Q1 2021 Tencent Music Entertainment Group Earnings Call
Ladies and gentlemen, good evening and good morning, and thank you for standing by and welcome to the Tencent Music Entertainment Group 2021 first quarter earnings Conference call. Today, you will hear discussions from the management team and Tencent Music Entertainment group, followed by a question and answer.
Session for the benefit of all the participants on today's call. Please limit yourself to one question and if you have additional questions. You can re enter the queue. Please be advised that the conference is being recorded today now I will turn the conference over to your speaker hoarse today Ms Millicent T.
Please go ahead Ben.
Thank you Amanda Hello, everyone and thank you all for joining us on today's call and that is close to the financial results today after the market growth.
And the earnings release is now available on our website and I have to.
Hum.
As well as volume Newswire services.
Today, you'll hear from me today comes from Paul Our executive Chairman and it's now.
The call with an overview of our risk and achievement.
He will be followed by Mr. <unk> Liang.
And Mr. Tony <unk>, our CFO, who will offer more so on our product strategy operations and business development.
Lastly, Shirley Hu.
Religious and financial results before we open the call for questions.
Please note that this call may contain forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 19, and I just thought these forward looking statements and based on management's current and fictitious observations that involve known and unknown risks and <unk>.
These and other factors now under management's control, which may cause actual results performance or achievements of the company to be materially different from the results performance or expectations implied by these forward looking statements.
All forward looking statements are expressly qualified in their entirety and the cautionary statement.
And details of the company's filings with SEC.
Company does not assume any obligation to revise or update any forward looking statement as a result of new information future events changes and market conditions or otherwise except as required by law.
And it doesn't know that the company will discuss non-GAAP item.
Measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standard and the company's earnings release and filings with the SEC, you're reminded that such non SMS.
And it should not be Louis and isolation or in net.
And that kind of hit to the equivalents.
<unk> and other non <unk>.
Measured and not uniformly defined by all companies equally and those in the same industry.
And I'm very pleased with and over the course of discussion is deputy chairman of Tencent music question.
Thank you Melissa and Hello, everyone and thank you for joining our call today.
Echoing the reorganization of the Tencent digital content ecosystem and expect to pay you think <unk> towards the next phase of the vitamin E.
And recently announced a change of leadership.
Second as chairman of <unk>, I will be responsible for setting a long term strategy and.
<unk> overall coordination and management of the board and also as a company.
I will also focus more on building the most comprehensive music and audio content ecosystem in China.
Also joining us on today's call is Mr. Waltz at Al <unk>, New CEO, who will oversee QQ music who'll go cool wall leasing and the long form audio business.
Having worked closely with Ross for a number of years and the path.
Ralph and myself share the same vision and P. M East strategic goal as the GM of QQ music from 2014 to 2016 and and one of the key members of leasing founding team has a deep understanding of the nature of our businesses a warm welcome abroad back to the T and B family and and I look forward to.
Working with him again, as we continue to execute our strategy and grow the business.
Since <unk> establishment in 2016, we have stayed true to our original aspiration of creating more value for users and decisions there.
Industry and society as a whole group.
Pioneered and defines our model benefiting for the long term development of China's music and entertainment industry.
Establishment and comprehensive services now include online music and online audio and social entertainment.
Positioning.
And all in one music and audio entertainment destination for hundreds of millions of users.
Yeah, and not only great believers and upholding digital music copyright, but also strong advocates all effectively rising income levels, while China's indie musicians and cultivate and China's original music ecosystem.
We have been pushing the boundaries of the music and entertainment ecosystem committing to explore innovative ways to promote upstream content production.
As we saw with numerous chart topping song originating from our platform alongside our growing capabilities in August incubation and additional channels of distribution and promotion.
We also pioneered T M Eli.
And a solid spending in the industry.
Although the impact of the COVID-19 pandemic lingers.
<unk> Lingus, and some uncertainty remains.
Chinese music industry is thriving and polishing.
If a steadfast focus to create a one stop shop online music and audio ecosystem.
And like our Atlas could drive the next phase of development and 40 Mg.
Okay.
Moving to the quarterly discussions and the first quarter of 2020, one we achieved that and robust performance with 24 per cent year over year growth in total revenues, while shipping multiple milestones across the spectrum of our business.
Net addition of music paying users reached a record high of ballpark online media and the first quarter.
Australia, and our strong momentum and further inspiring us to unlock the value of music and <unk> role in People's lives.
For our long form audio business. We have also made significant breakthroughs with MMA use surprising $100 million at the end of 2020 and.
And and they you penetration crossing the 20% milestone and the first quarter of this year and <unk>.
And one of the leading players in China's online audio industry.
Our content ecosystem.
Becoming increasingly robust.
And then make and powerful and.
In the past quarter, we were very excited to see increasing user engagement from young users.
Thanks to a broader offering of trauma, such as hip Paul Chinese ancient style and music ball Wild range of entertainment, including popular television and programs.
Rajeev shows and online games food, both licensing or self protection.
Also in the hip hop category QQ music launched at the Rapids Alliance in General.
Attracting participation from both rising and top tier established the rapids.
Providing a stage to perform and shine, we held the rapid Lambert <unk>, yet and it is.
By the treasure voice and she doesn't mean, a well recognized and music variety show in China. These efforts have brought increasing engagement from young users and on QQ music and the penetration of young users. Among he published and this is more than 15 percentage points higher than the overall platform persons.
And then another example, and the first quarter, we worked with Tencent games to create the highly praised the theme song bathroom for volume for car T mobile.
One of the most popular mobile games in the World.
In 2021, and then east.
