account for about 8% of total revenue, which still has more room for growth compared to Spotify's (SPOT) current advertising revenue share of 13% and its medium-term advertising share target of 20%. The copyright distribution business has largely absorbed the negative impact of the removal of exclusive rights. In terms of digital album sales, Jay Chou's new album sales contributed about $210 million.

3、Social entertainment business is still facing competitive pressure, but the decline is expected to gradually slow down, pay attention to the performance of new products in the medium term

The social entertainment business generated revenue of $3.935 billion in 22Q3, down 19.97% year-over-year, still not low, mainly due to fierce competition from platforms and the regulation and standardization of live streaming activities. 22Q3 monthly active users of the social entertainment business were 155 million, down 24.39% year-over-year, and paid users were 7.4 million, down 26% year-over-year, with significant user loss. It is expected that the social entertainment business will continue to decline under the fierce competition, but the year-on-year decline is expected to slow down gradually.

In addition, the company is actively exploring new growth points for its business, launching new products including live audio streaming, social entertainment products overseas and virtual space. We are concerned about the performance and realisation of new products in the medium to long term.

4、Summary

This quarter's earnings performance is still good, profits are expected to continue to release, the current valuation is reasonably low, you can consider a low placement. Calculated by 2023 net profit, it is expected to be above HK$24.9 as the high point of the stock price, below HK$21 can consider a low position.

The company is currently focusing on the operation of stock subscribers, and the number of paid subscribers is expected to further increase, and ARPPU is expected to gradually rebound. Considering the macroeconomic rebound and the diversification of advertising formats in the future, there is still more room to increase the revenue of advertising business. On the profit side, the company will still increase expense control, and together with the optimization of revenue structure, the company's gross profit and net profit are expected to grow further in the future.

# Q3 Earnings Analysis

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    ·2022-12-01
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    ·2022-12-01
    Ok
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    ·2022-12-01
    Ok
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    ·2022-12-01
    👌
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    ·2022-12-01
    Ok
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    ·2022-12-01
    Great
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    ·2022-12-01
    Ok
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  • LesterTan
    ·2022-12-01
    Can buy
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