Tencent Music Entertainment Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 13, 2025
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Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

Good evening, good morning, and welcome to Tencent Music Entertainment Group's First Quarter twenty twenty five Earnings Conference Call. I am Nelson Tew, Head of We announced our quarterly financial results earlier today before The U. S. Market opened. The earnings release is now available on our IR website and via newswire services.

Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

During today's call, you'll hear from Mr. Kashan Pan, our Executive Chairman and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. Then Ms. Shelley Hu, our CFO, will discuss our financial results before we open the call for questions.

Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

Before we continue, I refer you to the Safe Harbor statement in our earnings release, which applies to this call as we make forward looking statements. Please note that we discuss non IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in our earnings release and filings with the SEC. All participants are muted at this time. After management's remarks, there will be a Q and A session. And please be advised that today's call will be is being recorded.

Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

With that, I'm very pleased to turn the call over to Kushen, Executive Chairman of TME. Kushen?

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Thank you, Melissa. Welcome. Hello, everyone, and thank you for joining our call today. We kicked off 2025 with a strong first quarter performance, demonstrating robust top line growth and stronger profitability. This underscores the successful execution of our high quality growth strategy with the solid foundation we have built, a thriving music ecosystem, and healthy financial position.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

We are well equipped to navigate global uncertainties with confidence. As music becomes more accessible and personalized, we see user preferences becoming increasingly diverse. Our platform is uniquely positioned to inspire deeper and broader music consumption through enriching our ecosystem and expanding suite of services. Let me share some of the key highlights. First, we strengthened our partnerships with record labels to further enrich our classic music library.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Notably, we renewed a multiyear contract with Sony Music Entertainment, bringing 360 reality audio sound privileges to SVIP members. We also extended collaborations with Empire Entertainment Group and Rock Records, enhancing the listening experience with immersive Dolby Atmos sound. Also, we partnered with Dream Music Group, to further broaden our selection of popular music rep, which has strong growing engagement and positive feedback from our users. Meanwhile, our self and coproducer proprietary content is gaining increasing traction among music fans, offering a differentiated user experience that sets us apart from other music platforms. As for some highlights, in the first quarter, we partnered with CCTV News to produce The Time for Joseon, which ranked number one on the Google mainland chart and number four on the QQ Music mainland chart.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

We also produced the one fourth to eternity, the theme song for the popular Tencent game crossfire, which quickly topped multiple charts and resonated with both music lovers and gamers. Second, through our insights on contents and user evolving preferences, we deepened and we've recorded content consumption across different genres. While Chinese songs remain the mainstream choice, we are seeing increasingly popularity of Korean, English, and Japanese tracks. In this regard, we renewed the contracts with top South Korean labels, Starship Entertainment and YG Entertainment, maintaining our leadership in Korean content while also launching merchandise collaborations, such as collectible StarCards, our extended partnership with Japan's top ACG label, Kadokawa Corporation, added thousands of tracks including popular anime theme songs, further expanding genre coverage for defense. Third, we fulfill the users' demand for collectibles and providing them new ways to express their passion and appreciation of artists.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Recent highlights included the ten day head start presale of Beyond Utopia, by Tins and Times, which rose to number one on the 2025 physical album bestseller chart and number two on the all time chart during this period. Another example is a physical album producer for silence rang, Wang Sulong. One hundred thousand votes, which quickly became a favorite among his dedicated fans. We also collaborated with k pop icon, g dragon, to be sell official light sticks and other products in Mainland China. For fans who purchased his digital albums, we offered it the privilege to buy China limited special edition merchandise, which achieved an impressive sales performance.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Fourth, we offer the user more engaging and interactive music experience both online and offline. In the first quarter, we stated nearly 40 well known artists and groups, including JCT, Wang Yuan, Wang Shulong, and Legends of Phoenix, in our annual music for passion, event in Chengdu, attracting thousand 10 tens of thousands of passionate fans. We debuted Asper's first ever exhibition and baby monsters pop up store in Mainland China, offering fans limited collectibles, interactive displays, and behind the scenes content to deepen fan connections with the artist. Online, we invite artists such as Xing Liu, Liu Yuxin, Song Tang, Tang Hanxiao, and Zhou Yuan from to engage directly with fans in the comment sections. Sparkling waves of info enthusiasm among their fans' communities.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Before I conclude, I also want to briefly touch on our ESG progress. In April, we released our 2024 ESG report to offer stakeholders enhanced transparencies and insights into our operations. The report details our practices and achievements in key areas, including intellectual property protection, user privacy and data security, product inclusion and accessibility, and the fostering of diverse music communities. As we continue to unlock the potential of music and technology, we remain committed to advancing sustainable growth and creating social value. In summary, our solid start to the year is a testament to the strength of our comprehensive content ecosystem and our operational excellence.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

