Tencent Music's Q3 Report Exposed Earnings Weakness in Its Two Major Services

Tencent Music disclosed its Q3 2024 report. The report shows that Tencent Music’s total revenues were $1 billion (RMB 7.015 billion), signaling a year-on-year increase of 6.8%. Its net profit was $244 million (RMB 1.71 billion), meaning a YoY growth of 35.3%. Gross margin increased from 35.65% to 42.64% in the same period of 2023.

 

 

Tencent Music’s business is divided into two categories: online music services and social entertainment services. The former includes subscriptions, digital albums, advertising, etc. The latter contains karaoke, live streaming, and others. Based on the report, affected by the rectification of the live-streaming industry, the revenue of social entertainment services shrank, causing its share of total revenue to drop from 30.69% in Q3 2023 to 21.88% in Q3 2024, indicating a YoY decrease of 8.81%. Although the social entertainment services revenue sustained stability in the first half of 2024, it fell 11.58% to $219 million QoQ as the third quarter came. Such a decline is mainly due to the decline in the average monthly revenue of single paying subscribers, falling 20.97% compared to the second quarter.

 

Besides the live-streaming adjustment, the deeper reason for the declining revenue of the social entertainment service was that popular streamers left Tencent Music and moved into TikTok and Kwai since the money they earned from Tencent’s live-streaming platforms Huya and Douyu shrank. Luckily, the impact of revenue reduction in the live-streaming services on the company's overall performance is weakening, as the social entertainment services have fallen to about 20% of Tencent Music's revenue.

 

Tencent Music's online music service business performed steadily and hedged the decline in the social entertainment services, with its revenues amounting to RMB 7.160 billion and RMB 7.015 billion in the second and third quarters of 2024, representing YoY growth of 27.65% and 20.36%, respectively. It should be noted that the company's online music service business revenue QoQ growth rate slowed down significantly. During the last two periods, its value was 8.33% and 1.03%, respectively.

 

According to statistics, in the second and third quarters of 2024, the number of paid subscribers of its online music service grew at rates of 3.08% and 1.71%, respectively. And, the average monthly revenue of paid subscribers grew at rates of 0.94% and 0.93%, respectively. Data implies that the slowing growth of the two core users is the main reason for the weakness in the music service business.

 

In addition, Kwai Music negatively hit Tencent’s online music service business by increasing its download volumes on iPhones 2024 from 13.15 million in Q3 2023 to 20.69 million in Q3 2024.

 

On a positive note, monthly active users of Tenncent’s online music service business reached 576 million but the payment rate is only 20.66%, suggesting that the payment rate still has space to move up.