Initial component of Tencent platform and content group we.
And to strengthen and develop additional ways to collaboration with the border Tencent ecosystem.
Coded maintain indie musicians is another strategy day pallets.
And the first quarter the scale of the Tencent musician program as indicated by the original songs.
Hello.
Continue with industry, leading growth on a year over year basis. The number of August on our Tencent musician platform more than doubled to over 200000.
And the music streaming volume of Tencent musician witnesses and the increasing share in our platform on a sequential and year over year basis.
This demonstrate nutrition, but in our promotional capabilities and platform support and incentive plans and other comprehensive surfaces.
As well as our ability to drive meaningful risk and the interest free by successfully incubating and pull them out and Keith original songs.
Tencent musician platform also serve public welfare and social influence for example, and cooperated with a leading logistics company using music to promo.
And we were utilization in the southwest of China, namely Sichuan and Joe.
And in land purchases.
Also we further expanded our content ecosystem to live concepts T.
T M D life celebrated its first anniversary in March this year, and just a year's time and <unk>.
Posted 60 live concerts for over 100 August.
18 billion, and social Buzz and building and cementing and <unk> lives strong industry influence as a brand.
And Tony the only one we really innovate more interactive features such as ticketing VIP.
<unk> received a camera and virtual gifting to create a holistic and more immersive user experience.
US one step closer to unlocking the massive value and market potential for online live performances.
Our platform music content long form audio forms a core building block for us as we evolve into a leading all in one music and audio entertainment platform and China.
We emerged as a key players in China, and fast growing long form audio market.
Firstly, we provide broad spectrum of audio categories.
Spending into diversified audio genre, such as <unk> Brahma Comics Chinese comedy history, parenting relationship and education among others.
The consolidated consolidation of laser audio in March further allowed us to gain access to an extent extensive library of high quality audio book.
And the first quarter licensed titles more than quadrupled year over year.
We are also celebrating the addition of <unk> and UGC long form audio content bring.
Bringing both professional and long tail podcasting content to users.
Our initial efforts have included QQ music in GAAP collaboration with Zalviso.
And podcasting App in China.
In February QQ music and initiated the ground fuel podcast program under which we aim to continue introducing various features and widen and support to facilitate podcast creation.
Secondly.
Adopter of our value of BOE to cross that border strategies evolves to unlock significant value from our music and stand alone long form audio applications.
And this approach allow us to leverage our massive music user base and nearly quadruple our long form audio MA penetration to 20% in the first quarter compared to five 5% from the same period last year.
Long form audio content and also contribute positively to time spend per user.
And inspired and incremental lessening of audio content in addition to music and.
And newly converted audio user's scream, even more music content and before our stand alone application and launched in April and then.
Hunting Titan years are well, along the visual and audio experience from Comex.
Ron sung and good it has to offer and immersive and interactive user experience and aim to address the needs of heavy audio users.
Lastly, we commenced a space at monetization, which give us our.
Our users easy access to a vast amount of high quality audio content users are able to gain membership privileges are tighter right by watching advertisement or competing set and task.
And believe that such a model will not only be effective and scaling our user base quickly.
But also unlocking additional monetization methods.
Highlights long form audio market remains extremely underserved as compared to the online music and video market and.
We are eager to continue cultivating users' listening habits to ultimately a federal rate of penetration of online auto in China.
Now I would like to pass the call to Rob who will share more about the strategy of our key business lines and Ross. Please go ahead.
Okay.
Hello, everyone I want to start off by saying, how excited and honored to join <unk> iron and steel.
Hey man, those trends and future upside potential and Tammy particular, and basically its leadership in driving industry growth as a normal retail business models and the landscape and are not list is a remarkable team consisting of a talented group of people in the industry.
And so and <unk> been able to a pandemic has changed and continues to change the content distribution and also interaction raising online music and <unk> in China and Etame from a position of strength is either full trunk of this paradigm shift.
Leveraging the growth momentum, although mineralization and the centralization of music platforms, and we plan to launch the P. M and you may do on Comed to further strengthen the interactions between artists and fans.
And so there's significant upside to our music centric social activities through COVID-19.
Combination of private donors for music musicians and both of music content promotion and each social platform.
Maybe I'll, Paul and his team streamlined resources.
And this middle and well and occupied with her sharing among all online music services to Brazil, RMB and the technology break throughs.
And so we harness cutting edge technologies and the interim rates operation models million dialog to provide a more in mostly online and color, okay and the concert experience.
And emerging reality, Australia, ISO offline experience and potentially better.
Oh and multi product portfolio.
Portfolio pulled us a strong position to offer differential a tail.
Sales for the day.
And the new and needs for your first nation nationwide.
Excuse me and music cementing exploration, ISR young and suddenly, Brian and Google and music slowing our diverse aerospace by offering margin version of Kosmos Fotis.
So a different vertical of concrete all things such as children silver and the senior and status.
Cool music.
Focused more on catering to all sorts of intrinsic demand of music streaming.
And they're providing.
Hope your own experience with easy to use music steam steam streaming features.
Maybe I'll also establish tighter and more stabilized collaborations milestones and stronger product portfolio to enhance music content and the promotion.
By working low close close later this broader tencent and ecosystem.
Hello.
And our interactions between music and social platforms.
All day, the content production and the artists the incubation and most digital content platforms and the promo and the development of long form audio and leveraging our partnership with online literature platforms.
Dedicated to finding things a power of music, we are opening up more monetization opportunities.
Maybe I'll also be signing up our first and international expansion and the Highwall Potentate as a group Vice President and Dennis Hall to leave it as I thought.
And this.
