Tencent Music Entertainment Group Announces Fourth Quarter and Full-Year 2023 Unaudited Financial Results

SHENZHEN, China, March 19, 2024

Fourth Quarter 2023 Financial Highlights

• Total revenues were RMB6.89 billion (US$971 million), representing a 7.2% year-over-year decrease, mainly due to the decline in revenues from social entertainment services and others. Growth in revenues from online music services partially mitigated the decline in revenues from social entertainment services and others.
• Revenues from music subscriptions were RMB3.42 billion (US$481 million), representing 45.3% year-over-year growth. The number of paying users increased by 20.6% year-over-year to 106.7 million, up 3.7 million from the third quarter of 2023.
• Net profit was RMB1.41 billion (US$198 million), representing 16.9% year-over-year growth. Net profit attributable to equity holders of the Company was RMB1.31 billion (US$184 million), representing 13.5% year-over-year growth. Non-IFRS net profit^[1]was RMB1.68 billion (US$236 million), representing 12.5% year-over-year growth. Non-IFRS net profit attributable to equity holders of the Company^[1] was RMB1.58 billion (US$222 million), representing 9.5% year-over-year growth.
• Diluted earnings per ADS was RMB0.83 (US$0.12), up from RMB0.72 in the same period of 2022.
• Total cash, cash equivalents and term deposits as of December 31, 2023 were RMB32.22 billion (US$4.54 billion). 

Full Year 2023 Financial Highlights

• Total revenues were RMB27.75 billion (US$3.91 billion), representing a 2.1% year-over-year decrease.
• Revenues from music subscriptions were RMB12.10 billion (US$1.70 billion), representing 39.1% year-over-year growth.
• Net profit was RMB5.22 billion (US$735 million), representing 36.0% year-over-year growth. Net profit attributable to equity holders of the Company was RMB4.92 billion (US$693 million), representing 33.8% year-over-year growth. Non-IFRS net profit^[1] was RMB6.22 billion (US$876 million), representing 26.8% year-over-year growth. Non-IFRS net profit attributable to equity holders of the Company^[1] was RMB5.92 billion (US$834 million), representing 24.8% year-over-year growth.

Mr. Cussion Pang, Executive Chairman of TME, commented, "2023 marked a pivotal transition at TME. As we continue to shape and propel the music industry's robust development, we are excited about its vibrant growth potential for years to come. The fourth quarter recorded accelerated year-over-year growth in music subscription revenue, anchored by consistent increases in subscribers and ARPPU. Online music services' strong performance mitigated headwinds from social entertainment services and contributed to expanded quarterly net profits. Looking ahead, we are well positioned to capture more multi-faceted opportunities, underpinned by our content and platform dual engines and supported by the online music business' relatively counter-cyclical nature."

Mr. Ross Liang, CEO of TME, continued, "Our laser focus on execution resulted in a year of efficiency. Deeper insights into users and content not only enhanced our operational efficiency but also allowed us to make music journeys more personalized for our users. Expanded user privileges, together with AI-empowered products and tools, contributed positively to subscriber conversion and retention. For 2024, we remain dedicated to delivering a more compelling user experience and easier access to music across a broader range of use cases." 

Fourth Quarter 2023 Operational Highlights 

• Key Operating Metrics^[2]

	4Q23 ARIVA.DE Börsen-Geflüster Werbung Weiter aufwärts? Kurzfristig positionieren in Tencent Music Entertainment HS4J79 Ask: 3,81 Hebel: 5,84 mit moderatem Hebel Zum Produkt HSBC Den Basisprospekt sowie die Endgültigen Bedingungen und die Basisinformationsblätter erhalten Sie hier: HS4J79,. Beachten Sie auch die weiteren Hinweise zu dieser Werbung. Der Emittent ist berechtigt, Wertpapiere mit open end-Laufzeit zu kündigen. Kurse Tencent Music Entertainment 12,88 $ +1,58%	4Q22	YoY %
MAUs – online music (million)	576	601	(4.2 %)
Mobile MAUs – social entertainment (million)	104	146	(28.8 %)
Paying users – online music (million)	106.7	88.5	20.6 %
Paying users – social entertainment (million)	8.0	7.6	5.3 %
Monthly ARPPU – online music (RMB)	10.7	8.9	20.2 %
Monthly ARPPU – social entertainment (RMB)	78.0	169.6	(54.0 %)

Robust online music growth underpinned by our content leadership, with expansive and differentiated content offerings.

