Q1 2022 Tencent Music Entertainment Group Earnings Call
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Ladies and gentlemen, good evening and good morning, and thank you for standing by.
I'll come to the Tencent Music Entertainment Group first quarter 2022 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.
Please be advised that this conference is being recorded today.
Now I will turn the conference over to your speaker host today, Mr. Kenny yet. Please go ahead Sir.
Thank you operator, Hello, everyone and thank you all for joining us on today's call Peony analysis quarterly financial results today. After the market closed and earnings release is now available on our IR website at IR Dot Tencent music, but Tom as well as via Newswire services today, you'll hear from Mr.
Colin Powell, our executive Chairman, who will.
Start the call with an overview of our recent update next Mr. Ross <unk>.
Our CEO ni Tony Yip, our CSO will offer additional thoughts on our product strategies for operations and business development.
Finally, Ms Shirley Hu, our CFO will address our financial results before we open the call for questions.
Before we continue I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward looking statements. Please also 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 IRS in the companies.
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.
The other non <unk> measures are not uniformly defined by all companies, including those in the same industry with that I'm pleased to turn over the call to caution executive chairman of <unk> question.
Yes.
Thank you Tony Hello, everyone and thank you for joining our call today.
From an EUR of increasing entertainment choices amended and evolving market landscape.
Sustained competitive advantage.
To those who offer users a differentiated experience with this in mind in the first quarter of 2022, we continued to build new professional and personal use cases and interactions around our dual engine content and platform strategy.
As well as expand our efforts to augment the scale and fortify the quality and competitiveness of our music catalog.
Meanwhile, the slow to enhance user experience through innovations built on our four pillars of loser entertainment.
Namely listen, what Spain, and pray driving momentum for our long term success and promoting the healthy development of the music industry.
First and foremost we remain committed to energizing original content production.
Again, our technology, driven production capabilities and strength in mobilizing promotional we saw the benefit of our overall content ecosystem increasingly manifest.
With our Signor plan seeing algae.
And Galaxy plan includes Johan we empowered our original content production.
Leveraging our technology driven solution to add value across demo and senior discovery throughout the production distribution and promotion basis of these original work.
Our high heat rate for original content blockbusters is supported by our middleware platform, which integrate first algorithm driven screening of direct songs and demos.
<unk>.
AI voice matching capability build a point a store the library of hundreds and thousands of voices and third a targeted promotion system based on real time data analysis will help artists and songs we wish to write August and go viral.
And powered by these advanced technologies.
Our auditors have created quality pieces as well as 'twenty one.
Having a wide range of use cases.
Notable standouts in the first quarter includes Mirage.
Hi, Susan note.
Score and drove fashion by tightening to swiping successes that profit multiple music, Charles and <unk> achieved a peak <unk> in excess of $13 million.
Meanwhile, we continue to refine our original content catalog focusing on key verticals, such as gaming Chinese Indian style and pop music.
In the first quarter, we collaborated with Tencent games popular titles, including Tuck T mobile.
Moving bringing honour of kings laundry room.
League of legends wildly as usual and Lasalle.
And several more to produce original theme the music content.
These songs by leading artists such as <unk> <unk>.
La <unk> and.
And wanted how is make their way to the top of various music cost and have also been impacted with the sales of <unk> and game pumps further.
Further driving our revenues.
What's more and is where rational Chinese ancient style. He saw Brian's no pasture. It became the <unk> user of choice for many office show media outlet during the Beijing Winter Olympics.
Generating tremendous social media buzz of over 2 billion views and cap appealing to.
Top of TM 12 music talk.
Moreover, our Tencent musician platform continues to provide us the magic support all musicians.
Enabling us to partner with musicians at any stage and in all aspects of their careers to pull by a launch pad for more missions to showcase their talent passion and music for the BOP.
<unk> audience.
We have been making vessel efforts to optimize and upgrade tencent musician platforms all around surfaces for mutations so that being active on our platform becomes not only a preference, but also a habit for creators.
For starters in the first quarter, we launched a brand new behind the scenes boosted production service with an initial group of over 50 industry, well known professionals and more than 100000 creators who are well versed in loser competition mixing recall.
And more joining the Rosa to provide our musicians.
<unk> support <unk>.
Additionally, we have strengthened our platform infrastructure to support and decisions.
Customize a self service productivity toolkit to annualized data post concepts and manage their artwork catalog.
<unk> outpatient and photo albums.
Taking together these tools and power musicians, who create and promote their work.
Work more efficiently and with a higher audience.
Maybe helping to build a constructive and active musicians ecosystem.
Second the Tencent musician platform molded by motivate musicians and a radar creative scenarios in which promotion resources, both on and offline.
Long term breakthrough larger audience aided by our platforms toolkit Newchwang Roseville.
Okay time to cheat top add loans off the trend in shops with cumulative social media buzz, reaching over 200 million views.
Our diverse promotions for the singer and the song include top variety shows like the treasure voice can sheet SME online joint activities with TMV land and racing video content.
Video accounts.
