Q4 2021 Tencent Music Entertainment Group Earnings Call
Ladies and gentlemen, good evening and good morning, and thank you for standing by.
Welcome to the perfect music.
Equivalent groups fourth quarter and full year 2021 earnings conference call.
Today, you will hear discussions from the management team of Tencent Music Entertainment group, followed by a question and answer session.
Please be advised that this conference is being recorded today.
Now I will turn the conference over to your Speaker host today, Chief Strategy Officer, Mr. Tony. Please go ahead Sir.
Thank you operator, Hello, everyone and thank you all for joining us on the call today <unk> announced financial results today. After the market closed and earnings release is now available on our IR website at IR Dot Tencent music Dot com as well as via Newswire services today, you'll hear from Mr. Kush in paying.
Our executive Chairman, who will start the call with an overview of our recent update next Mr. Ross Leo our CEO , Tony <unk>, our CSO, we offer additional thoughts on our product strategies operations and business development finally, Ms. Shirley Hu, our CFO will address our financial results before we <unk>.
On the call for questions. Please.
Please note that this call may contain forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations and observations that involve known and unknown risks uncertainties and other factors not under the <unk>.
<unk> 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 by the cautionary statements risk factors and details of the company's filings with the SEC.
The company does not assume any obligation to revise or update any forward looking statements as a result of new information future events changes in market conditions or otherwise, except as required by law.
Please note that the company will discuss non <unk> measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the ifr as in the company's earnings release and filings with the SEC.
You are reminded that such non <unk> measures should not be viewed in isolation or as an alternative to the equivalent <unk> measure while other non ifr smasher are not uniformly defined by all companies, including those in the same industry with that I'm pleased to turn over the call to your question executive Chairman of Tami caution.
Thank you Tony.
Hello, everyone and thank you for joining our call today.
We concluded 2021.
Whereas resolute execution are mutually reinforcing.
Engine content and platform strategy.
Brings into our Pan entertainment and content ecosystem, and then hence our content consumption and promotion capabilities throughout the year.
We further diversified our business model grew our market influence and most importantly capital on attracting and engaging users and holistically adjusting the needs of our music stakeholders.
We are also committed to continuous product innovation through which we optimize user's experience across our four pillars of music entertainment.
Listen what sing and play ultimately this in these Atms keep helped both of our company and the music industry to achieve healthy development and prosperity.
And powered by our content strategy and compelling original content production this licensing.
Operation promotion and monetization.
Expanding our efforts in augmenting the scale and fortifying the quality and competitiveness of our laser catalog.
To cultivate high quality artists and songs and promote our polishing original content ecosystem, we have been focusing on building a more efficient effective.
Set of original content production capabilities, we have.
Let the industry in our original content production and promotional by developing and implementing a host of buying the tools and technologies.
Examples include our <unk> platform, which provides an online community for <unk> song writers and musicians to pare communicate and trade.
During the demo stage.
Hi, actually predictive model enables podcasting and data mining for songs with blockbuster potential.
Determining interlachen user preferences, and using metal D <unk> voice and ribbons.
<unk> in turn makes original salt production and more cost effective.
Furthermore, we have developed a number of content production.
Promotional tools, which integrate our internal and external promotion resources.
<unk> a one stop surface two musicians these.
These are signs of tools and technologies allow us to effectively identify and includes support for potential <unk>.
Notable standout include normally CP, <unk>, which led to the number one spot in a cost we have been the Chinese ancient style category upon release.
During a tremendous wave of buzz on social media with nearly 1 billion teams in the fourth quarter as well as multiple songs hosting over 100 million streams in the same quarter.
Such as painting, Shane plus <unk> yet.
A couple <unk>.
Pretend I had been married to her.
John Walsh.
Im not Andy Lau publishing with a heart.
Deepening interaction with IP in the Baltic and SAP ecosystem has also increased the influence of our original music.
In 2021, <unk> joined hands with 46 Ips in the Tencent 10 entertainment ecosystem across gaming animation literature variety shows.
<unk> and TV and more to produce and we leased 117 original songs.
In the fourth quarter, we teamed up with the league of Legends World.
English only amongst two launched the industry's first E sports news of production, which came ushering in the beginning of our long term original content production cooperation with T. J spot continues to you.
But across all of our collaborations also produced the ships such as the theme song from the acclaimed romance spring.
For PC.
Thanks, a lot.
Some by Malibu, which.
We stopped in value as Todd and the theme song for the game types of Green.
<unk>.
<unk> Angola Tangshan.
We also empower indie musicians by creating a spiritual home for them via our Tencent musician platform.
As of the end of the fourth quarter.
Number of indie musicians on our Tencent musician platform, which the 300000.
With the ongoing improvement of our end to end services from strong production and domestic and overseas promotion all the way to artist and repertoire development incentive plans performance we sources.
Copyright protection and career training.
Tencent musician platform has become the platform of choice for many indie musicians, especially young ones.
Further promoting the variety and diversity of our musicians ecosystem.
Okay.
First.
Tencent musician platform Leverages powerful internal and external resources to provide businesses with a rich variety of artistic inspiration and creations scenarios.
Example, in the fourth quarter vehicle operate within Mercedes Benz music creation initiative system failures to encourage the use of music to record storage.
340 groups participating musicians composed.
200, <unk> original songs.
Through the Tencent musician platform, highlighting <unk> creativity and music.
Second with.
With multi dimensional promotional capabilities, both on and offline.
Tencent musician platform has become a hotbed for hit songs.