It was great sales in charge of the operations and the management of QQ music.
Under his leadership Kilkeel music successfully launch the total community to enhance social interaction.
<unk> funds and as their items.
And the value of the industry, leading music discovery rate per day.
Set and packet knowledge and the.
Substantially transfer promotion capability.
And we're trending create music.
Lasers pulled our studies and our deep bench of senior managers and the leveraging my prior experience with QQ music and <unk> seen I will personally take on a more active role in driving the growth of QQ music and amazing.
I look forward to working in close partnership with caution on the side by side with other key Army and management members staying laser focused on efforts to enhance product features and the services to elevated per user experience now.
Now I would like to turn the call over to Tony who will discuss per business highlights and important areas of focus Tony. Please go ahead.
Thank you Ross.
Hello, everyone.
First talk about the key operational and financial performance during the first quarter.
Online music services growth rate continue to accelerate for two consecutive quarters.
We delivered another strong quarter for our subscription business with a record high net adds of $4 9 million online music paying users.
And the strong ships the subscriber growth was primarily driven by better content offering effective marketing campaign and improving retention rates.
We also made notable progress in advertising with and online music services.
Advertising revenues more than doubled year over year in the first quarter for the third time in a row as we benefited from an increasing number of advertisers from various industries attracted to our platform as.
And as well as triple digit year over year growth in AD inventory and double digit year over year E CPM growth.
We also continue to innovate with advertising products to further tap into the growth potential for advertising in 2021, we are focusing on developing creative advertising solutions and enhancing in house capabilities to further boost advertising revenues and.
And subscription model.
Online music mobile NYU, where $615 million in the first quarter.
While there were some churn of casual users, resulting in a year over year MAA decline out.
Total music user time spent was up year over year.
Demonstrating the increasing engagement of our core users.
In terms of expanding our services beyond the mobile phone and we continue to broaden our services to internet of things Iot space.
And find more and better ways to interact with our users.
Opportunities arising from the Iot market and exciting and we are actively expanding use cases for users to enjoy all of our services.
We will continue to solidify our leading position through extensive cooperation with mainstream automakers smart speakers television and other connected device manufacturers in.
And the first quarter.
Our Iot Miu was $69 million, representing an increase of 50% year over year.
The Iot market and will serve as the new distribution and promotion and channel.
Well as serving as a potential additional driver for future subscription growth.
Moving to visualization and socialization.
Our concerted efforts to enrich both music and audio content offering as well as enhanced innovative features and services such as music community and video content.
Uh-huh gained higher mind share among our users.
Illustrated by a 10% year over year increase in average daily time spent per mobile users and the first quarter.
So put on community, we introduced more social scene, such as Synchronised music and podcast listening video and concert watching as well as improved private messaging.
Catering to our users' need for interactive social connections as a result, and <unk> penetration and retention rate.
And community both increased steadily.
Kugel fans club and another community on a platform has also drawn many leading artists and labels and content IP.
Highly rated and day and domestically produced animation series scissors and <unk> or LTE is a recent example fans club is becoming a world class destination for young generation evidenced by an increasing proportion of young users and as time spent per user increased.
Really in the first quarter.
Now, let's turn to our social entertainment services in the first quarter, we delivered solid performance and.
And both online karaoke and live streaming delivered steady year over year growth.
Our strategic shift to focus on monetization efficiency gain has continued to lead to strong advertising revenue growth for <unk>.
QQ music live streaming and gathered further momentum during the quarter and we are on track to scale. It up over the course of 2021.
Social entertainment and <unk> improved quarter over quarter to $224 million.
Its user base of QQ music live streaming ramped up and our efforts to invigorate content ecosystem and enhanced social attributes and we think took place.
Paying users of social Entertainment services also sequentially recovered to $11 3 million in the first quarter by four 6%.
Our online karaoke services strengthened its core singing and entertainment functions with material improvement and monetization through advertising outcome.
Our concerted efforts to make experienced more immersive and fund through video enrichment personalization and community resulted in sequential improvement and users' willingness to sing and record and further content distribution and driving an increase in average daily.
<unk> spent within leasing and also daily active users bottoming from the last quarter.
And with a dual approach in splash screen ads and news feed ads advertising revenue for we think more than doubled year over year, and the first quarter, making it a more meaningful revenue stream of leasing for the remainder of 2021, we expect strong advertising revenue growth to continue and become an important.
Top line driver for social Entertainment services.
Our music centric live streaming services through efforts such as full screen live streaming and category expansion and our content and ACG gaming Chinese ancient style and dancing, we maintained a healthy interactive ecosystem as evidenced by steady quarter over quarter improved.
And then of retention rate of retention rates for performance and our users.
The closed loop ecosystem between online music and music centric live streaming has been demonstrated by highest streams of Chinese ancient style from during the quarter.
Inspired by the increasing trend of the genre.
And music services crew go live hosted the live show Chinese ancient style for today <unk> for more than 80 groups of Chinese ancient style singles Fair.
Further integrating Chinese traditions with a modern twist.
This show and in turn led to a 17% highest streams of music by the participated singers during the days of this event.
In conclusion, we kicked off 2021 with a firm step forward in our evolution into an all in one online music and audio entertainment destination in China for users and others with that I would like to turn it over to our CFO Shirley for a closer review of our financials.
Thank you Anthony and Hello, everyone next and I'll discuss our results from a financial perspective.
Overall, we achieved outstanding growth in online music services, particularly in music and subscription and advertising revenue this quarter and the continuing healthy growth in social and tenant the building.
Total revenue for Q1, 2021 were RMB, seven and beating up 24% year over year.