These core capabilities, together with our strategic focus, ensure that we will remain well positioned for sustainable growth in 2025 and into the future. Now I would like to turn the call over to Ross for more details on our overall platform development. Ross, please go ahead. Thank you.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Thank you, Carson.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Hello, everyone.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Our consistent focus on high quality content and the innovative product offerings has enabled us to build a dynamic music ecosystem that meets a wide range of user preferences. As a result, we have seen system enhancement in user engagement, illustrated by year over year growth in both paying user base and ARPPU in the first quarter. This positive trend was further supported by continued strength in s v I p adoption, reflecting the increasing recognition and engagement of our valued members. Here are some highlights to share. First, our premium sound quality and audio effect offerings remain a key attraction for SAVP members, penetrating about 15% of our SAVP user base.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

To illustrate, Google Music introduced the industry first, hyper external amplification enhancement sound effect, which intelligent, optimized sound depth, and the clarify clarity when using ex external speakers. We also launched a dedicated audio effect for iPods, enabling users to enjoy the advanced audio performance of the new models without upgrading devices. Second, a range of unique perks have proven effective in driven SVIP conversions, including unicorn airborne discounts, special budgets, early access to merchandise, and the live events. As an example, at our new music for patient event, SYP members enjoyed special privileges such as priority tick ticket purchase. Moreover, those who bought tickets through this channel were also provided with exclusive services such as reception and transportation.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

We also helped Fiona state, stage her her first ten thousand state concert hall in Mainland China, offering us as a VIPs early ticket access and a fun meeting and a great opportunities. Additionally, we entrace our system, enabling as a VIPs to unlock expanding rewards, deepening their sense of identity and the community. Third, long form audio content, particularly top IPs, contributed to boosting iSVIP retention. In the first quarter, we created the audio drama, the grave robbers, girl nickels, and a co development it with original author, star wise actors, and the top 10 producers. Benefiting from interactive activities such as live streaming with the author and in character wise commentary by the leading voice actor.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

It quickly gained popularity, surpassing tens of millions of streams made in just fourteen days. On technology, we continued to use AI to elevate user engagement. One example was introducing an interactive commentary feature that transformers music charts into conversations, enhancing fun emotion. User can also personalize music effects, switching between different vocals and the instruments with one single click. In parallel, we adopted the deep seek LM to help evaluate content quality and improve recommendation precision with user proven preferences.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

On the nonsubscription side, advertising remains a key growth driver and continues to deliver solid year over year growth across the board. Thanks to diversifying ad for for mass. In particular, our innovative AD supported mode grow from strength to strength in the past past quarter. We have also introduced a variety of interactive task for both paid and unpaid users, which saw upward trend in gay in engagement and adoption. Such positive trends provided us further confidence to continue to grow our advertising business as a whole, unlocking more potential in the future.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Looking ahead, we remain committed to enhance our com competitiveness and pioneering new ways to inspire deep deeper and broader music engagement. With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Thank you, Ross, and greetings to everyone. Let me now turn to our financial results. In q one of twenty twenty five, our effective monetization of online music services and operational efficiency management continued to drive robust financial results. With strong performance in our music subscription and advertising business, revenues continued to grow momentum and reach RMB 7,400,000,000.0 with 9% year over year growth. Online music revenues increased by 16% year over year to RMB 5,800,000,000.0.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