We have the NCAA enthusiast equally shared relief after <unk> music 2021 year and music view, we saw time never forget she Guan <unk>.
We manage the entire production release and promotion process achieved.
Achieved over $20 million first as teams.
Setting a streaming debuted record within the indie musicians category.
We also recommend followers or the way you lose on the block.
By when do you think to multiple offline new ESG performance is posed by influential TV channels.
Yes.
While spurt oscillated among listeners.
Authentic story and inspirational theme and top the major music costs in the fourth quarter.
Politically daily streams exceed $15 million directly following these performances.
Going forward our <unk>.
And as a musician platform, you'll carry on harnessing these advantages and ecosystem the sauces to foster a rich the rapid fall of original music and support more indie musicians.
Alongside our music production initiatives, we have been enriching our content library to safeguard our comprehensive content offerings.
<unk> has made Chinese ancient style a breeding ground for mastec.
Is IP.
<unk> welcomed by organizing singing competitions of music.
Launching leasing cost and other on and offline activities in the fourth quarter.
Hip hop has become another valuable for our platform and we are proud to have built a reputation among users and in the industry as a go to destination to discover hip hop music.
Our QQ Music's reckless Alliance brand is steeped in deep collaborations with hip hop celebrities and record labels, which will be augmented with music contest.
National life tools and Ali events.
In 2021 without the Chinese engine style, and hip hop artist and song to which our Boston defend base.
More than 4000 songs in Tucson, where our combined are making their way onto various lucid cost.
Turning to our live events offerings in 2020 , one we upgraded TM Eli to become an increasingly comprehensive performance platform reinforcing our overall online and offline content ecosystem.
400, <unk> hundred one <unk> further strengthened its brand and aggregator is industry influenced by hosting a total of 56 live performances.
Captivating interactive and virtual experience in fourth quarter, we organized the online shows featuring a wish lineup of domestic and global macro source, such as Dow yield room tomorrow, and I doubt among peers and any loan.
Growth 21, Workday concept was particularly innovative and rewarding keeping us and better online payment and August merchandise options.
<unk> life has also extended downstream to support a diverse development of our musicians fruit.
Truly an EPS such as the fourth page, which has attracted approximately 10000 Indian musicians Africans and has been widely followed on social media.
We felt our artist gained significant growth in streaming volume and fan base by the end of the fourth quarter quantified. Our mistresses had performed over 120 original work on T&D alive various offline stages in.
In the future.
Expected to extend more on offline defense and effect of those two up and coming musicians expanding their influence and efficiency promoting.
Talent through high frequency performances.
As the leading music and audio entertainment platform in China.
Have created Trendsetting awards ceremonies, such as Tencent Music Entertainment Awards.
<unk> eight to.
To present and rewards the industry best and brightest artist and era defining work.
On December 11, 2021, we hosted the third staff due to <unk> in Macau, featuring 46 groups of artists, including J trial of total made eight European Rene Liu will roll again.
Hi, Sheila.
He is in times, she that talent and took a sure shaky churn as well as a safety play of 58 keep by combining our promotion powers with other 10 training resources, we set an all against record with over 10 million views far more than the <unk>.
With that I conclude the update on our progress with content.
Now I would like to turn the call over to Ralph who will share more about our platform strategy Ross. Please go ahead.
Hello, everyone.
Two our platform strategy in the first quarter Kilkeel music Kugel music on our core music already is a major version upgrades incorporating for enterprise product concepts as well as optimized operations.
On the technology call innovations.
Elaborated companionship, Latin music embodies to United user to Nathan <unk> seen on the plane.
<unk> D play in these four pillars of music entertainment.
To bolster our laser pillar based trial to provide a multiple audio experience.
<unk> released in theaters and optimize the song the quality I know your fights.
Let's turn bushing automation allows user to send the songs from the <unk> meal. They collaborate directly two fronts on leasing.
Our leap of heart function, which has been adopted by more than 5 million users enables <unk> to listen to songs. Another users is listening to Mr. Simple monthly. Following Furthermore, our interactive play these can be drawn built and I did buy multiple deals.
Yes.
This cutting edge functions, our user to break through the barriers of time, and a place where our dynamically integrating basin, where social interaction.
Technology is crucial component that would be progression.
<unk> experienced biopharma.
<unk> continued to optimize the dose market recommendation feature on QQ music to happy also.
These cover high quality music more efficient efficiently.
I would answer by 66% <unk> <unk> attributable to the future in the fourth quarter.
Comparative base for the same period last year.
Additionally, our pilot audio processing technology delivers a cool Marty pipe function through which users can separate songs into adaptable tracks to create individualize the amazing experiences.
<unk> also refined our vertical operations through <unk> <unk>.
Scenario based on music.
Its pockets that youll start wellness needs, such as <unk>, and the leap hygiene and slipped hygiene.
Our sleep inducing third heartburn.
<unk> <unk> or <unk> 6 million times since its launch.
Flush.
Our second pillar adds another dimension to the user experience.
<unk>.
Making content mobile only martino.
Bob.
We're satisfied nature expansion of music users.
Sure it needs based video content.
Effectively improve improving incurred essentially on the accuracy of music discovery, while increasing the audience engagement levels.
In the first quarter Kilkeel music video content. So this is a year over year growth of more than 100% in bulk unit.
Later on the radio wells.
Furthermore, our formulations continue on Chinese made from our collaborations reservation radio Com in music promotion.
We have drawn the line right.
<unk> initially.