Offline stages, such as our Tencent musician.
Entertainment Awards, <unk>, eight and the fourth stage.
<unk> with ICR.
With a handful of offline brand sponsored events, providing additional opportunities for us, while we sign and unlock this potential.
We have established a sustainability and diverse monetization models for musicians.
<unk> helped them and the battle, leaving while focusing on on the desktop.
And we distribute that over 200 million renminbi from our platform for musicians during the past 12 months.
Supporting our new generation of indie musicians at base propel the industry forward.
And enriching our content library and building our presence across.
Multitude of music verticals.
We had our source of competitive fees is another focus.
Which in turn strengthens our platform's reputation as the go to destination for enthusiasts and benefit our penetration among high value heavy users.
Time things of style music remains our stronghold in the first quarter.
Presented in China, So how in a variety show that brought together top Chinese musicians and performers from 41 different genres to compose and showcased our original work creatively combine the traditional Chinese cultural elements with 20 styles.
The show has received a widespread acclaim and over 300 media accolade for Atlas in actively promoting Chinese cultural heritage.
In addition, during the first quarter, we began to expand our focus to the electronics classical and anime farmers. For example, we strengthened the operations for electronic music by bringing in musicians labels and institutional partnerships and provide a full.
Range of content, including music audio video.
Video and more.
By the end of the first quarter more than half of the world's top 100, Bj's has settled on QQ music.
We should not only enable that in depth communication with Chinese spend but also promoted the spurt of 'twenty electronic music.
Finally.
Built upon our commitment to promoting healthy and sustainable industry development.
<unk> seeks to create inclusive for fashion low music chart that accurately reflect and evaluate Chinese music industry.
Our team each half punishing you about along with its data base that <unk> unique.
Im assuming youre Alibaba and the expert review base at DMV wave Chang how machine in lung.
Just as a solid music rating infrastructure.
In the first quarter, we received we released the <unk>.
Music chalk and new review.
Which provides a snapshot of the Chinese music landscape in 2021, weightings and reviews of over 1800 songs.
Becoming a bellwether for the latest and harvest in China's music World and attracting a wave of social media buzz, including over 900 million views upon release.
Because yes.
Debated every day by the differentiated value, we can bring to music lovers.
The creators and the music industry as a whole we.
We are committed to earning ish of these participants loyalty and devotion to wheel.
And Parliament.
With that I conclude the progress update on our growing content capabilities now I would like to turn the call over to Ross, who will share more about our platform strategy Ross. Please go ahead.
Some of your caution Hello, everyone.
Onto our platform strategy in the fourth quarter, we continue to invigorate, our ecosystem and the innovation around the four pillars of our music entertainment experience Nathan.
Seeing underplay.
Beginning with the smallest third details later continuously Polish oil products to meet the multifaceted needs of diverse cohort unless travel to create ourselves of belongings.
All our protocols and uncompromising multiplier.
Our users love.
Basically those type to listen.
<unk> call demand they are providing innovative on the professional product features to elevate that users living experience.
Knowledge is a solid place in biodiesel in our call.
Paul covered territory.
<unk> has become part of our DNA.
<unk> was our first in China to launch are the ones the lithium functions, including the digital enhancement engine, which can significantly improved sound quality with bonds them hopefully under a replay can under GAAP lease playback, which have equalized music volume.
Under deliver us most of the military policing <unk> beaten.
Secular theme song plays, particularly compatible with classical music streaming.
This new functions have been well received millions of users you incorporate this feature into their daily practice.
<unk> also optimized our smart recommendation future under Ohio become more in tune with our users testers as mandated by the <unk> recommendations penetrations rates, reaching a new record high by the end of the first quarter, along with recommendations streaming volume on.
And highest spend the vast reach out sort of stronger double digit growth year over year.
Yes addition, or upgrade Kilkeel mirrors, the cupola popularity index with real time updates on the number number of listening online is finally, the mirrors coverage and additional song information has considerable strength in the yields of our sense of participation.
Miss their input sits directly.
So there is a song or artist Permian Permian as well.
The second pillar of over or under multi sensory and determined experienced over over and over in his watch.
Deepening our collaborations reservation video accounts.
To create a library in EMEA.
Scenarios under stressful millwork promotion Comorbidities in March.
Musician platform Paradise large scale <unk> priority conservative joining the pandemic sorry.
<unk> <unk> and <unk> it was eight or interrupted marezine performance by 114, one growth of well known artists such as <unk> <unk> and our roster of organizations.
<unk> radio accounts promotional capabilities, and our ability to mobilize and resource resources on our platform.
Third attracted millions of mirrors generating over 30% increase in the number of errors in pesos.
Is <unk> streaming rooms under even a day.
We are proud to share by the end of the first quarter Daily radio way of information video accounts, all formulations or currently in the validation platform has.
Either you can say that about 100 million representing over 70% increase quarter over quarter.
Beyond video or <unk> on the visual front also in clinical use of the graphics and other formats to enrich streaming content.
<unk> common display function under our streaming <unk> reasons.
Just a few of the many examples launched in the first call.