The increase was mainly driven by strong growth of our music subscription revenues and advertising revenues, supplemented by growth in revenues from artist related merchandising and offline performances. Motive subscription revenues in Q1 of twenty twenty five reached RMB 4,200,000,000.0, representing a 70% increase year over year and a 5% rise sequentially, driven by continued expansion of the SYP membership program and reduced promotional activity. Monthly app increased to RMB11.4 this quarter compared with RMB 10.6 in Q1 twenty twenty four. To meet the evolving needs of our users, we keep enriched the rights and the privileges of our SYRP members, such as premium audio content, enhanced sound quality and effects, and early access to artist related merchandise and the live events. Advertising revenues also achieved a strong year over year growth, primarily due to the growth in ad supported model revenues.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

With more in active features and enriched benefits, we boosted the in chance rate for ad supported model advertising, enhanced the eCPM, and attracted more adviser advisers. Meanwhile, sponsorship advertising remains attractive to brand advisers. The success of our flagship music for passion, was a great example to evidence this. Through offline event sponsorships, we would adjacent advertiser partnerships while driving ecosystem monetization. In addition to milk subscription and advertising, we have also made good progress on artist related merchandise sales and offline performance.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

In Q1, we started shipping the physical album of Xiaozhan released in Q4 twenty twenty four, and the related revenues were recorded, resulting in a year over year revenue increase from artist related merchandise sales. In addition, with the increased opportunities in offline performance market, we've strengthened the partnership within the music industry and successful hosted concerts, featuring renowned artists leading to revenue growth this quarter. Social entertainment services and other revenues declined 12% year over year of RMB1.6 billion. Starting this quarter, we have ceased disclosing operating metrics for social and entertainment business on a quarterly basis. As we have shifted our strategic focus on to our core music business, which has accounted for a growing dominant portion of our revenue.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Operating metrics for social entertainment business are no longer consistently the key drivers to our growth and prospect. Our gross margin improved to 44.1% and increased 3.2 percentage points year over year, driven by the following key factors. First, the strong growth of our subscription revenue driven by increased monthly ARPPU and advertising revenues has contributed to the growth of gross margin. Revenues from raising membership and advertising in social entertainment services has also positively impacted our gross margin. Second, the scaling of our own content further improved our gross margin.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Third, for social entertainment services, the decline in revenue sharing fees outpaced the decrease in revenues. Fourth, with years of dedicated efforts and investments, we have established the win win relationships with labels and artists. This has enabled us to explore more partnership opportunities and monetization models with them and further improve our cost efficiency. On the operating efficiency side, we have maintained a strict financial discipline and our eye focused promotional spending management while directing investments toward long term growth areas. Operating expenses as a percentage of revenue decreased of 15.5% in Q1 twenty twenty five compared with 16.8% in the same period of last year.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Our effective tax rate for Q1 twenty twenty five was 9.2% compared to 19.9% in the same period of 2024. The lower ETR was primarily due to the impact from gain on deemed disposal. We accrued withholding tax of RMB 118,000,000 in Q1 of twenty twenty five. In Q1 twenty twenty five, our net profit was RMB 4,400,000,000.0 and the net profit attributable to equity holders of the company was RMB 4,300,000,000.0. This quarter, we have received a 2% equity interest in UMG through a distribution income from associate, which was designated as financial assets as at a fair value through other comprehensive income and have recognized a gain of RMB 2,370,000,000.00 on deemed disposal of the associate.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Non net profit increased by 23 to RMB 2,200,000,000.0, and the non IFRS net profit attributable to equity holders of the company increased by 25% to RMB2.1 billion, respectively. Our diluted earnings per ADS this quarter was RMB2.77, and non IFRS diluted earnings per ADS was RMB1.37, up by 26 year over year. These results underscored our effective monetization, enhanced operating efficiency and the benefit from our share repurchase program. As of 03/31/2025, our combined balance of cash, cash equivalents, P P costs and short term loss was RMB37.7 billion as compared with RMB37.6 billion as of 12/31/2024. This combined balance was also impacted by changes in the exchange rate of RMB to USD, different balance sheet dates.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