Colin can you see a path ISR task based model <unk> in the new leases co produce original song on the radio content in October on the Ineos initial added.
We rewarded based on <unk>, Thailand for the hedge fund launched in December .
Through our collaborations with patient Madewell Com daily video views of our Malaysian work upload to reaching mid major accounts reached FID.
<unk> 15 million by the end of 2021 .
For the same pillar may introduce the interim members memberships.
And the idea of new video content and the casual game, such as Colorado Farm grew up on long term on the <unk> com Gulf unchartered toward elastic motion of racing.
Online karaoke room to make the overall, Karl K room experience more fun and socially engaging.
Leading to a growth in karaoke room, all the time span in the fourth quarter.
We also introduced an online service model featuring online on demand local could come.
Monetization effectively mobilize the <unk> on the platform and the reward.
In Thailand.
Finally.
We launched our <unk> count more wildfire sure.
These onto our drive to seniors.
Knee with bigger funds cleaner UI design and a more relevant content.
The fourth and final pillar of our comprehensive entertainment offer is plain Mitch.
Which way is part of our unlock an entirely new class of late ratio interactions on <unk> platform.
In the fourth quarter, we launched China. So first the ratio of music playground <unk> land on the wholesaler is first online music festival in new.
<unk>.
130000.
Square kilometre Rachel sighting.
Participants, Florida, Florida to the even to party mutual aim based our funds under water and on the DJ such as Whitestone looming under.
<unk> in the form of Brian the new three D outhouse.
We also recently released QQ music and <unk>.
Jose.
To provide a companion shape to our music users.
Millions of you also Taiwan right they adopted.
Batesville pack demonstrating their.
Popularity, particularly among the young demographic.
Leveraging our ongoing connections must strengthen the ecosystems.
Routing broaden promotion.
Abilities.
While the growth of users and the encourage encourage them to in July our music and video content through efforts, including but not limited to.
First.
Partners partners basically reaching may do a comp to allow stream.
<unk> new year, Steve constant concern I'm sorry.
Sorry to <unk> rich.
This kind of pivoted, our total of 14, mainly mirrors in the attendance in the ecosystem.
Second let me call.
Lisa Thompson games on the debut of Eastern Chong <unk> William Blair.
Chinese same song for the animation arcane.
League of legends in jewelry, among some countries that.
Utilization was streamed more than 400 million times in the first quarter.
Reaching number one a mouthful Neal it's Tom.
Third.
Joining a relief after <unk> eight drama sold snow stride schedule announcing.
<unk> long form audio all parts of the same title.
<unk> of <unk> 4 million times daily.
There's a correlated growth right over.
Our 500% joins our first months of the show season.
<unk> two <unk> will keep on strengthening its collaborations with strengthened IP ecosystem.
Utilizing our methodology in promotion promoting more pace.
Okay.
Ancillary continue to bring our users and the creditors.
<unk> the content and tools.
Long form audio has proven itself to be an effective complement to our powerful portfolio offer music apps.
In the same way isolate carteret original.
The content, we are building our closed loop system.
<unk>.
Mr initiatives, signing content production promotion and monetization.
Our podcast us.
Eight <unk> achieved the milestone of 100 million cumulative cumulative streams diamond trillions of Paul of all work Paul Castor ecosystem.
The protocols are missed their solid year.
<unk> story box <unk>.
Hi, Paul being challenging book not noted for is in our cement and <unk>.
Our locational value.
On the content production fall from the call Chris Shaw book, the Foster our audio variety at OXXO.
Top cohorts youll be our team is flowing on the rates of all they would talk shows to further expand our reach in the audio market.
As we continue to cultivate our fiber in the podcast ecosystem and expand their production towards reiterates our default.
We appreciated the long form audio content offerings.
In the fourth call car long form audio <unk> exceeded $115 million.
Representing 65% year over year.
Gross but year over year growth and EBITDA increased by eight.
86% year over year.
Last but not least.
We are committed to fulfilling our social responsibilities.
In the fourth quarter, we implemented mark about parent child in initial.
Including the release of bearings.
In Alibaba music charity album recall database, a low frequency safe for people with made and a higher frequency pairing impairment.
As our plenty plenty one data.
<unk> campaign, the MH more than 500 emulation participated with that will come post 2003 hundred songs for charity.
Looking hanmi Hahn, our platform and dynamically conference.
Strategic progressing create substitutional fourth we mostly our users in our comprehensive music and entertainment experience.
<unk>, our platform progress and the latest innovation.
With that overview I'd like to pass the call to Tony to reveal our business operations. Tony. Please go ahead.
Thank you Ross Hello, everyone.
In terms of operating results in the fourth quarter, our online music and they use was $615 million, representing a 1% year over year decline, primarily due to churn of our casual users shelf set by other Pan entertainment platforms.
In the fourth quarter, our Iot services achieved year over year <unk> growth of 39%.
The growth was primarily attributable to our diverse content and our broad variety of smart Iot devices, which continue to enhance our ability to rollout and promote new music content.
Despite the impact on advertising and digital album sales from industry headwinds.
Our online music revenues maintained sustained growth in the fourth quarter.
Mainly driven by continuous growth in subscriptions.
With a net add of $5 million during the fourth quarter paying user penetration reached 12, 4% at.
At the same time user retention remained largely stable.
Advertising revenue growth moderated and was negatively impacted in the fourth quarter due to industry adjustment.
Meanwhile, we continue to devise creative AD solutions to serve brands diverse needs such as the branded play less launch in the fourth quarter.