Our online music revenue reached RMB, two point of sale and billing this quarter.
35% year over year.
Our music from perhaps and Bill it continues to grow rapidly in the first quarter 2021.
Revenues, and $1 7 billion and and year over year growth of 40%.
We had a record high and net add of $4 9 million and in Q1, 2021 and the paying users grew 43 percentage year over year.
Driven by user retention improvement and higher net adds.
And use that.
Round mountain and PPE remained relatively stable year over year.
This low resulted from our continuous improvement and product and content.
And our sales channel and in faith and promotion.
And we are very pleased to see and our effort that is bearing fruit and the value of quality and increasing disconnect and by our users.
In addition, <unk>.
Year over year basis, our advertising revenue were more than doubled again for the third consecutive quarter.
Due to increased AD availability and ECP and improvement.
<unk> enhanced our per pack to improve and efficiency and.
Our cash taxes.
Over the past and yet we have made various efforts and expanding and educating our customers whether they are producing cash.
And a great.
As a result, both our cash <unk> and average spending per customer.
And at year over again.
Social Entertainment services and AD revenue and <unk>.
Five quite appealing.
19% year over year, driven by growth in revenue from live streaming and advertising services, our social entertainment platform.
And can make mapping atrophy and increased 76% by paying users jumped.
<unk>, 4% on a year over year basis.
Lasting value.
And the higher growth and year over year, and we had a narrower basis in Q1 2020 due to the impact from COVID-19, and objective and certainly acting field trials.
Additionally, our improved Edison and his model, Kansas, and Tim and to provide a more and access and Quebec our platforms.
And significant growth in net revenue.
And our search and chemical platform.
Yes.
Gross margin was 31, 5% in tier one and 2021.
There are 2% scaling down.
And 8% sequentially year over year increase was appealed to revenue growth and infrastructure revenue and advertising revenue.
Sequential decrease in gross margin was the core search and turn into revenues and advertising revenue, but lower in the fourth quarter agitation.
Now moving onto operating expenses.
And the banking or kilowatt penetration was RMB, one 6 billion and it was 20% as a percentage of total revenue as compared to 18% and the same period last year.
Selling and marketing expenses were RMB, six and $672 million of ports percentage year over year. The increase was due to higher use of accretion and Quebec based sales.
Our core tax.
And these positioning and and spending related to our legacy <unk>.
And in general.
The increase was also because we had a lower base in Q1 pretty tightly.
Spending on those operations during the pandemic.
General and administrative expenses were RMB $887 million opposite and percentage year over year, driven by higher lumber employees and.
Good.
And so bringing back and product enhancement and Epocrates and innovation.
And I'm from audio wasting national posting content and elaborate technology.
Our effective tax rate for Q1 type of central Bancorp and climbed by per bench.
Net profit was RMB 900, and SMT 9 million and a net profit attributable to equity holders of the.
The company was RMB.
And lastly entered and 26 million net net profit.
One point.
Yeah.
One.
25, and Atlanta and net.
And net profit attributable to equity holders of the company and one point.
And <unk> building.
Non <unk> net profit and margin was 15, 8%.
As of March 31, 2021, our combined balances of cash cash equivalents.
And the deposit and short term macro level, one and 2017, representing a decrease of RMB two beating from Q4 2020 the decrease in balances.
Due to our creation of land and audio investment and outcomes.
Wholesale channel to purchase additional equity interest and Universal music group as.
And as well as the purchase of ordinary shares.
Cash generated from operating activity had a partial impact and honestly.
Looking forward, we'll continue to move after and core content and regimen and to further increase the recognition of the value of quality music.
And our users and we'll keep focusing our wheel products and the future.
An audio.
We are optimistic about the failures that from all the music and audio and battery and.
And the overall system and the per packet pack low and we are building in Atlanta.
This concludes our prepared remarks, operator, we're ready to open the call for questions.
Thank you as a reminder, and the benefit of all participants on today's call. Please limit yourself to one question and if you have additional questions you can re enter the queue.
First question comes from Alex Yao from JP Morgan. Please go ahead.
Okay.
Good morning, Mike from Todd and thank you for taking my question.
From a wrong.
And we're going to trade environments.
And can you comment on the recent news flow.
Gosh.
You guys have.
And by the mother nature.
And at the trough of coupons and most consumers all of the penalty.
And Ralph.
Not only upon but also from SKU.
Uh huh.
Nick <unk> from <unk>.
Cool.
And to do so she can.
Can you guys point per barrel.
What do you expect to change your operation.
In the next couple of Qunar.
Luckily trading environment and general interest rates. Thank you.
In recent months.
Have received increased regulatory scrutiny from relevant authorities.
And have been actively cooperating and communicating with the relevant regulators.
At this point, we're not in a position to comment or predict potential outcomes of such dialogue with the regulators.
We wish to say that we are committed to complying with all relevant laws and regulations, including those related to antitrust and.
And as you know the online entertainment industry is highly competitive and dynamic.
Our goal is to deliver valuable products and services that can provide more and more value add to our users to musicians to the industry and to the society as a whole.
And that will remain to be the case.
And we wish you and establish ourselves as a healthy force for the industry.
He is providing value add to the society as a whole.
So I think that's all we can say and comments are and with regards to the regulatory developments at this stage.
Okay.
Okay.
Thank you. Your next question comes from Eddie Leung from Bank of America. Please go ahead.
Hey, good morning, guys.
Kevin.
And now and.
Have a price.
Great and Oh.
Hum.
<unk> applications.
And some of that from.
Some of the media and news.
And.
And more color on the potential cooperation with Oh I'm.