In March of twenty twenty one, we declared a cash dividend of US0.09 dollars per ordinary share for US0.18 dollars per ADS for the year ended 12/31/2024, and the cash payment for the dividend of US $275,000,000 was made in April 2025. Looking ahead, we will prioritize high quality growth in our music business by expanding SYIP memberships, growing our advertising business, and diversifying our offerings across music value chain. We will continue to invest in original content production, high quality content, and innovative technologies globally to further improve user engagement, user experience, and strengthen our ecosystem. We remain confident in the health growth prospects of the music industry that we are a part of and are committed to giving high quality maximum returns for our shareholders. This concludes our prepared remarks.

Shirley Hu
Shirley Hu
Chief Financial Officer at Tencent Music Entertainment Group

Operator, we are ready to open the call for questions.

Operator

Thank you, Shirley. For the benefit of all participants on today's call, please limit yourself to one question. And if you have additional one, please reenter the queue. If you ask your questions in Chinese, please repeat them in English. And the first question comes to the line from Goldman Sachs, Lincoln.

Operator

Lincoln, your line is open.

Lincoln Kong
Lincoln Kong
Analyst at Goldman Sachs

Thank you management for taking my question. My question, well congrats on the very solid first quarter performance. So can management share a bit more color around the outlook for our top line profit growth for the next quarter as well as for the full year 2025? Thank you.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Oh, thank you, Lincoln, for your questions. And, actually, we did a good job and achieved a strong result in q one, which give us a confidence in the 2025 outlook. With our rich service offerings and also the comparing product experience as well as our long term commitment in participating in the value chain of the music industry, we expect full year year over year growth rate to accelerate from last year, and we will continue to expand our margin as well. While the music subscriptions business remain our cornerstone with healthy growth, we continue to lead the way to encourage more music consumptions, which has allowed users to engage with a wider range of music entertainment services. Our SVIP subscription program continues to inject new energy, and its unique offerings such as the artist merchandise, long form audio content, and concert, etcetera, will further enhance our user engagement and ARPPU expansion.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

So all these achievements reinforce our confidence in the long term potential of the music industry and also our commitment to ongoing investment. So in the conclusion, I think for the year 2025, for our subscription businesses, we will continue to deliver high quality growth driven by both of the subscriber gains and the ARPPU expansion. And for the long subscription business, improved advertising performance and product innovation will continue to drive the steady advertising revenue growth, while deeper partnerships with music labels and artists will push the revenue for merchandise and concerts, etcetera. Thank you.

Operator

Thank you. And the next question comes to the line from Citigroup Alicia. Please proceed.

Alicia Yap
Alicia Yap
Analyst at Citigroup

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results. Questions is on how do management think about the growth opportunity of POPcast in China?

Alicia Yap
Alicia Yap
Analyst at Citigroup

Can you also share a little bit detail the current your long form audio user metrics and also revenue contribution? Thank you.

Moderator

Thank you very much. Thanks for the question. At least in domestic China market, when talking about podcast, It could be interpreted in narrow sense and the broader sense. When interpreting the podcast from the NegroSense, actually, it's just like the normal podcast we mentioned. It'll still be conducted in single person live streaming or multi people dialogue.