We will continue to innovate our product portfolio and diversified monetization models to better serve users and Addis.
Along this line, we launched the artist subscription how cheating.
An add on subscription, giving users access to customized video and audio content.
Another privileges from specific artists, while helping <unk> grow at dedicated hardcore fan base.
Moreover, in the fourth quarter, we introduced hotel Moor put how Samsung.
Two retail items from a growing lineup of collaborative artists.
Sought after items in the fourth quarter included Jay Chow <unk> Limited edition action figure.
King Chow.
As well as Roy Wang Wang and physical album Summertime.
Guyana, which sold 260000 physical copies setting a new industry record and fulfilling fans increasing desire to collect physical albums.
Throughout 2021, we increased our efforts to build community at the forefront of trendy culture and strengthened our brand image with a youth oriented portfolio of products and campus and college campus initiatives.
Our pioneering app for the I mean, yes for the music is particularly popular among the younger generation.
We upgraded broadband to version two <unk> in December 2021, which features a fresh and sleek UI design and allows listener to swipe to video based music content with a smart recommendation function.
To meet <unk> demand. We also developed a number of on campus initiatives, such as volatile campus Nihon passion a record label for campus musicians.
And our on campus campaign 2021 campus voice.
<unk>.
Which with which we discovered promising campus musicians such as Joseph.
And Jay CTX, Joseph Tung share together with their chart busting original songs.
Now, let's turn to our social Entertainment services.
<unk> and paying users were lower quarter over quarter, amid increasing competition and changing macro environment.
While rolling with the ups and downs inherent in this environment. We are working on continued product innovation and building more verticals and the social and social entertainment.
Four we think which has a singing at its core.
We are establishing a content generation ecosystem that makes use of participation easier and more fun.
We now provide users with a virtual stage background and avatar from video recording.
As well as the option to create a personalized short video by simply recording the voices with a semi finished video supplied by we think.
We also improved course functionality to allow even the Cheyenne.
User to join a chorus, while retaining the Ana.
And nominal P by not displaying the face.
This simplify creation process has led to an improved video publishing rate and increase user enjoyment in the fourth quarter.
In terms of our international expansion efforts, we entered into a definitive agreement in March 2022 to acquire a controlling stake in <unk> E Mobile limited.
Which currently operates Japan's leading karaoke app.
Okay Kara.
Enrich our karaoke experiences as well as broaden our reach in international markets.
For our live streaming services in response to increasing competition, we plan to heighten our focus on differentiating content offering by expanding our audio live streaming content.
Cultivating talented music music broadcaster.
Hosting cross platform events.
Okay.
And it and enriching our virtual interactive product offerings.
We are utilizing our live streaming platform to provide our musicians with a starting point for their careers, while presenting us with options for talent discovery and cultivation.
Yes.
QQ music live streaming is giving more and more musicians a voice and a stage III audio live streaming.
Evidenced by the consistent quarter over quarter growth in a number of streamers and users.
In 2021, a total of 12000 musicians live streamed on QQ music live streaming platform.
Meanwhile, <unk> is building a professional training ground for talented live streaming hosts with high potential by mapping out customized Korea solutions for them.
In the fourth quarter musicians discovered by cocoa life, we leased 64, new songs with over 1 billion total playback combined.
Including <unk> file it away.
What are you seeing evolution.
Finally with time, please slowdown phaneuf sojourn mantle.
The power of our platform and ecosystem was also showcase in our Tencent music Lash ceremony MLC.
The industry's first integrated cross platform live streaming competition event, a broad a double digit increase in traffic to our last streaming platforms generate at a new record of 630 million social media views.
With traditional live streaming is facing while traditional luxury Maine is facing challenges, we believe the meta versus re imagines a new era of interactive entertainment.
In addition to the virtual playground, TMA land and virtual pets, we just mentioned.
Virtual idols or another area, where reality is increasingly merged with fantasy.
Shambaugh, our self created Chinese ancient style virtual idol was successfully adopted in a wide range of cross field use cases in the fourth quarter, including collaborations with popular games emoji and sell multi packages conference hosting offline performances and more showcasing the fire.
That ability of virtual IP monetization in.
In summary, our effective growing do engine content and platform strategy puts us in the driver's seat for the music industry sustained prosperity as we continue to engage and stimulate user.
While satisfying our stakeholders multifaceted needs with that I would like to turn the call over to Shirley our CFO for a closer review of our financials.
Thank you Tony Hello, everyone, Nextera and discuss our results from a national perspective.
In the first quarter of 2021, our online. It was service revenues continued to grow driven by rapid growth in new subscriptions.
And tenant business will negatively impact you if that competition.
And the changing macro environment.
Our total revenue for Q4 2021 were RMB seven 6 billion.
And by 9% year over year.
Our online revenues were RMB, two 9 billion this quarter.
<unk>, 4% year over year.
In the fourth quarter of 2021.
Subscription business continued to grow rapidly with revenue was RMB one.
95, Binney and a year over year growth of 24% benefit from expanded sales channel and the paying user loyalty to our high quality content and the services they provide.
Online music paying users grew to $76 2 billion to meaning apps.
36% year over year.
<unk> 5 million net adds sequentially.
Monthly Arpus was RMB eight five this quarter compared to RMB nine four in <unk> last year.
Offer more effective promotions to attract users and calculated they're willing to pay for music.
<unk>.
Rising jumped on a year over year basis.