And Oh.
Awesome day.
Sure I think with regards to better cooperation within TMT as such.
Ross mentioned in the early remarks.
We plan to build a shared middleware and architecture that is shared across the three music platforms.
To improve R&D efficiency improved data efficiency.
While at the same time.
Refining the positioning of each of the music and music platform for different target audience.
I think along the lines of meat and EQT music will continue to cement its position as the young and <unk> brand and and established strong endorsement among young users and then Cougar music will serve as a diverse user base.
By offering multiple versions of customized.
And for different verticals of target audience, such as children.
Our senior population.
And then call with focus on a more intrinsic.
And more streamlined.
And our easy to use music streaming service.
And then in terms of cooperation with the broader Tencent group.
As as Russ also briefly mentioned.
Jimmy will strengthen our collaboration with the wider Tencent ecosystem.
Examples could include.
Tencent, so easing Tencent social platform.
As a channel for a better music content distribution and promotion.
Working more closely with Tencent maps.
And for in car use cases.
And joining forces with Tencent and digital content platforms.
As Tencent video and in areas such as music variety shows a fan base community operations.
Low for them and short form video promotions and.
And commercial.
Membership partnerships.
As well as.
A better search and discovery experience for music within QQ browser.
And last but not least of course, the deepening of the partnership with China literature, which we started.
Last year.
Thank you. Your next question comes from Alex <unk> from Morgan Stanley. Please go ahead.
Okay.
Thank you management for taking my question I have a question regarding long form audio can you talk a little bit more about the time and investment needed to build a content library and.
To become similar or even better than the existing industry leaders.
And then the following revenue ramp up the trajectory and the impact on margin and not the overall company. Thank you very much.
Okay. Thank you for your questions and try and I tried to this.
The answer is more business strategy point of view and Antonio and share you may add a little bit on the financial side as well.
And the long form audio definitely so a lot of exciting opportunity out there we are seeing it as one of our core strategic move.
March of this year, we actually launched it all and last year and this is also the first anniversary of the resolve launch our new <unk>.
All of our module platform.
And actually taking a two pronged approach so which means that we are not just promoting the long form audios and from our Moose applications, but also after the acquisition of delays and audio we merged with our core accounting and reform and other stand alone long form audio apps that will help to participate.
And the needs of our core audio users in terms of the content and as we mentioned that we have a strong partnership with not just Chinese literature, but also most of the poor leading long form audios IP rights providers in the industry right now. Besides this we also rode it some platform.
And also the program to acquire the podcasting providers to go to our platform and started providing the surfaces. So all of this we will be doing simultaneously and we are and are really a fast moving a pace to acquire and also to have joint tenancy with deep and content provider as soon as per.
<unk> one of the latest new that I would like to given.
And share with you is we are also in the alliances with value jobs now who is a leading podcasting application in China and nowadays.
Very energetic and Yung Kim and after having in depth discussion with them I think that we share. This ambition and we have already rolled out John partnership with value Joe on the QQ music platform volume podcast and so I think that we have a lot of exciting projects going on and we will continue to pull in more resources not just from fine.
And so power group. We are also from the company and a structural reorganization, we have already formed long form audios business group.
And we have a dedicated team not just from a technical point of view to lay out a good foundation and we are also working on the product and operations as well, so and I see right and my team have any additional comments regarding the resources.
Our financials.
Yeah.
Well Shirley can address the margin impact on the long form audio investments.
Yeah.
Pardon me. This is the operator, we have temporarily lost connection with the speakers.
Yeah.
Okay, no problems and I will carry on and so I think overall.
We do expect to see some margin.
Pressure due to the investments in the content side for a long form audio.
As we.
Step up on the on the investment.
However, we want to bear in mind, the long term opportunity that is ahead of us wished to US is very exciting we do think that while it is short term.
Margin diluted.
Do you expect and long form audio business to be long term margin accretive.
Given the AR.
This model is that we are.
We're planning to monetize them.
And we are going to monetize it through not just a pay model, but we also have the advertising model as well. So a lot of people Ken started shoe enjoying some of the paid content by after competing from castle reading some of the App and also into some of the advertisement so actually I think that from a business model point of view is more healthy and.
And the credit profiles.
Okay.
Yeah.
Thank you we now have the speaker back online.
Okay, let's carry on to the next question.
Thank you and your next question comes from Sharon Hi from T. H capital. Please go ahead.
Good morning management.
Regulations.
Okay.
Well I have one question related to socialization and so it looks like Tencent music.
Net of the content and so like a like a whack so I really want channel.
Among all the products and what the interconnection and also how do we develop and social legislation.
Yeah.
Out of each product and among the per day. That's my question. Thank you.
Yeah.
Hum.
Tony and bone from a finance about them.
Continuity.
Okay.
Hum.
And higher women triage desire, Colorado, and before me and my Eagles share syringe low dollar tables, and then you can share most of it is coming out and out and to acquire those strategic movement.
Okay.
Yes, I think for music platform, our focus is going to be on two fold there.
Relationship between a free.
Friends and also building relationship.
With a wider circle beyond France.
Thanks for answering all day.
And Im sure Youll share Georgia.
And so I'll close on and so you want more weighted to draw you to keep them and share going to Roseland and go now you'll recall <unk> zone to shelter at home shelter U and a needle.
So you want mcquade chemo and share you the channel going to what.
Sure.
Polyol, GDNF, which increase over a year and a challenging downhole.
And the pools are airasia and conclusion and she's from governments either.
John and Bob on M <unk> and John are you at a.
Hollywood agenda, Hugo who don't know European pilot showing.
Yeah.