Moderator

It is a way to voice once the one opinion. So it has everything to do with the KOLs. So we see that for forecast in the rest of the world, especially in US, it was developing very fast. But still in China, its coverage quite limited, but still maintain some growth. So we continue to keep an eye on forecast business.

Moderator

And for sure, regarding its commercial value, still, there will be some challenge. Actually, for our company, we're gonna to emphasize with the long form audio business. Just like what has been done by Sporty, We really would like to continue to advance the long form audio business. Actually, regarding the long form audio, and we believe we continue to grow the user k base. At the same time, it can also play a complementary role with our existing subscriber base.

Moderator

And more importantly, regarding the long form audio business, we are more focused on listening to the books, online literature, and children related content. So with our concerted efforts regarding the long form audio user, no matter for the user base or the subscriber base, we indeed register a very nice performance, and it has also become a key driver to advance our SBIP business. So in one word, we do believe our musical content and the long form audio gonna do play a complementary to role to each other. It also gonna to help to further enhance the quantity and quality of our entire TMP content library by providing our user a much better experience even including the basic user.

Operator

Okay. The next question comes to the line from Macquarie. Ellie Ellie, your line is open.

Ellie Jiang
Ellie Jiang
Head of Asia Internet & Software at Macquarie Group

Thank you, Melissa and management for taking my question. I just have a question on SVIP progress. Can management share some kind of operating metrics or key KPIs for SVIP? What's the retention that we are seeing for the the users that's been converted to the the premium tier? And and going forward, what would be kind of the ultimate ultimate kind of ceiling for for the ARPU expansion?

Ellie Jiang
Ellie Jiang
Head of Asia Internet & Software at Macquarie Group

Thank you.

Moderator

Thank you very much. Thanks for your question. Actually, for the management team, we are quite satisfied with SVIP business progress now. At the same time, we are pleased to see, at least from the content perspective, more labels and more artists and even the live streaming platform, including those ones from overseas market, started to embrace the trend of SVIP. SVIP as a high end membership package not only provide user with diversified music and entertainment experience, it also allowed artist to access to their fans in multichannels.

Moderator

It also increase opportunity for commercial value monetization. So nowadays, you can see for SAIP penetration ratio and ARPPU all demonstrate very strong growth momentum. We will continue to improve and polish our membership system, where at the same time, we will ask them to launch more attractive privilege and tailor made service to our user. Along with our very effective operational strategy, we believe our SVIP paying user and ARPPU will continue to grow. At least for this quarter, our paying user and ARPPU all demonstrate very good sequential growth.

Moderator

Actually, rolling out SVIP business is strategically aligned with our overall strategy. When we launched SVIP, a key reason is because we really want to leverage SVIP to continue to improve the ARPPU of our overall business. So from this perspective, SVIP started to play a driver role in demonstrating great resilience, and the growth is even faster than what we expected. So look into 2025, and we believe for SVIP business, we still maintain a positive attitude for its future growth, Where at the same time, we were also going to increase investment for the high value membership service, continue to forge in-depth cooperation with labels and artists and continue to improve our product opinion and the customer satisfaction.

Operator

Thank you. The next question comes from Morgan Stanley Liu Yang. Yang, your line is open.

Yang Liu
Yang Liu
Executive Director at Morgan Stanley

Thanks for the opportunity. I would like to ask about the ARPPU growth. The 7.5% year on year growth looks pretty good. Could management comment on the contribution from Super VIP and also the contribution from the less promotion activities to the overall ARPPU year on year growth. Thank you.

Moderator

Thank you very much. Thanks for the question. Actually, we it's not appropriate for us to provide you the breakdowns, but let me just tell you, we are very clear. Q '1 of every year would be a season with festivals and holidays, and we indeed continue to optimize our operations in Dubai. But at the same time, we also downsize the discount we provided to the market.