Our advertising business continued to be negatively impacted by the industry of adjustment.
<unk> increased sequentially due to seasonality.
We have taken several steps to mitigate the impact such as enhancing product quality, adding more creative AD solution like a branded player.
And partner more closely with Tencent to retool advisers.
This initiative.
And through our Titan and to mitigate short term headwinds and.
And we remain positive about our advertising business in the background.
Licensing revenues and the sales of digital album also dropped on a year over year basis and sequentially.
Social Entertainment services and other revenues were RMB four 7 billion.
Down by 15% year over year as we faced intense competition from other pen entertainment platforms and changing macro environment.
To adapt to the changing environment and a stabilized annual skill, we have differentiated our content offering.
Spending our audio live streaming and the English, our virtual and actually put back into operation.
Such SPM demand.
We are also expanding our international footprint for our leasing business as discussed earlier.
Gross margin in Q4 was 28, 8%.
Down by <unk>, 6% year over year due to the following factors.
Gross margin for recent decline as we increased revenue sharing ratio during the year.
Given the continuous growth in music subscription revenues, our revenue mix shifted with revenues from online music, which generally have a lower gross margin accounting for a higher percentage of revenue.
Revenues from <unk>.
Audio live streaming hosts gross margin versus <unk>.
<unk> also grew and accounting for a higher percentage of revenues.
In addition increased the investments in new products and content offerings, such as the long form audio also impacted our margin.
Now moving onto operating expenses.
Total operating expenses for Q4, 2021, while RMB, one 8 billion or 24% as a percentage of total revenue.
As compared to 20% in the same period last year.
Selling and marketing expenses were RMB.
<unk> hundred <unk> meeting down by 3% year over year during the quarter, we continue to make efforts in managing external promotion channels facing.
And finally, utilizing our internal checks.
Excluding the impact from Kim <unk>.
As of 2020 withheld in Q1 for any kind of one thing and.
Maxine painting would have dropped even more.
General and administrative expenses were RMB, one 1 billion.
Up by 18% year over year, driven by a higher number of employees in R&D as we invested into a private investment technology innovation and a more diversified product offerings.
Excluding the impact of appropriately.
The 66 million from the acquisition of maybe audio G&A would have increased by 10% year over year.
Our effective tax rate for Q4, 2021 was 11, 5%.
Our net profit was RMB.
$577 million and the net profit attributable to equity holders of the company for Q4 2021 was RMB 536, meaning not authorize net profit was RMB $873 million and the net.
Net profit attributable to actual debt of the company was RMB 800.
$2 million.
Now as far as net profit margin was 11, 5%.
As of December .
31st 2021, our combined balances of cash catching pregnant.
In short term demand.
Well on the $24 7 billion, representing an increase of RMB 236 meeting from Q3 2021.
And in March.
2022, they won't bother to apio certain ending <unk> at RMB, one to the other fab meeting and in the first half of the consideration was already paid.
Next I will briefly discuss our performance for full year 2021.
Our total revenue for 2021 were RMB $31 2 billion up 7% year over year.
Revenues from services were RMB, 11, 5 billion up 23% year over year to reach music subscription revenue is the largest contributor.
Our music self question period.
Evidently throughout the year.
With our new revenues.
<unk> seven <unk> billion.
And.
31, 9% annual growth rate.
Revenues from social Entertainment services declined nicely.
The only point to 1% year over year, given the increased competition and the changing macro environment.
Net profit attributable to avocados have the company under advice and non op as well.
<unk> 3 billion and RMB 415 billion respectively.
Finally.
I'll close my prepared remarks.
Remarks, with some comments on outlook for 2022.
In 2022, our core music business, partially muted such questions and advertising are expected to grow and reach operating breakeven for full year 2022.
I've taken various actions to improve arpus and expect to see a slow recovery in 2022.
Additionally, we are tightening the controls.
Content costs with increased requirements.
Hi.
For social <unk> services with challenges from competition and the changing macro environment.
Our cost controls and adjusting revenue sharing ratio to maintain healthy gross margin, while keeping revenue scale.
Furthermore, some companywide.
We're focusing our core business and are taking action cultural icon panel.
And as it relates to cost improve high concentration and closely monitor I to reach to each channel for marketing expenses.
Finally under the overall macro rate environment, the continued to Neulasta, mindfully, and new products and services, including non form audio and international being laser focused on investing the rate trends and the future growth potential.
This concludes our prepared remarks, operator, we are ready to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please first started too for.
For the benefit of all participants on today's call. Please limit yourself to one question and if you have additional questions you can reenter the queue.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Eddie Leung with Bank of America, You May now go ahead.
Hi, Good morning, guys. Thank you for taking my questions.
We notice.
The user base decline in that.
Sequentially in the fourth.
So just wondering heading into first quarter of 2022, given the car Linda kobus, each fully cash flow could you share with Vince <unk>.
Traffic trend.
And then similar to that could you also probably a little bit about the.
Traffic of usage and not just the user base.
For example, the number of screen time span of users.
In 2021, despite the slow growth options user base. So just wondering if.
These are features and content development on the platform.
And the impact on the usage of the existing users. Thank.
Thank you.
I'll take a first crack and then perhaps Ross can also supplement.
In terms of our online music Miu, we saw a slight decline by 1% in the fourth quarter on a year over year basis.
Primarily as a result of churning of some of our casual users.
<unk> entertainment platform elsewhere.
But I think it's important to note that within the mix of that music Miu Q.
QQ music actually saw a year over year increase.
And its Mou.