• Continued to form extensive partnerships with record labels, strengthening our content offering with over 200 million music and audio tracks by the end of 2023. For example, we renewed multi-year strategic cooperation with Universal Music Group to provide users with ongoing access to its world-class music catalog with expanded privileges.
  
  
• Strengthened content appeal across pop, rock and Chinese Ancient Style music genres, crucial in attracting and retaining young user demographics.
  
  
• Differentiated content offerings through in-house and collaborative creation gained further popularity among users as reflected by: 1) Enriched mid- to long-tail content with over 3 million songs in various genres published by over 480,000 indie musicians through Tencent Musician Platform by the end of 2023. 2) Our self- and co-produced content continued to grow from strength to strength. For example, we had 10 songs showcased during the China Media Group 2024 Spring Festival Gala, generating massive social buzz and greatly boosting user engagement on our platform; our self-produced song She, Bathing in the Light was one standout. 
  
  
• Capitalized on rising live music opportunities by hosting a growing number of offline music events in multi-faceted performance formats in 2023.

Strengthened platform value proposition and elevated user experiences through product and technology innovation.

• Expanded privileges and improved multi-device experience to enhance music journeys by: 1) Amassing China's largest Dolby Atmos music library. 2) Introducing more personalized players and new skins within our Apps. 3) Extending car model coverage with upgraded in-car music experience.
  
  
• The power of our technology infrastructure, bolstered by our in-depth understanding of users and content, further improved content distribution and discovery. More accurate recommendations led to more content consumption, resulting in enhanced user conversion and retention.

AIGC application enhanced user experience and fostered artists' music creation.

• Integrated Large Language Models ("LLMs") into music streaming, making music discovery increasingly intelligent. For example, we upgraded our virtual DJ feature to unveil more songs for users.
  
  
• Introduced Venus' AI composition tool to support artists' music creation through their original text prompts and rhythm clips.

Fourth Quarter 2023 Financial Review

Total revenues decreased by RMB532 million, or 7.2%, to RMB6.89 billion (US$971 million) from RMB7.43 billion in the same period of 2022.

• Revenues from online music services delivered a strong year-over-year increase of 41.1% to RMB5.02 billion (US$707 million). The increase was driven by strong growth in music subscription revenues, supplemented by growth in revenues from advertising services and revenues from sales of artist-related merchandise. Revenues from music subscriptions were RMB3.42 billion (US$481 million), representing 45.3% year-over-year growth compared with RMB2.35 billion in the same period of 2022. This rapid growth was driven by further expansion in the online music paying user base and ARPPU. Specifically, the number of online music paying users increased by 20.6% year-over-year to 106.7 million, while monthly ARPPU expanded to RMB10.7, marking its seventh consecutive quarter of growth and another record-high amount. The increases in both the number of paying users and ARPPU were primarily attributable to increased user willingness to pay, more appealing member privileges, interactive product features, and attractive music content. The year-over-year increase in revenues from advertising was primarily because we provided a more diversified product portfolio and innovative ad formats, which were well-received by advertisers.
  
  
• Revenues from social entertainment services and others decreased by 51.6% to RMB1.87 billion (US$264 million) from RMB3.87 billion in the same period of 2022. The decrease was mainly caused by the adjustments to certain live-streaming interactive functions and more stringent compliance procedures as we implemented several service enhancement and risk control measures. 

Cost of revenues decreased by 14.6 % year-over-year to RMB4.25 billion (US$599 million), mainly due to decreased revenues from social entertainment services leading to lower revenue sharing fees, partially offset by the increase in content costs of royalties and advertising agency fees.