Okay.
For the area of social connection among friends.
And given within Tencent, the major social platform, such as we saying in Q2, a very strong and net area.
We will strive to provide an easy to use tools.
And especially as an example content creation tools.
And that makes it easy for our users to create content and also provide use cases are.
For other users to share and these content created by this easy to use content creation tools within the social platforms of Tencent.
So just to follow up and Gina bulk warmed up and you are talking Natasha and vocal CAGR and them and at least with our clients with a photon and me.
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Yeah, and we will also.
Aimed to provide easy to use tools for content creation to facilitate sharing and into interaction among friends and families.
These tools could allow quick quick sing along and it could provide a virtual room.
Is tailored for friends to enjoy and sing song and also provide and easy method for them to produce short video clips consisted of music and photos and make it easy for them to be shared for these content to be shared on the Tencent social platforms.
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And in the area of social connection and beyond friends to just users in general on the platform.
It'd be very focused on the interaction between Idose and fans, we think thats a very important community.
And it would be and important.
But for us to focus on to broaden.
The Idaho and fan interaction and community as.
The way to increase.
And our music distribution and promotion.
Okay.
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Yes, there are many ways for us to enhance the interactions between our sales and idose.
And <unk> video accounts, something Ross mentioned earlier in the prepared remarks as an example.
And community is another example, as well as online concert with interactive features.
We believe.
As we invest in in these more social elements and methods for people to interact will be able to better monetize and capture the fan economy.
Opportunities.
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Okay.
In particular.
Pootle and community and video accounts are of great importance to us.
In particular.
Within Pootle community with launched a virtual room, and we will be further and.
Hence ing that product feature.
One that allows the fans together amongst and within a virtual room to chat and to enjoy music together, we'll also aim to provide better communication tools.
Facilitate communication and interaction between Idaho and fans.
Lastly, and most recently on us and it should be in hearth and home.
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And they're flocking I E should be and then on shelf and a surgeon and amortize you don't find shank and holiday selling and selling.
And you'll find out you've got to deal with.
The most important of all is the CME and video accounts.
And that's an area, where we'll be looking to partner with we've seen what are you seeing.
It is important for us to find ways for musicians to interact with their fans.
Through a short video based format.
We believe in approved by providing these tools musicians can develop the private domain traffic.
Within these.
<unk> video accounts and wasting video accounts.
And thereby allow us to capture potential growth opportunity and commercialization opportunities.
Okay.
And one of them and they are.
And.
Okay, great. Thank you Rafi.
And.
Next question please.
Thank you. Your next question comes from Alicia Yap from Citi. Please go ahead.
Hi, Good morning management, Thanks for taking my questions.
I have a question related to the advertising so can management provide updates and and comes off the colors are in on the traction from the Advertiser for example.
A major advertiser category and how you feel at low to and ECP and compact with GAAP here any pressure on the pricing and inventories are issues amongst peers. Thank you.
Sure.
As you know we recorded another strong quarter.
<unk> advertising revenue growth of over 100% on a year over year basis.
And that's driven by growth basically across the board in terms of infantry and.
In terms of sell through.
AD unit and so all is.
In terms of unit pricing and a form of CPM.
And so we don't at the moment see any bottlenecks in terms of inventory.
For 2021, we do expect advertising to continue to achieve a very solid year over year growth.
And will gradually be ramping up.
Various additional.
Additional advertising format.
Cash and mentioned.
We have introduced.
AD monetization for long form audio business, which.
Innovative way.
And that allow users who watch a video AD a complete certain tasks.
And to gain.
Access to what would otherwise be premium content that requires the pay subscription of pay per pay per title.
We think thats a highly differentiated.
<unk> strategy.
And that will allow us to both grow the advertising business as well as surface of differentiation for our long form audio business.
In form in terms of music.
We mentioned in the past that we will continue to invest in new advertising format, which will serve as additional future growth drivers.
For our music monetization.
Beyond subscription.
And then in terms of the.
Advertise exposure we are seeing.
Increasing number of advertisers being attracted to our platform pretty much across the board.
You could.
Expect the usual suspects.
And the former automakers FMC CG advertisers, a major brands et cetera.
Thank you. Your next question comes from John Egbert from Stifel. Please go ahead.
Thanks for taking my question the Iot disclosures were very enlightening and really strong and that your account and growth. There I was wondering if you could elaborate on the monetization strategy for Iot for instance on the subscription side is the paywall strategy are expected to be the major driver of conversion among Iot users and do you have plants and maybe offer.
And paid features that uniquely provide value to Iot listeners that can encourage conversion among that group I believe you had said and the path that the Iot users don't always overlap with your mobile Miu base. So I was just wondering if a different set of subscription futures might make sense there.
Yes, that's right.
Very excited.
With the growth of the Iot user base.
As you could see I think if you will.
Look at our numbers and compare to the industry.
Sizing in terms of smart speakers and entire systems or smart TV.
It would be quite clear that we continue to be a early mover in that space and having established a strong position within.
Within each of these verticals.
In the form of monetization will be looking at trying different approaches.
And with the overall principle of increasing the interactive net between the mobile user and the Iot users.
Precisely because some some of them are quite different.
So we do want to leverage the Iot channels as a promotion and distribution channel.
But also access and effective channel too.
Convert into.
<unk> over time and that can also be done in a number of different ways and there could be standalone Iot subscription plans and they could also be.
A way to drive the mobile phone subscription as an example.
User may require mobile from subscription and notice to gain access to the Iot subscription that's as an example.
So we do see.
The growth and the size of the Iot user base, serving as a future growth driver for our mobile music subscription going forward, Yes, and definitely we will also have the advertising model as well.