Whereas Google music and core music saw a bit of a decline and the reason for that difference is because QQ music is the first flagship app to fully and completely implement our four pillars of music entertainment experience.
Sing a watch.
Listen in play to its full extent with more community.
Community features and social features and focus amongst the younger demographics and so we were pleased to see that these initiatives.
Started to bear fruit and as we work towards streamlining and making more product enhancements along the same lines also to co Lo music and core music.
We are hopeful that we will see some improvements in the MA you throughout the rest of the year.
So kind of what's your mill portfolio.
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Thank you Ross.
I'll do a brief translation. So Russ was talking about the main challenges facing our Ami U S respect with respect to Google music.
Primarily because of the long history of the App.
And it has more room for improvement in particular this year will focus on smart recommendation.
Better operations amongst our music catalog.
Expanding into more vertical scenarios space listening such as.
Exercising and sleeping scenarios, focusing more on GNC younger demographics.
With all these initiatives, we hope to stabilize the EMEA decline and overall with QQ music.
Starting to see growth in particular around its iOS.
User base.
As such our improving brand image among the young demographics, we do expect this to be able to stabilize the music Mou for the rest of the year.
<unk>.
Yes.
Okay.
Got it thank you.
Yeah.
Our next question comes from Alicia Yap with Citigroup you may.
Now go ahead.
Hi, Good morning management. Thanks for taking my questions I have a question a follow up on the outlook.
In light of the latest macro and also the competition.
Any color management question.
The latest business is tracking how can they think that it's trending into the first quarter it'd be sure and also over the course of 2022.
Any qualitative color on how we should expect the online user growth right and I'll start our social entertainment revenue roughly.
You can also provide some color on the expectation for our non advertising revenue this year.
Thank you.
Okay.
In terms of outlook for Q1, we currently expect total revenues on a year over year basis <unk> declined by around mid teens in particular like streaming continue to face competition and the challenging macro environment.
And secondly, we are in the process of adjusting our advertising business model.
Grace changing environment and industry adjustments and thirdly.
Formula Master licensing contracts have been renewed as non muscle licensing contracts and these have an impact on our sub licensing revenue falling away this year.
In terms of full year 2022.
We currently expect total revenue on a year over year basis to decline by around mid single digits.
While all the above factors also apply we do expect to see a recovery from these factors in the second half.
In addition.
For the full year.
We expect to be able to grow.
Online music subscribers in terms of subscribers by approximately 20% on a year over year basis.
That translates to an average quarterly net ads in online music subscribers to be between three and a half to $4 million.
Now we understand that I think we have to understand the context is that over the past three years, we have prioritized a growing subscriber base ahead of RP.
And as a result, we have seen some upward decline.
For example in Q4, our Arpus declined by by 9% year over year. However.
We continue to believe there is ample growth potential for subscription services over the long run and that view remains unchanged, but as we plan ahead for this year, we want to focus not only on the quantity of the subscriber growth, but also on the quality of the overall revenue stream.
And so we would look to take a more balanced approach in growing subscribers as well as maintaining a more stabilized our arpus.
And we will also seek to supplement our subscription revenues with advertising revenues.
Both of which we expect to have ample long term growth potential within our business. Despite short term.
Headwinds.
As it relates to advertising.
And through a variety of cost management initiatives to improve efficiencies.
We believe our non <unk> adjusted net margin.
<unk> is expected to be in line in 2022 compared to 2021.
In particular as Shirley mentioned.
<unk>.
As a result of very healthy growth in our core online music business, which is online.
But let me as a subscription and advertising excluding audio.
We expect to continue to see.
Improving margin trend.
And achieve profitability.
At the operating profit level for the corn, although music businesses, excluding low volume.
Our next question comes from Alex Poon with Morgan.
Morgan Stanley you May now go ahead.
Okay.
Thanks management for taking my question.
My question is related to our overall net margin.
Into 2022 or 23.
Previously because we have our lifestream business, social entertainment business higher margin business growing.
Growing slower than our music there is a mix change.
We felt going into lower net margin and how should we think about the trend in 2022.
Because just now you also mentioned that we are controlling some of the revenue sharing ratio and head count et cetera.
Can we see some stabilization in the decline in net margin.
2022, thank you.
Okay, Shelly do you want to take that.
Okay great.
Great.
Net margin in 2022 royalties Paypal <unk> net in 2021 and two.
So allow me as revenues continue to grow up at paying user increase.
So paying users increased three <unk>.
Five mailings to four meaning each quarter, we will balance between apps, you attribute and the paying user increase.
Back to the App.
Okay smoother year 2022.
Additionally, we are taking part in the controls to.
<unk> content cost.
To increase the content investment to ally the gross margin of other music will keep increase in 2022, and we expect that the music business will be breakeven and operational level.
And the social entertainment revenue will be under pressure in 2022, because the competition from other platforms and the macro economic effects.
We will control the revenue sharing ratio of leasing increased leasing gross margin.
Gross margin of large screen business outgrew Coke and accrue our platform also will keep stable.
And we expect that the audio stream and international being packed good growth, but the revenue sharing ratio.
New business are higher than the radio lapsing.
They have the negative impact on gross margin and.
Net income 22.
So one main reason for the pressure on the gross margin will be the revenue mix because no gross margin revenue such as online music Olivia.
<unk> increased the battery and the high gross margin revenue.
Jean will decrease.
And.
For the operational.
<unk> expenses, where we have reached a requirement of our marketing and sales that you can see.
