Tencent Music Entertainment (TME), a leading Chinese platform in the music and audio entertainment industry, has released its second-quarter financial results for the year. The report revealed a notable decline in top-line revenue compared to the same period last year, primarily driven by decreased earnings in the company's social entertainment services segment.
However, this downturn was somewhat cushioned by significant gains in its online music unit, which has shown resilience amid a challenging market. For the quarter ending in June, Tencent reported total revenue of 7.16 billion renminbi, approximately $1 billion. This figure marks a decrease from 7.29 billion renminbi during the same quarter in the previous year.
The consensus forecast reported by Capital IQ had anticipated slightly lower revenues of 7.14 billion renminbi, indicating this result was somewhat in line with market expectations. The company’s online music division saw a remarkable surge in performance, with revenue soaring by 28% to 5.42 billion renminbi, largely attributed to growth in music subscription services and advertising income.
In stark contrast, Tencent's social entertainment services reported a worrying decline, with revenue plummeting 43% to 1.74 billion renminbi. This steep drop can be linked to modifications made to live-streaming interactive features and the introduction of stricter compliance measures that were enforced in the previous year. In terms of user engagement, Tencent reported a 3.9% decline in monthly active users (MAUs) within its online music business, which now stands at 571 million.
Meanwhile, mobile MAUs in the social entertainment arena experienced a dramatic drop of 32%, settling at 93 million. Despite these challenges, Executive Chairman Cussion Pang expressed a sense of optimism regarding the future of the music industry. "We are pleased to report another quarter of robust results, driven by the strong performance of our online music services," Pang stated.
He further emphasized that the company remains confident in its long-term potential and is dedicated to achieving its mid-to-long-term strategic goals sustainably. The company also highlighted that revenue from music subscriptions experienced a noteworthy climb of approximately 29%, reaching 3.74 billion renminbi.
Contributing to this growth was an 18% increase in the number of paying users, which rose to 117 million, alongside various membership privileges designed to enhance user retention. Additionally, the number of paying users in the social entertainment segment also saw an increment of 5.3%. In terms of earnings, Tencent reported a rise in its non-IFRS earnings per American Depositary Share (ADS), increasing to 1.19 renminbi from 0.97 renminbi in the same quarter last year.
This result exceeded analysts' expectations which anticipated earnings of 1.18 renminbi per ADS. The company's cost of revenue decreased by 13% to 4.15 billion renminbi, a shift that Tencent attributes to a decline in revenue-sharing fees arising from lower sales in its social entertainment services segment.
Total operating expenses also decreased by 8.5%, coming in at 1.15 billion renminbi. In market performance, Tencent's American depositary receipts suffered a decline of 16% during Tuesday's trading session, reflecting investor concerns over the revenue slump in social entertainment. Analysts and investors alike will be keeping a close eye on Tencent Music Entertainment's strategic moves and its ongoing efforts to leverage the growing online music market while navigating the challenges within its social entertainment services sector..