Especially for the rooftop scenario a lot of people when you're driving I think this is a perfect and environment for Youtube listening to music or are the long form audio content and advertising is also going to be really good.
Monetization way for us as well so.
Leveraging our technology platform and also the.
Very targeted and personalized and gene I think.
And to bring us to be in a better place to monetize through the Iot area.
Okay.
Thank you and your next question comes from Thomas Chong from Jefferies. Please go ahead.
Okay.
Thomas do you have yourself on mute.
Yeah.
And Lee from Joanna.
Hi, this is <unk>.
Hello, and thanks.
Hi.
Thank you.
And our price management for taking my questions and congratulations on a solid start and stop on my question is about the 2021 and 2022.
And given that I think last conference call, we have talked about.
The top line business trend and the quarterly net adds.
Given the Q1 results, although we have any changes to our full year outlook and on the investments on slide <unk>.
We expect our 2022.
CIBC com and expect our margin expansion. Thank you.
I'll address the outlook with respect to top line and then Shirley can address the outlook with respect to margin.
Well I think we are very pleased with the Q1 results.
As you could see the music paying users surpassed at the $60 million milestone, reaching $60 9 million.
Representing a 43% and year over year growth.
The net adds last quarter was also a record high of $4 9 million.
And our long form audio business also achieved.
Number of milestone exceeding over 100 million <unk> by the end of the year and 20% penetration by Q1.
Which represent and <unk> of $120 million.
Drilling at.
200 over 200% on a year over year basis.
So with that as a solid foundation.
We expect the strength to continue.
With regards to music and long form audio.
With respect to the total revenue we.
We do expect to achieve a year and for your growth rate of mid to high teens for second quarter.
In terms of online music revenue, we expect that to maintain yield.
And for year growth rate of around mid thirties.
And that's driven by continued strong subscription, which I've outlined and also a strong continued strong advertising growth.
And while social entertainment revenue, we would expect that to grow at a reasonably healthy pace.
Driven by increasing contribution from QQ music live streaming.
And then with respect to the subscriber and made music paying user numbers in particular, we said in the last quarter that we expect.
Our quarterly net adds of between $4 million to $5 million on average per quarter for 2021.
We expect that to continue to be the case.
And so no change.
Specifically for the second quarter, we'll work towards achieving the.
Hi and of that range.
Okay.
<unk> gross margin, we expect that our book margin for full year 2021 to be slightly lower as a result of the funnel.
We continue to having and lastly in now from audio to build our solid content library. So a net.
It will be a negative impact on our gross margin and two.
Our revenue.
Revenue sharing fees, such antenna and develop it and creative there are two reasons Latin.
The habit and revenue increase in NAV of streaming is coming from Keith Hughes lags.
<unk> net the ratio of the government.
It will be the highest in our.
Social at Bolton and of course that there is ordeal and upstream momentum and second the.
Revenue sharing ratio up from a wasting will be gradually increase the true and languished in factory level. So.
The revenue sharing will be impact our gross margin and the good news is net of gross.
Gross margin for our online music business and.
And it has generally improved and weighted back either to keep improving our Titan.
In this year and.
And and because our music subscription revenue and EBITDA with passenger revenue growth and rapidly and <unk> or in 2020 wildly think gross margin is under pressure and we hope in 2022.
And the meaningful revenue come from long form audio and a new monetization model come from Iot and AR and any other new amount of patients that can be increase our revenue.
And 2020 true net to our cost and margin will be come back yet.
Thank you. Your next question comes from Rob Sanderson from Loop capital markets. Please go ahead.
Yes. Thank you a lot of my questions have been asked and answered, but I wanted to maybe.
And we go backwards and.
Sort of revisiting the.
The thoughts and expectations coming off the IPO and over.
Few years back with us.
At the time.
Thought was there was opportunity for the business to grow at 30% levels for a number of years going forward and and we just came out from a 15% growth you're looking at or around 20% maybe growth per year for this year ahead and.
And things have definitely changed so obviously lots of room for runway and growth and music subscriptions and long term value and advertising and whatnot, but social entertainment side definitely seems fundamentally different so.
And there's still opportunity for a 30% level type of growth down the road or changes on whether the opportunity set is fundamentally different or the competitive environment is fundamentally different on the social entertainment side, just how should we be thinking about.
So the long term opportunity to grow the business compared to what we may have thought just two and a half years ago and the IPO. Thank you.
Yeah.
Sure.
Look I think we should look at that question.
And separately for online music and social entertainment.
And for online music I think it's fair to say that by and large the business performance has.
It's somewhat exceeded expectation with.
With our subscription growth faster than most people have expected and we continue to <unk>.
Expect continuous strong growth for our online music.
I mentioned for for the rest of the year.
And that's driven by a very healthy uptake and net adds on a quarterly basis, which is driven by a combination of attractive content offering.
Driven by effective marketing campaigns for the subscription plan.
Advertising, which is increasingly and element and also Iot, which could access and future growth driver like I mentioned and the.
And then.
Advertising is another vehicle driver for online music that has been very strong, which we've talked about and we won't repeat in terms of social entertainment.
Have seen obviously greater competition amongst Pan Entertainment platform.
And that impacted the user base in particular, well we same.
And we had to over the past several quarters.
Yeah.
Embarked on a number of product strategy shift and product upgrades.
In particular relating to it.
Enhancing the.
Yeah.
And singing tools and the publishing tools to make it easier for our users to generate content and share it amongst their peers and.
And that has.
We've seen some positive results and development on the back of those product strategy shift.