<unk>.
Carter no potential profitable projects.
<unk>.
Our core business controlling head count and reduce the cost to important new treatment of head count.
For the long.
Audio.
We can act on it.
The new business.
We will try and much more way to expand the monetization of long form audio and the control of the content long form audio expenses net of long form audio break even our gross margin level and so we believe when we.
Take all of these ways.
Our.
Not yet.
Net profit margin will be a key.
He will be kept stable in 2019 compared to the 2021 and 2023.
Duncan.
We can increase our net growth.
That's it.
Yeah.
Our next question comes from Charlie <unk> with HSBC you May now go ahead.
Thank you for taking my question actually and that they have already been asked I'm great now. Thank you very very much.
Our next question will come from way, Sean with UBS you May now go ahead.
Sure. Thank you management.
I just wanted to follow up on the plane of the online music paying user growth because we have seen that number has consistently grow at the high end of your target for the past year. So I wonder if could you share what's driving that a very robust growth and which channels do you see to have the most effective way in terms of acquiring new paying user.
And in terms of paying ratio because we have again set the target of 20% growth. This year is there a target of the paying ratio. If we look at longer term and what kind of the ceiling in that way. We're looking at here. Thank you.
Yes in terms of driving our.
Long term growth in the subscriber base.
Actually many tools that we can leverage obviously, providing.
Premium content and attractive content.
And also providing an over high quality of service to our subscriber base is very important.
And this include content. These include privileges.
That users are able to access too.
And privileges include maybe unique access to digital albums are unique contents that are offered by <unk> life.
In addition, we are actively expanding multiple channels.
And also exploring joint membership.
Partnerships with external parties and also with internal.
Opportunities for example, we do cross selling.
Campaigns between music subscription and long haul module.
And we.
We also do John campaigns with external parties as well and then in addition to that.
Our Iot business.
<unk> reached a large enough scale and continue to grow at a fast pace.
The subscription for Iot device could also access and effective cross marketing campaign for us.
And then finally price promotion.
Uh huh.
Periodically are also an important driver.
No.
As I mentioned I think it's important to see that the context of the very strong growth over the past few years.
It's obviously we.
It's all of the things that I've mentioned.
And.
With focus to prioritize more on the subscriber growth over the past few years over our pud.
And we're at the stage, where we think the whole industry will benefit not just <unk> by focusing more on the quality of service and less on price promotion.
And thereby we see a lot of value in music subscription services.
Users will learn to appreciate over time.
And this approach will help us lay a stronger foundation for the long term as well which is why.
We seek to strike.
A better balance between.
Cyber growth in Arpus.
We will be also focusing on the advertising based.
This is more of a as well yeah I think that's a question mentioned that's right at the same time, we will.
This approach will allow us to better manage.
Between growing our paying subscriber and also maintaining our non paying user base.
Which is still a vast majority of our user base and to be able to effectively.
Generate monetization opportunity from the free user base.
This approach will also give us more flexibility.
To adapt to prospective competitive landscape.
One example of the new AD monetization model. We are currently beta testing among a small group of users is that.
For free users.
Some of them are given an option to opt in to watch a video AD in exchange for.
Being able to unlock the subscription service for short period of time. So for example, if you watch a 32nd a 62nd AD you might be able to.
Unlocked 30 minute, all 60 minute period, where you can enjoy the subscription service.
The benefit of that is we will be able to.
Generate AD revenues from the free users.
That may otherwise be difficult to convert to subscribers.
And after these users have had a taste of enjoying the premium subscription service.
It may actually increase their conversion to become subscribers.
That could help us grow advertising revenue and also help us over time increase the conversion amongst the free user base. So it is a good balance.
That allow us to to manage et cetera, and we're also seeing the trend that when a user is going to pay for the monthly subscription.
They are going to Washington to as kind of putting some of the efforts in order to get the right to enjoy the more premium content daily be more active on our platform. So we are seeing that we are continuing improving the overall quality of our users and also.
But just like you.
I mentioned that during the question sections.
He will also increase the stickiness of our users as well in terms of the.
We've talked about the content.
Our next question comes from Thomas Chong with Jefferies. You May now go ahead.
Hi, Good morning, Thanks management for taking my questions.
You asked about our M&A strategies for this year.
We have just closed a deal with a controlling stake.
Our entity in Japan.
We're looking at today is about the.
The deal will impact that.
Q1 revenue.
And my second question.
About.
In the press release, we talk about.
Coming back to Hong Kong by way of introduction.
Just wanted to get a sense of our management thoughts.
In this regard and the timeline that we should be anticipating and then my final question is about the social entertainment revenue or when should we expect it to stabilize.
In the future. Thank you.
Sure.
In terms of M&A.
As we adopt a very prudent approach to <unk>.
<unk> capital management.
We are constantly on the lookout on attractive M&A opportunities were.
We're focused on strategic.
Investment opportunities that provide synergies in that.
Our complementary to our core businesses.
And the recent acquisition of <unk> mobile limited fit that criteria.
They operate the leading online karaoke App polka tower in Japan.
So it plays very well into our experience in managing the world's largest auto.
Like our <unk> product.
And it also allow us to broaden our international footprint into Japan.
Which previously we do not yet have a presence.
And then in terms of.
Hong Kong listing.
To provide our shareholders with an additional trading venue and protection.
Amidst the changing regulatory environment.
We have already commenced the process of pursuing a secondary listing.
In Hong Kong.
Two a listing by way of introduction.
