Tencent Music Entertainment Group Announces Third Quarter 2023 Unaudited Financial Results

SHENZHEN, China, Nov. 14, 2023

Third Quarter 2023 Financial Highlights

• Total revenues were RMB6.57 billion (US$900 million), representing a 10.8% year-over-year decrease, mainly due to the decline in revenues from social entertainment services and others.
• Revenues from music subscriptions were RMB3.19 billion (US$438 million), representing 42.0% year-over-year growth. The number of paying users increased by 20.8% year-over-year to 103.0 million, up 3.6 million from the second quarter of 2023.
• Net profit was RMB1.26 billion (US$173 million), representing 15.6% year-over-year growth. Net profit attributable to equity holders of the Company was RMB1.17 billion (US$160 million), representing 10.1% year-over-year growth. Non-IFRS net profit^[1] was RMB1.50 billion (US$206 million), representing 6.5% year-over-year growth. Non-IFRS net profit attributable to equity holders of the Company^[1] was RMB1.41 billion (US$193 million), representing 2.1% year-over-year growth.
• Diluted earnings per ADS was RMB0.74 (US$0.10).
• Total cash, cash equivalents and term deposits as of September 30, 2023 were RMB30.96 billion (US$4.24 billion).  

Mr. Cussion Pang, Executive Chairman of TME, commented, "Our dual-engine content-and-platform strategy continues to pay off. In the third quarter, we reported strong growth in our online music services despite the topline headwinds from the social entertainment business. The accelerated year-over-year subscription revenue growth was supported by expansion in both subscriber base and ARPPU. Our evolving ecosystem and resilient businesses enabled us to deliver a group-wide margin expansion. These achievements further unlock the value of music and pave the way for our sustainable development in the long run."

Mr. Ross Liang, CEO of TME, said, "The third quarter results highlight efficiency gains across our platforms. Our ecosystem's strength, platform's scale and AI-empowered technological edges have enabled us to transition into an increasingly robust music powerhouse. Online music has more visibly become our core business, driving engagement and earnings growth, while we adjust our social entertainment offerings. We will continue to reimagine the way music connects with people, creating a more enjoyable user experience through technology and product innovation."

Third Quarter 2023 Operational Highlights 

• Key Operating Metrics^[2]

	3Q23		3Q22 ARIVA.DE Börsen-Geflüster Werbung Weiter aufwärts? Kurzfristig positionieren in Tencent Music Entertainment HS4F2U Ask: 4,03 Hebel: 5,05 mit moderatem Hebel Zum Produkt HSBC Den Basisprospekt sowie die Endgültigen Bedingungen und die Basisinformationsblätter erhalten Sie hier: HS4F2U,. 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%		YoY %
MAUs – online music (million)	594		620		(4.2 %)
Mobile MAUs – social entertainment (million)	129		155		(16.8 %)
Paying users – online music (million)	103.0		85.3		20.8 %
Paying users – social entertainment (million)	7.8		7.4		5.4 %
Monthly ARPPU – online music (RMB)	10.3		8.8		17.0 %
Monthly ARPPU – social entertainment (RMB)	86.2		177.3		(51.4 %)

Dual-engine content-and-platform strategy fortifies TME's music ecosystem, driving prosperity for stakeholders along the industry value chain.

• Leveraging our platform's strength, we invigorated our content ecosystem by fostering deeper, mutually beneficial partnerships with record labels and artists. 1) We introduced a series of music-based interactive features for TFBOYS's 10th anniversary single to enhance user engagement and their bond with the artists. 2) We forged a strategic partnership with CUBE Entertainment to further enrich our music catalog.
  
  
• We extended our tailored platform for artists at all stages to develop their careers. 1) We hosted an offline concert for Zhou Shen celebrating the 9th anniversary of his debut, highlighted by sales of sought-after tickets and great excitement among users. 2) We assisted TIA RAY, our strategic partner artist, and Kirsty, a rising indie musician cultivated by our Tencent Musician Platform, with their appearances on China Central Television and provincial Satellite TV networks, boosting their influence nationwide.
  
  
• We enhanced our technology capabilities in content creation, promotion and distribution. 1) Venus introduced its zero-shot AI-powered music production tool and Vocal Producer upgraded its function to support AI-generated music content in multiple languages. 2) Our music promotion and distribution tool kits, such as TME Music Cloud and Kugou's ToMoreMusic platform, made further advancements in assisting industry participants with efficient musical work promotions. With our technological capabilities, we also successfully boosted the popularity of Chinese songs overseas. For example, we helped Angela Zhang's Beast and Yang Junan's Summer Love chart on various popular music lists in Singapore.

Leveraging LLMs, we enhanced music discovery and consumption efficiency, creating a more engaging user experience.

• Better connecting users with music through enhanced recommendation and personalization. 1) We continued upgrading our recommendation middle platform to enhance each of our Apps' ability to personalize music recommendations. 2) QQ Music's recent chorus-focused Quick Listen mode, together with Kugou Music's upgraded version, featuring quick discovery of multiple cover songs, effectively lowered the barriers to music discovery.
  