As weak as witnessed by the stabilizing <unk> on a quarter over quarter basis.
And so and which also applies to the leasing and social entertainment Mou and.
And D you as well.
And live streaming.
And is continues to be a highly competitive sector.
I think they would share the industry is somewhat more mature now compared to two years ago.
With a large number of players.
Entering live streaming and whether the short video platforms or others and.
And we continue and we also saw a big impact on the live streaming business as a result of the pandemic, which we are gradually recovering from.
So I think the key changes mainly relate to.
Sure.
We are seeing in terms of competition as well as live streaming.
And I would like to add a little bit more color on the long term development of <unk>.
And tie business.
Robert you mentioned that during the IPO, we mentioned about the online music and also the social entertainment.
And but you're absolutely right that we are facing some of the challenging time, and the social entertainment and especially for the large human cry, but again, we are growing extremely good, especially for the online music side. So in terms of the ratio of our total revenue I think that the online music side is picking up and also <unk>.
Going to be a long term sustainable focuses for us besides that.
And the long term.
These statements social entertainment I think that after five years of.
And the operations for T M.
I think that right now we are also expanding our footprint.
To the upstream and also the downstream.
Which will make us to be with.
To focus on to becoming to building the ecosystem for the entire music industry in China. This is very important so we have been putting in a lot of efforts and working together with music labels and content providers and we started participated in content creation.
You may not be at this moment, we will have a very good.
Refresh on our revenue, but in a more.
Medium or long term point of view and who doesn't really drive more additional content drive revenue for us and future.
One point retina, what I mentioned before which is a T and your life.
And we should we did a year ago and this year at March wishes.
Which is the first anniversary offers I think we are so proud at the tier and utilize us help us to really extend our footprint into the channel business.
And is not just the traditional.
Flying concert event, but we have also opened the door for the phone line.
Music concerts, as well and we will host and will help us have a lot of collaboration for the online and offline event and the future. So I think that this is also and another new business initiation or incentive that can help us to drive additional revenue stream for us in the future. So for EMEA as a whole we were seeing that at.
We have established share.
Five years ago, when we're entering the mix by the strength are definitely seeing that.
Royalties, even I think the future is brighter because we are not just having platforms only but we have to upstream and downstream business and together with a strong team and I was and technical teams that we have are definitely cognizant and seeing that <unk> is going to have to.
And our advantaged when compared to our competitors and we are moving forward.
And I hope I can answer your questions.
Thank you.
Next question comes from <unk> <unk> from UBS. Please go ahead.
Thank you management for taking my question I have one question sort of long form audio and penetration of music and are you at 20% and he first the numbers on that they'd be time spent on this category. Thank you.
Yes, we are not and physician to disclose further details at the moment, but we are seeing healthy growth in the time spent metric.
And what's encouraging is that if we look at our standard loan application with a long form audio.
And.
And traditionally what we see is that the.
The core users and the more heavy high frequency users tend to over time migrate to the stand alone apps.
As we.
We see very very high.
Time spent per day you.
Which is actually higher than the.
And the time spent per Teu, four even though music apps.
And Thats a nature of the content types because at the moment.
China literature and through our partnership with China literature, we have a lot of online audio books.
Obviously with audio books that time spend tends to be terribly long.
And as soon as cash and mentioned, we do plan to significantly broaden.
Our content coverage with a low audio to include largest audio books per to multiple genres, and Chinese comedy Comex trauma education.
As well as more <unk> and UGC podcasts.
And as we do that I think the kind of spend naturally would come down a bit but it will still be at a very healthy level.
Cross sell Standalone apps, and as all of us and our music apps.
And also we are seeing that after we roll out the long form audio content and more and more of our music users started to enjoy the long form audio content and it will.
Cash and really drive.
And total time spent and we are also seeing a good news is is do not affect the congress, they span and listening to music or watching other music related.
Content as well so we are seeing the athlete the long form audio youll see and complement with the music side. So once a user started to enjoy some of the long form audio and path and the knee.
Not just driving additional cash spent on non core module, but also music as well. So this is a very good indication and proven that out are actually is the correct. One and we are also this is also our competitive advantage because we have a lot of music users and right now the penetration is on the bond portfolio is just 20%.
So I think that we view.
And let us have a long room to grow and the future.
And the interest and thank you Rachel.
Quite simply.
Thank you and your last question comes from Vincent Yu from Needham and company. Please go ahead.
Thank you.
Taking my question.
And.
And imagine help us breakdown the growth margin for the online music segment.
And what is the Standalone margin.
And then and how much of a drag at the long form audio course, thank you.
Oh, okay.
Hi, Bob.
Our gross margin.
And music we have in place.
Improvement to that.
From a data.
And last quarter, and we expect <unk> in the.
2021, and the gross margin of online music and royalty increase Oh, yeah, Yeah, Yeah and.
And for low gross margin how to Jack with the cost of the long form audio and.
And like listings.
Waste and connected the library content.
Have affected too.
And impacted gross margin because we tend not to get to that meaningful revenue at this stage because the lung from mine producing a long form audio and monetization.
At the very early stage and we believe in 2020 two the meaningful revenue and.
Coming and that's what we'll be I raise that gross margin.
Yes.
Yeah.
Thank you we are now approaching the end of the conference call and I will now turn the call over to your speaker host today Mr. <unk>.
And Kane for closing remarks.
Thank you everyone for joining us today.
Any further questions. Please feel free to contact our IR team.
This concludes today's call and we look forward to speaking to you again with that thank you and goodbye.
Thank you so much.
Thank you that does conclude the conference for today. Thank you for participating you may now disconnect.
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