It is important to note that this is a direct listing without offering new shares.
And the idea behind that is to allow shareholders to be able to enjoy the benefits of.
And additional lifting without the impact of dilution.
In terms of timing, obviously I think we are working very hard, but we need to obtain a number of regulatory approvals.
And we will continue to work very hard to move things forward in an expedited manner and to the extent that we have major development meant we will make the appropriate announcement.
And then finally.
With regards to social entertainment.
Our revenue trends.
Overall.
First quarter will we still see some challenge.
Seasonally Q1 is always a difficult quarter.
Quarter.
Because during the Chinese new year holiday, so a lot of the large streaming hosts.
A they go on holiday and as a result.
Revenues tends to be a bit weaker in.
In addition to that there are changes too.
Industry adjustments around taxation.
That effectively increased the cost of doing business for many of the large screening house.
So some of them the nature, we adjust.
Their activity levels.
And overall, what we're trying to do is to stabilize the decline.
And we believe Q.
Q1.
A will be a challenging period, but as we look forward into the rest of 2022.
We do think that we will start to see some gradual recovery.
Yeah.
Referenced in Q1 as a low base.
And the initiatives, we've taken to drive that recovery include.
Continue revamping our online karaoke room in leasing.
As we mentioned on the script, we are adding casual games, such as <unk> and karaoke town.
To broaden our revenue streams.
And in the last quarter. We also mentioned that we are enabling more in showroom in classroom interactions and all of this resulted in our leasing.
The online karaoke room revenue, achieving a year over year growth in the fourth quarter, even though the traditional live streaming revenue.
Leasing recorded a decline in.
And then the second area of major initiatives to help drive the recovery is audio live streaming.
Which is a complementary use case to alcoa.
Music listening experience and we are seeing some strong growth in both user base and revenues.
And it will continue to grow.
We will continue to grow our audio live streaming business in China, as well as to leverage our expertise to expand our presence overseas and monetize to audio live streaming in our overseas products, such as leasing as well as our newly acquired.
Polka tower as far as M&A port product portfolios to music live streaming is also a flagship in terms of audio live streaming we are seeing a revenue growing at strong double digit at the yoga level.
Users performance revenues, all continue to ramp up and throughout 2021, which attracted 12000 musicians to large screen.
It's becoming a go to place for musicians to connect and interact with our fan base.
Large streaming.
And we continue to expect a good double digit year over year growth rate for 2022.
Our audio live streaming.
And.
Yes.
We've done the M&A strategy.
I'd like to emphasize that our strategy is it's not just simply to win some of the financial investment, but rather we would like to invest in the company that will be have synergy to our core business. So as the example that you point out regarding the Coca Cola, which really suitable to our overseas divide.
Development on our leasing platform. So this is one of the projects that we were looking forward.
Besides the platform side, we will also focusing on some of the content investments as well too.
During the past three to four years, we have been proactively in work in doing some of the.
Strong production.
The music content with many different news labels. We have also started to investing in some of the music label as well setting up a JV. So I think that is also <unk>.
As an example to show that our M&A strategy is we want to build up most in the physical business together with our core strategies.
Regarding we have a very strong.
Cash base cash reserve.
125 billion.
In our company. So I think that we will continue to get the best use of this at all.
Our advantages and when the right opportunity to come out.
More than happy to do more investment in order to help the company grow.
As to our success in the long term, but again, we would do it in a prudent way.
Operator, we have time for one final question.
Yes.
Okay. Our final question comes from <unk> Chang Chong with CIC you May now go ahead.
Okay. Thank you. Thank you management, but taking my question.
My question is related to G&A line.
Tim line at the end of last year, and the cartilage earnings conference call and also held.
Manhattan, So can management share more color, Jim Manhattan, part that it's tough to give up all of our business.
How does management see the music industry opportunity, England mathematics.
Sure.
Russ would you like to add color.
Kevin on the Sherman.
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So in terms of our timberland is our flagship meta versus initiatives.
Into the virtual world.
There are many use cases of Jimmy land. The first is that we will be using it as an event hosting venue.
For special events, such as one that we hosted in the Countdown gala.
There will also be special settings that are customized for particular artists.
So we'll be partnering with more and more autos to develop.
Special settings for for him or her.
We'll also be hosting concepts virtual causes for these artist some of them may be a virtual avatar concept, whereby the auto Saar immersing into this environment through an average higher performing through an avatar secondly.
We'll be appear.
Applying the <unk> technology.
To the online karaoke room at all as a virtual light club types upsetting.
Which encourage.
Encourage users to interact with one another in this virtual setting and therefore extract new.
User engagement and monetization opportunities.
Thirdly, a key.
Going looking ahead into.
2022, QQ music will see an upgrade with a meta versus feature where user will have its own individual wound.
Where you can put your own music into that virtual room, French and come and visit you can listen to the music together you could play instruments together and for office.
We will be also opening kind of virtual showrooms for this fall.
Partnering artist to display all of their albums in this virtual world and users can come into this virtual showroom listened to other auto music under different audio effects. So effectively what we've tried to do is create a parallel world.
In parallel to the current physical world and the current <unk> environment, but theres, a parallel <unk> environments that can mimic.
The physical world as much as much as possible in a virtual setting.
So I think thank.
Thank you very much for all of your questions.
And thank you for joining us today.
Feel free to contact <unk> Investor Relations team. If you have additional questions. This concludes today's call and we look forward to speaking with you all again next quarter. Thank you and goodbye. Thank you.
Okay.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.