Tencent Music’s Q4 Earnings Report: A Mixed Bag of Results
Tencent Music Entertainment Group (TME), the leading online music streaming platform in China, recently released its fourth-quarter earnings report. The company showed robust growth in its music subscription segment but continued weakness in social entertainment, leading to a cautious outlook for investors.
Music Subscription Segment Shines
Music subscription revenue grew 18% year-over-year (y/y) to RMB 3.5 billion ($532 million), driven by an increase in paying users and average revenue per user (ARPU). The number of paying users reached 78.3 million, up 15% y/y, while ARPU rose 7% y/y to RMB 45.1.
Social Entertainment Segment Underperforms
On the other hand, social entertainment revenue declined 13% y/y to RMB 1.8 billion ($272 million). This was due to a decrease in average revenue per user (ARPU) and a decline in monthly active users (MAUs). The ARPU for social entertainment decreased 11% y/y to RMB 12.2, while MAUs were down 1% y/y to 674.5 million.
Valuation Implications
Given the continued growth in the music subscription segment and the underperformance of social entertainment, TME’s valuation should primarily focus on the former. Based on the current market price of $14.5 per share, a discounted cash flow (DCF) analysis implies a fair value of around $12.5 per share for the music subscription business alone. This suggests a potential downside of approximately 10% to the current price.
Impact on Individual Investors
For individual investors, this news may result in a slight decrease in the value of their TME shares, as the market may react negatively to the continued weakness in the social entertainment segment. However, the strong growth in the music subscription business remains a positive sign for the company’s long-term prospects.
Impact on the World
On a larger scale, TME’s earnings report highlights the growing importance of subscription-based business models in the music industry. As streaming services continue to gain popularity and market share, traditional music sales and advertising-based revenue streams are becoming less significant. This trend is not limited to China but is also affecting companies like Spotify and Apple Music in the Western market.
Conclusion
In conclusion, Tencent Music Entertainment Group’s fourth-quarter earnings report showed strong growth in the music subscription segment but continued weakness in social entertainment. This mixed bag of results has led to a cautious outlook for investors, with a potential downside of around 10% to the current share price. The report also underscores the growing importance of subscription-based business models in the music industry, with implications for both individual investors and the world at large.
- Tencent Music Entertainment Group (TME) reported strong growth in music subscription revenue, up 18% y/y, driven by increased paying users and ARPU.
- Social entertainment revenue declined 13% y/y, due to a decrease in ARPU and MAUs.
- TME’s valuation should primarily focus on the music subscription segment, implying a potential downside of around 10% to the current share price.
- The report highlights the growing importance of subscription-based business models in the music industry, with implications for both individual investors and the world at large.