Moderator

And from the actual result, it indeed helped to further improve AR So from the actual result, you can see, as I have already mentioned, are still expecting the indigenous growth of SVIP business that can play a even bigger driver role to our overall ARPPU. Where for the marketing strategy itself, and we have already started to further reduce the and continue to improve the ARPPU for our basic members. So in one word, we were still gonna to keep an eye on the feedback from the user and the dynamics of the market. Because, ultimately, what we hope to achieve is to continue to grow the ARPPU, where at the same time, guarantee the user experience and the subscriber size healthy growth.

Operator

Okay. Thank you. The next question comes from Alex Yao from JPMorgan. Alex, please.

Alex Yao
Alex Yao
Co-Head of Asia Technology, Media & Telecommunications at JP Morgan

Yeah. Thank you, management, for taking my question, and congrats on a solid quarter. So my question is on the nonpaying subscribers. So, basically, as we shifted towards this high quality growth strategy, we'll be, I think, at least, increasingly deemphasizing the price sensitive consumers who often come just for a deep discount. And once we cut the discount to these price sensitive users tend to be just churn out of the membership user base.

Alex Yao
Alex Yao
Co-Head of Asia Technology, Media & Telecommunications at JP Morgan

So the question is now we are probably need to, you know, deemphasis more of those price incentive consumers. What is the monetization strategy on these nonpaying users? In the past couple of years, we talked about advertising. So any updates on monetization of these nonpaying members on advertising? And then other than advertising, do we have any other strategy or thoughts to monetize these nonpaying members?

Alex Yao
Alex Yao
Co-Head of Asia Technology, Media & Telecommunications at JP Morgan

Thank you.

Moderator

Thank you very much. Thanks for your question. This question is indeed very complex because we do have some measures to those so called free users or the nonpaying users. So from our operational perspective, our operational focus still hope to convert those non paying users into the subscribers. This might demonstrate the great value of the company, and it is also the priority of the company because indeed, by so doing, we will be able to build the loyal user group and continue to grow our revenue in a sustainable way.

Moderator

So for those non paying users, still what we're doing now is to leverage incentive by incentive based advertisements. First of all, we may have some afraid to listen music model, but at the same time, we also have the online learning measures. By the two measures, we will be able to make sure we still retain the non paying user, but be able to have a good advertising revenue from them. Where at the same time, we also see other source of the revenue related to the fancy economy. For example, like digital album or defense merchandise or the singles on download and purchase.

Moderator

These are also ways to help us to monetize over those non paying users.

Alex Yao
Alex Yao
Co-Head of Asia Technology, Media & Telecommunications at JP Morgan

Okay.

Moderator

So generally speaking, for those non paying users, we do leverage the offline performance. For example, like, concept, like merchandise, like the play of the fancy economy, including the advertisement to continue to generate good business opportunities from those non paying users.

Operator

Okay. The next question comes from UBS. Proceed.

Wei Xiong
Wei Xiong
Equity Research Analyst at UBS Group

Hi. Good evening, management. Thank you for taking my question, and congrats on the solid results. My question is about margins. So our gross margin continued to expand sequentially this quarter and management shared different drivers behind that in the prepared remarks.

Wei Xiong
Wei Xiong
Equity Research Analyst at UBS Group

So just wondering out of these drivers, which ones do we see have higher potential for future to further drive up the upside of gross margin going forward? And do we have a medium term target for that? And also related to that, considering our efforts in cost discipline, could you please also talk about the plans for OPACs this year and how should we think about the net margin trend as well? Thank you.

Moderator

Thank you very much. Thanks for your question. Just now in the prepared remarks, we have already mentioned a few drivers for the ever improving GP margin. And I think the most important driver is still the growth of the revenue, where at the same time, we also see the revenue growth from the subscribers and advertising. And especially in the growth of the subscribers, the SPIP growth would likely to be a key driver for our future business improvement.