Gross margin increased by 5.3 percentage points to 38.3% from 33.0% in the same period of 2022, primarily due to the strong growth of revenues from music subscriptions and advertising services, and the ramp-up of our own content.

Total operating expenses decreased by 7.0% year-over-year to RMB1.27 billion (US$178 million). Operating expenses as a percentage of total revenues were 18.4% and 18.3% for the period of 2023 and 2022, respectively.

• Selling and marketing expenses were RMB255 million (US$36 million), representing a year-over-year decrease of 4.1%, mainly due to reduced promotional expenses for social entertainment services, partially offset by increased spending on content promotion.
  
  
• General and administrative expenses were RMB1.01 billion (US$142 million), representing a year-over-year decrease of 7.7%. This decrease was primarily due to reduced employee-related expenses.

Driven by improved operating efficiency and effective cost controls, our operating profit grew to RMB1.71 billion (US$241 million) in the fourth quarter of 2023, representing an increase of 23.5% year-over-year.

Effective tax rate for the fourth quarter of 2023 was 17.3% compared to 12.2% in the same period of 2022. The increase in effective tax rate was mainly driven by the accrual of withholding income tax in the fourth quarter of 2023.

For the fourth quarter of 2023, net profit was RMB1.41 billion (US$198 million) and net profit attributable to equity holders of the Company was RMB1.31 billion (US$184 million). Non-IFRS net profit was RMB1.68 billion (US$236 million) and non-IFRS net profit attributable to equity holders of the Company was RMB1.58 billion (US$222 million). Please refer to the section in this press release titled "Non-IFRS Financial Measure" for details.

Basic and diluted earnings per American Depositary Shares ("ADS") for the fourth quarter of 2023 were RMB0.84 (US$0.12) and RMB0.83 (US$0.12), respectively; non-IFRS basic and diluted earnings per ADS were RMB1.02 (US$0.14) and RMB1.00 (US$0.14), respectively. The Company had weighted averages of 1.55 billion basic and 1.57 billion diluted ADSs outstanding, respectively. Each ADS represents two of the Company's Class A ordinary shares.

As of December 31, 2023, the combined balance of the Company's cash, cash equivalents and term deposits amounted to RMB32.22 billion (US$4.54 billion), compared with RMB30.96 billion as of September 30, 2023.

Full Year 2023 Financial Review

Total revenues decreased by RMB587 million, or 2.1%, to RMB27.75 billion (US$3.91 billion) from RMB28.34 billion in 2022.

• Revenues from online music services delivered a strong year-over-year increase of 38.8% to RMB17.33 billion (US$2.44 billion). The increase was driven by strong growth in music subscription revenues and revenues from advertising services, supplemented by growth in sales of artist-related merchandise. Revenues from music subscriptions were RMB12.10 billion (US$1.70 billion), representing 39.1% year-over-year growth compared with RMB8.70 billion in 2022. This rapid growth was driven by further expansion in the online music paying user base and ARPPU. Specifically, the number of online music paying users increased by 19.8% year-over-year to 100.9 million, while monthly ARPPU expanded to RMB10.0. The increases in both the number of paying users and ARPPU were primarily attributable to increased user willingness to pay, more appealing member privileges, interactive product features, and attractive music content. The year-over-year increase in revenues from advertising was primarily because we provided a more diversified product portfolio and innovative ad formats, which were well-received by advertisers.
  
  
• Revenues from social entertainment services and others decreased by 34.2% to RMB10.43 billion (US$1.47 billion) from RMB15.86 billion in 2022. The decrease was mainly caused by the adjustments to certain live-streaming interactive functions and more stringent compliance procedures as we implemented several service enhancement and risk control measures. 

Cost of revenues decreased by 8.2% year-over-year to RMB17.96 billion (US$2.53 billion). The decrease was mainly due to decreased revenues from social entertainment services leading to lower revenue sharing fees, partially offset by the increase in content costs of royalties, advertising agency fees and payment channel fees.