  
• Better facilitating users' content consumption through more use cases and entertainment scenarios. 1) We extended our mobile-end offerings, including seamless user interface, premium sound quality and tailored playlists, to further enrich in-car music consumption and user experience. We also cooperated with more automakers and car models to increase penetration. Moreover, we led the industry by partnering with Qualcomm to enhance music listening experience on mobile devices with the help of hardware's AI computing capabilities. 2) We customized music services for different entertainment sectors, creating unique touchpoints for original IPs. For example, we successfully co-produced both theme and end credits songs for the blockbuster movie No More Bets.
  
  
• Better connecting users with each other in a thriving community where they can bond through music and music-based interactive features. For example, QQ Music organized over 30 song-guessing contests featuring musical works by Jay Chou, Zhou Shen, BLACKPINK and Teens in Times.^[3]

Third Quarter 2023 Financial Review

Total revenues decreased by RMB796 million, or 10.8%, to RMB6.57 billion (US$900 million) from RMB7.37 billion in the same period of 2022.

• Revenues from online music services delivered a strong year-over-year increase of 32.7% to RMB4.55 billion (US$624 million). The increase was driven by strong growth in music subscription revenues, supplemented by growth in revenues from advertising services. Revenues from music subscriptions were RMB3.19 billion (US$438 million), representing 42.0% year-over-year growth compared with RMB2.25 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 20.8% year-over-year to 103.0 million, while monthly ARPPU expanded to RMB10.3, marking its sixth consecutive quarter of growth and another record-high amount. The increases in both the number of paying users and ARPPU were primarily attributable to our more appealing member privileges, interactive product features, attractive music content, disciplined promotions and member acquisition strategies, as well as high subscriber retention rate. The year-over-year increase in revenues from advertising was primarily because we provided a more diversified product portfolio and innovative ad formats, which are highly attractive to advertisers.
  
  
• Revenues from social entertainment services and others decreased by 48.8% to RMB2.02 billion (US$276 million) from RMB3.94 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 14.8% year-over-year to RMB4.23 billion (US$579 million). The decrease was mainly due to the decrease in revenue sharing fees resulted from the decline in revenues from social entertainment services, partially offset by the increase in content costs of royalties and advertising agency fees.

Gross margin increased by 3.1 percentage points to 35.7% from 32.6% 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 11.8% year-over-year to RMB1.27 billion (US$174 million). Operating expenses as a percentage of total revenues decreased to 19.3% from 19.5% in the same period of 2022.

• Selling and marketing expenses were RMB219 million (US$30 million), representing a year-over-year decrease of 10.6%, as we focused on the ROI of each promotion channel and improved the effectiveness of promotion measures.
  
  
• General and administrative expenses were RMB1.05 billion (US$144 million), representing a year-over-year decrease of 12.0%. This decrease was primarily due to reduced employee-related expenses as a result of improved headcount efficiency and the expenses related to the Hong Kong secondary listing incurred in the same period of 2022.

Driven by effective cost controls and improved operating efficiency, our operating profit grew to RMB1.43 billion (US$195 million) in the third quarter of 2023, representing an increase of 13.0% year-over-year.

For the third quarter of 2023, net profit was RMB1.26 billion (US$173 million) and net profit attributable to equity holders of the Company was RMB1.17 billion (US$160 million). Non-IFRS net profit was RMB1.50 billion (US$206 million) and non-IFRS net profit attributable to equity holders of the Company was RMB1.41 billion (US$193 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") were RMB0.75 (US$0.10) and RMB0.74 (US$0.10), respectively, for the third quarter of 2023; and non-IFRS basic and diluted earnings per ADS were RMB0.90 (US$0.12) and RMB0.89 (US$0.12), respectively. The Company had weighted averages of 1.57 billion basic and 1.59 billion diluted ADSs outstanding, respectively. Each ADS represents two of the Company's Class A ordinary shares.

As of September 30, 2023, the combined balance of the Company's cash, cash equivalents and term deposits amounted to RMB30.96 billion (US$4.24 billion), compared with RMB30.5 billion as of June 30, 2023.

Share Repurchase Program

Under the US$500 million Share Repurchase Program announced on March 21, 2023, as of September 30, 2023, we had repurchased 15.8 million ADSs from the open market with cash for a total consideration of approximately US$103 million.

Social Responsibilities

In the third quarter, we joined hands with Tencent's Sustainable Social Value ("SSV") and launched our 2023 Youth Music Tech X program, inviting high school students to explore a technology-inspired music journey. Working side by side with the students, we commissioned a theme song, The Most Beautiful Sound in the World, to champion public care and support for hearing-impaired senior citizens. In addition, we organized a special music education project, "Music Garden Space," to help children from ethnic minorities and remote areas appreciate the beauty and power of music. These initiatives demonstrate the value and positive influence that we can bring to a wide range of communities.

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 RMB7.2960 to US$1.00, the noon buying rate in effect on September 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 September 30

Nine Months Ended September 30

2022

2023

2022

2023

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

3,430

4,553

624

8,924

12,303

1,686

Social entertainment services and others

3,935

2,016

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