Moderator

Well, at the same time, another very important factor we have to consider is a cost initiative. We continue to well control the cost, and the cost management methodology is also the key. We continue to adopt ROC in managing our content cost. At the same time, we make sure the cost growth is always lower than the revenue growth. Another factor I have to mention is that we were deeply rooted in the music industry with huge investments we made.

Moderator

So at the same time, we forged a very strong win win partnership with the IP holder or the copyright owner. So this investment has already generate very good yield. Not only helping us to well control the cost, we will be able to forge a deep bond with labels and artists. And therefore, it can help us to leverage multiple ways of monetization, which will also help to further improve our cost efficiency. So look into 2025 for the whole year or even the year beyond 2025, I believe the factors we mentioned in our prepared remarks will continue to play their due roles.

Moderator

In other words, we believe our GP margin will still have room to further grow. Well, for your second question regarding the operating expenses, for the year of 2025 to our planned sales expense, majority of them will still be made for the acquisition of the news users and promotion of the content. So we foresee there will be a slight increase in our sales expenses, but its overall growth should be lower than the growth of our entire revenue. Well, for the management expense, it was gonna to con maintain a flat gross. So compared with last year, our net profit and the net profit rate will have room for further improvement.

Wei Xiong
Wei Xiong
Equity Research Analyst at UBS Group

Thank you.

Operator

The next question comes from Barclays of Roger. Roger, your line is open.

Operator

Can you hear us?

Operator

Sorry. Go ahead, please.

Analyst

Thank you so much for taking my question, and congrats on a very solid quarter. So my question is on, international opportunities, especially in Southeast Asia. We have a very small footprint there, the music app Jukes, and, also, we're going to host G Dragon Southeast Asia tour this year. So can management talk about, your thoughts on the opportunities in the region? And, would that be an area of investment you take a look at this or maybe next year?

Analyst

Thank you.

Moderator

Thank you very much. Thanks for your question. International market is always a very important part of our overall strategy. As now, our group does has a very strong overall strategy and the strategy include the content as well as the platform development. We are going to adopt the same strategy for our international business.

Moderator

Well, from the platform perspective, we will continue to advance the construction of our platform. And especially here now, we did a good performance in Southeast Asia market. But besides the product and the service improvement, we were also going to build the content ecosystem and continue to engage in the content creation in the overseas market along with the offline performance opportunities being captured. So on one side, we continue to invest in our content ecosystem and which will help to deliver high quality content to our overseas platform. Where at the same time, we also hope that we can engage in the music content and even artist management.

Moderator

So for the past few years, we continue to improve our operational capacity of the platform and also make huge investment on content. We will continue to engage the international market and make continued investment. Thank you.

Operator

Thank you. And the next question comes from Mizuho Fangwei. Fangwei, your line is open.

Wei Fang
Director at Mizuho Securities

Okay. Thank you. Thanks for taking my question, and congrats on a good point. I got one on advertising. So if I look at the the nonstop music segment, right, I recall last quarter, were some timing impact from offline events.

Wei Fang
Director at Mizuho Securities

And now this quarter, we see a good acceleration. Right? Of course, the macro condition has changed a lot. I was wondering if management can share any thoughts on the outlook for your advertising and also the pipeline for offline events business for the rest of the year. It will be great if you can also comment on some of your initiatives in terms of expanding to, for example, newer advertising verticals and also optimizing your ad bidding system?

Wei Fang
Director at Mizuho Securities

Thank you very much.

Moderator

Thank you very Thanks for your question. And let me first talk about advertisement, especially online advertising. As I have already mentioned, we do cover a wide range of the advertising format. For example, we do have the splash screen advertisement as well as the incentive based advertisement. In the past one to two years, our advertising revenue does register a very strong YY growth.

Moderator

It's mainly attributed to our innovative incentive based advertising business. Well, for the past two to three years, we continue to roll out of free to listen to the music business, which register a very nice achievement. Starting from this year, we also started to launch the online earning business model. And the online earning business model can help us to access to the larger user base with very strong motivations from the users. So we find out the online earning model actually be able to continue to advance, which will help us to make sure advertising revenue continue to go beyond our expectation.