Gross margin increased by 4.3 percentage points to 35.3% from 31.0% in 2022, primarily due to the strong growth of revenues from music subscriptions and advertising services, and the ramp-up of our own content.

Total operating expenses decreased by 9.7% year-over-year to RMB5.02 billion (US$707 million). Operating expenses as a percentage of total revenues decreased to 18.1% from 19.6% in 2022.

• Selling and marketing expenses were RMB897 million (US$126 million), representing a year-over-year decrease of 21.6%, mainly due to reduced promotional expenses for social entertainment services, partially offset by increased spending on content promotion. 
  
  
• General and administrative expenses were RMB4.12 billion (US$580 million), representing a year-over-year decrease of 6.6%. This decrease was primarily due to reduced employee-related expenses and the expenses related to the Hong Kong secondary listing incurred in 2022.

Driven by improved operating efficiency and effective cost controls, our operating profit grew to RMB6.06 billion (US$853 million) for the full year of 2023, representing an increase of 36.4% year-over-year.

For the full year of 2023, net profit was RMB5.22 billion (US$735 million) and net profit attributable to equity holders of the Company was RMB4.92 billion (US$693 million). Non-IFRS net profit was RMB6.22 billion (US$876 million) and non-IFRS net profit attributable to equity holders of the Company was RMB5.92 billion (US$834 million). Please refer to the section in this press release titled "Non-IFRS Financial Measure" for details.

Basic and diluted earnings per American Depositary Shares ("ADS") for the full year of 2023 were RMB3.15 (US$0.44) and RMB3.11 (US$0.44), respectively; non-IFRS basic and diluted earnings per ADS were RMB3.79 (US$0.53) and RMB3.74 (US$0.53), respectively. The Company had weighted averages of 1.56 billion basic and 1.58 billion diluted ADSs outstanding, respectively.

Share Repurchase Program

Under the US$500 million Share Repurchase Program announced on March 21, 2023, as of December 31, 2023, we had repurchased 25.3 million ADSs from the open market with cash for a total consideration of US$174.5 million.

Social Responsibilities

In the fourth quarter, we collaborated with local governments and conducted a series of music events to promote cultural and economic development in ethnic minority regions. For example, we partnered with Tencent Charity to organize the 2023 Shenzhen-Linzhi Music Festival, leveraging offline music performances to help rejuvenate the rural economy with increased tourism. These initiatives further expanded music's positive impact across geographies and industries, maximizing its social value and potential.

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 RMB7.0999 to US$1.00, the noon buying rate in effect on December 29, 2023, 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 period, which is a non-IFRS financial measure, in evaluating its operating results and for financial and operational decision-making purposes. TME 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 period. TME believes that non-IFRS net profit for the 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 period should not be considered in isolation or construed as an alternative to operating profit, net profit for the 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 period and the reconciliation to its most directly comparable IFRS measure. Non-IFRS net profit for the 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. TME 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 period represents profit for the period excluding amortization of intangible and other assets arising from business acquisitions or combinations, share-based compensation expenses, net losses/gains from investments and related 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 period to its net profit for the period.

About Tencent Music Entertainment

Tencent Music Entertainment Group (NYSE: TME and HKEX: 1698) is the leading online music and audio entertainment platform in China, operating the country's highly popular and innovative music apps: QQ Music, Kugou Music, Kuwo Music and WeSing. TME's mission is to create endless possibilities with music and technology. TME's platform comprises online music, online audio, online karaoke, music-centric live streaming and online concert 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 and the HKEX. 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. 818415

TENCENT MUSIC ENTERTAINMENT GROUP

CONSOLIDATED INCOME STATEMENT

Three Months Ended December 31

Year Ended December 31

2022

2023

2022

2023

RMB

RMB

US$

RMB

RMB

US$

Unaudited

Unaudited

Unaudited

Audited

Unaudited

Unaudited

(in millions, except per share data)

(in millions, except per share data)

Revenues

Online music services

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