Chinese music streaming company Tencent Music Entertainment’s music subscription business continued to soar in the second quarter while the company’s lucrative social entertainment business showed mixed results.
Revenues from TME’s online music services decreased by 2.4% to RMB 2.88 billion ($430 million) from RMB 2.95 billion ($457 million) in the prior-year period, according to the company’s quarterly earnings report released Monday. But TME continued to attract paying customers to its music apps. The company added 2.5 million subscribers in the second quarter, bringing the total to 82.7 million. That was a 24.9% improvement from 66.2 million in the second quarter of 2021. Music subscription revenue grew 17.6% to RMB 2.11 billion ($315 million).
Subscriber growth was slightly offset by a 5.6% drop in average revenue per user to RMB 8.5 from RMB 9.0 in the prior-year period, although second-quarter ARPU improved from RMB 8.3 in the first quarter. TME attributed the improvement to offering “more promotions to attract users in the past several quarters since 2021” and a greater focus “on quality of growth of our subscription revenue while maintaining a healthy ARPU since last quarter.”
“We are also confident we can sustain the ongoing rebound of our ARPU, while continuing to boost paying user growth during the remainder of this year,” said Tony Yip, TME’s chief strategy officer, during Monday’s earnings call.
Two other areas of the music segment experiences setbacks. Advertising revenues declined due to Chinese regulations regarding splash ads and the pandemic’s affect on some major cities. Yip said TME’s incentive, ad-based listening mode “is making good progress” and pointed to numerous new ad formats — on music charts, search pages and playlists, for example — and a host of new sponsors that are expected to improve monetization. In addition, sublicensing revenues also decreased from the prior-year period due to the restructuring of agreements with some labels.
TME’s total revenue — online music and social entertainment — was RMB 6.91 billion ($1 billion), down declined 13.8% year over year and 3.9% lower than the first quarter of 2022. Operating profit was RMB 1.05 billion ($156 million), unchanged from the same quarter in 2021.
TME is China’s largest music streaming provider and operates four music platforms in the country: QQ Music, Kugou Music, Kuwo Music and WeSing, a karaoke app. TME also owns Lazy Audio, an audiobook platform. Mobile monthly active users of the online music apps fell 4.8% to 593 million. TME attributed the decline “primarily due to reduced marketing spend.” Social entertainment MAUs fell 20.6% to 166 million. The decline was caused by “macro headwinds,” the company stated. TME said it plans to improve competitiveness with product innovations such as audio live streaming and virtual interactive product offerings.
Revenues from social entertainment services were RMB 4.03 billion ($601 million), down 20.4% from the prior-year period. Although revenue and MAUs are down in the segment relative to 2021, TME gained 4 million social entertainment MAUs from the first to second quarters. Social entertainment revenue of RMB 4.03 billion ($601 million) was unchanged from the first quarter of 2022 but declined 20.4% from the prior-year period.
TME’s American depository shares trade on the New York Stock Exchange but the company is planning for a secondary listing on the Hong Kong Stock Exchange. TME’s application for a secondary listing, which the company announced in March, was one reason general and administrative expenses increased 10.5% from the prior-year period. The company spent $145 million repurchasing shares in the second quarter. Through the second quarter, TME has spent $735 million — equal to 86.8 million American depository shares — in its $1 billion share repurchase program.
Shares of TME rose 5.9% to $4.67 on Monday. Its share price has fallen 31.8% year to date and stands 51% below its 52-week high of $9.53.