Moderator

Regarding the advertising system, we're still adopting the advertising system from Tencent Group. No matter from its bidding capacity or from the advertiser expansion or the AI enabling enabling, we do see the Tencent advertising system is making the industrial leading performance. And this can also help us to further grow our advertising related revenue. So, actually, we also observed that the microeconomic picture is looking right. So for the online advertising business, no matter in q one of this year or the full year, at least from the operational perspective, we still maintain a very positive attitude on the advertising revenue for the whole year.

Moderator

Answer your second part of the question regarding the offline performance, especially the concept. For the past two to three years, we do see the offline performance continue to survive. We are with a very strong growth momentum for the offline performance. I think the priority for Tiamese Group is continued to improve the quality of our performance business. For the past two to three years, we are also very pleased to see many of our partners, including the strategic artists we're working with, as well as labels and partners.

Moderator

They supported us a lot. We also would like to say thank you to all of them. So at this moment, I think we have a few things that we need to do right and good. The first one is the tour of our artist. Especially, you mentioned in your question, the G Dragon tours as well as some of the artists we have strategic partnership with.

Moderator

We hope that we will be able to provide them good support, while at the same time offering the audience or the fans a good opportunity to appreciate high quality of live performance. But at the same time, for our indigenous IP event, for example, like QQ Music for passion, we do hope that we will be able to improve its performance for this year. We hope by organizing or help to sponsoring those earth live performance, we will be able to provide a comprehensive musical experience to all of our users, where at the same time to play the trump card of the SVIP privilege. In that way, we will be able to help to grow the SVIP subscriber base.

Moderator

So

Moderator

ultimately, we hope that the TME overarching strategy with one body two weeks will be fully demonstrated. In that way, we will create a greater value to the market and to the society as a whole.

Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

Thank you, Cashel, and thank you everyone for joining us today. In the interest of time, this concludes today's call. And if you have any further questions, please feel free to contact the IR team. Thanks again, and look forward to speaking to you next quarter. Okay.

Millicent T.
Millicent T.
General Manager, Investor Relations at Tencent Music Entertainment Group

Bye.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Thank you.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Bye.

Kar Shun Pang
Kar Shun Pang
Executive Chairman at Tencent Music Entertainment Group

Bye.

Ross Liang
Ross Liang
Chief Executive Officer at Tencent Music Entertainment Group

Bye.

Executives
    • Millicent T.
      Millicent T.
      General Manager, Investor Relations
    • Kar Shun Pang
      Kar Shun Pang
      Executive Chairman
    • Ross Liang
      Ross Liang
      Chief Executive Officer
    • Shirley Hu
      Shirley Hu
      Chief Financial Officer
Analysts
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Key Takeaways

  • Robust Q1 2025 performance: revenue of RMB7.4 billion (9% YoY) was driven by 70% growth in music subscription revenues to RMB4.2 billion.
  • SVIP acceleration: paying user base and ARPPU rose (monthly ARPPU RMB11.4 vs RMB10.6) through premium audio, exclusive merchandise and early-access event perks.
  • Advertising and offline sponsorship: ad-supported and incentive-based models fuelled solid YoY ad revenue growth, complemented by event sponsorships like Music for Passion.
  • Content ecosystem expansion: renewed deals with Sony, YG, Starship and Kadokawa, plus proprietary audio dramas and gaming theme songs broadened genre coverage and user engagement.
  • Improved profitability: gross margin expanded to 44.1% (+3.2 pp) and OPEX ratio fell to 15.5%, reflecting higher subscription mix, cost discipline and stronger label collaborations.
A.I. generated. May contain errors.
Earnings Conference Call
Tencent Music Entertainment Group Q1 2025
00:00 / 00:00

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