Tencent Music Entertainment Group Q2 FY2025 earnings call

• Content Business: Cooperated with Korean labels (e.g., The Black Label, H Music) to strengthen K-pop offerings; collaborated with Chinese artists and SM Entertainment on NCT's Special EP; worked with artists on regional pieces and strategic partners on satellite TV to supplement music copyright portfolio. • SVIP Membership: Reached over 15 million, with enhanced benefits including high-quality sound quality, artist-centric privileges (e.g., priority concert tickets, digital album perks), and new features to boost user engagement. • Advertising Revenue: Driven by innovative ad formats, positive results from the 618 shopping festival, and growth in sponsorship advertising. • Off-line Performances: Hosted large-scale concerts like G Dragon's in Macau, organized stadium concerts for emerging artists, and leveraged IPs for off-line shows, boosting user loyalty and content creation.

In the second quarter, Tencent Music Entertainment Group's total revenue reached RMB 8.4 billion, a year-over-year increase of 18%. Online music revenues saw a 26% year-over-year growth, amounting to RMB 6.9 billion. Advertising revenue continued its strong growth trajectory both year-over-year and quarter-over-quarter. Social entertainment services and other revenues were RMB 1.6 billion, a year-over-year decrease of 9% due to adjustments in certain live streaming and interactive functions. SVIP subscribers exceeded 15 million, a new milestone, with user average engagement reaching a record high. Online music revenue contributed significantly to the top line, while advertising revenue was bolstered by innovative ad formats and events like the 618 shopping festival.

• Management expects revenue for the full year 2025 to be higher than previous expectations, supported by solid year-to-date performance. • Confident in the subscription business's high-quality growth, with a steady upward trend in ARPPU. • Optimistic about non-subscription services such as concerts and artist merchandise becoming scalable revenue drivers in the long run.

• Seasonal fluctuations in off-line performances and fans economy due to artist scheduling and venue selection. • Impact on gross margin from lower-margin segments like fans economy and off-line concerts, although offset by growth in subscription and advertising revenues.

Q: Congrats on the strong quarter. How should we think about the second half in terms of revenue and profit outlook?

A: Management is encouraged by the solid performance, confident in subscription business growth with a steady ARPPU increase, and optimistic about non-subscription services like concerts and merchandise becoming scalable. Revenue is expected to be higher than previous expectations for the full year 2025.

Q: Can management share tractions of the recently launched bubble product?

A: Launched with DRU to enhance user communication, received positive feedback on translation and language proficiency, plans to introduce Chinese artists, and sees potential for it to be a key growth driver.

Q: Comment on the deal with Himalaya and its impact?

A: Waiting for regulatory approval, believes long-form audio can complement existing music business, and if approved, could grow the user base and revenues.

Q: Will other music revenue parts form a bigger pile of total revenue in the long run?

A: Fans economy and off-line performances are important directions, but their revenue contribution is relatively small compared to online music, with some impact on gross margin but offset by other growth factors.

Q: Thoughts on long-term revenue mix and TME's position in the entertainment value chain?

A: Key revenue and profit in the near future will come from online music, with advertisement growth expected to be faster. Social entertainment is stabilized with new growth drivers like long-form audio and international expansion.

Q: Detail on ad-based membership revenue and scaling?

A: Fast growth is seen in online advertising, with incentive-based advertisement being key for future growth. Ad-based membership is part of a 3-tier system to broaden the subscriber base, currently in a pilot stage.

Q: Super VIP penetration, ARPU trend, and sustainability?

A: SVIP penetration, ARPU, and retention are ramping up, driven by premiere sound quality, long-form audio, and digital content, with sustainable growth expected from fans economy with proper scheduling and preparation.