In terms of thing, where we are the first in the industry to offer solitude with others require.
By a function our easy to use function <unk> improved the song the effects of songs recorded a result.
Colonel devices.
Another new feature that has inspired wireless.
For either accolades among users is our cloud based the song mixing <unk>, which fabs produce nearly still neocart. If you saw that mixing in just two minutes. After the Neolithic whole work is uploaded to the clause.
I will also endeavor to expand the new Lake independent scenarios, adding more fun play element to the music entertainment experience.
Hosted our first Rachel learning costs on <unk> land and applying to organize an additional feature events such as visual of AD hoc concerns and customized evens on this exciting this exciting new ways ratio melodic playground in the cycle, Nick Coulter, yes.
Edition <unk> primary rail daily paid a veto rooms for artist include recently launched the <unk> for <unk> in the long run, which provide immersive interactive social scenarios, where our clients can listen to their eidos digital album on a time and a rail well.
Posting solid reveals titling with other fans and the display sales is prices in vitro outhouse.
We are proud to share led us through pioneering innovation in the four pillars of Neolithic independent Nathan was seeing underplay, Tokyo music achieved a solid initial results ISI months weighted by its continuous year over year <unk> growth.
Building, a compliment Monterrey components to our music entertainment ecosystem ecosystem will continue to grow our long form audio business, Mr increasingly differentiated content.
Delighted to say made on the long tail podcast of Hawker, Florida racing in the <unk> <unk> and are gaining traction. Thanks to our large user base. For example, after participating in <unk> protocol creations center in 2022.
Total cost of horse power switches all the work of the non prime.
Prime riders by a Python will drive it up to 23 million streams, losing one months upon release under sort to the top of <unk> cuts leading to substantially higher financial gains fallout.
Is inspiring our growing grow also made under long tail creators to drawn our podcast ecosystem.
Secondly, the health or to own the content operation less popular IP, particularly in TV dramas areas.
Audio books.
Participation in the pool at home community and more channels.
We successfully promoting both the audio books under the associated IP with highlights in the first quarter, including <unk>, Jim Little harsher year under <unk> saw in the release of this faith Schlemmer <unk> long form audio offers the same titles. So there are.
<unk> volume surge.
Going forward, we will leverage our membership to maximize the monetization potential of long form audio Osprey also continue to optimize content ROI and Diego monetization efficiency to improve its profitability.
Isolate driver or business progress, we remain dedicated to undertaking our social responsibilities to create a bite her work on the promos territory Speedways and create a new model of public verify through moving.
<unk> celebrated our 15th Florida, Oslo, where.
Very lines autism care charity project shape of music ruble IEA wishing drunk with presented.
Areas of Iron works, such as our first public verified digital reliable cingal, the brightest star CMS now Cushing <unk> album safer.
<unk> of the Galaxy <unk> under the shape of a mill.
<unk> <unk> will not only be herd, but also seen on the chart. So the cross over of table in the content and the Audiphone online and offline.
The inherent neither income from the projects was.
So, let's say the tone autism institutions to Idaho, Okay. The full social connections with rpms groups.
With that I'd like to give the floor to Tony to reveal our business operations. Tony. Please go ahead. Thank you Ross Hello, everyone in terms of operating results in the first quarter, our online music and they use were $604 million down slightly year over year.
Despite churn of casual users who opted for other Pan Entertainment platforms. We are encouraged by the progress we've made in our original content production capabilities music catalog and innovative product features which continue to strengthen the engagement of our poor user cohort.
Our Iot service MMA, you continue to witness a double digit year over year increase in the first quarter.
Which was primarily attributable to our comprehensive Iot entertainment content integrating music singing live streaming long form audio and more.
In the first quarter, we work with little genius, Smartwatch shall Kintigh Sofia and multiple electric vehicle manufacturers, such as Neil Lane lie and ex shall pump to provide karaoke functionalities on Iot devices.
Due to macro headwinds our online music revenue decreased year over year in the first quarter. However.
However, our fundamentals remain healthy and we successfully sustain our growth momentum in subscriptions.
We achieved a net add of $4 million in the first quarter and a paying user penetration rate up 13, 2%.
At the same time user retention remained largely stable.
For the remainder of 2022, we are committed to delivering a healthy balance between paying user growth and <unk>.
Which reflects the quality of growth of our online music business.
In the first quarter <unk>.
Pandemic weighted on our advertising business, we continue to implement innovative diverse advertising solutions to unlock more AD revenue potential.
To fully leverage our large user base, we are testing a free listening mode, where users can listen to songs for 30 minutes for free with every 15 seconds of video rewarded at that they watch.
In addition, our music promotion service immediately and platelets bonus task sedan, iron, which allow for accurate targeting the right audience and increase in streaming volume and popularity of selected <unk> for a fee.
Both achieved early success with strong growth in their daily revenue in the streets.
We also forged ahead with new business models to enrich user experience and monetization avenues in.
In the first quarter, we launched our Super VIP membership touting, Cleveland, which complements the two existing tiers of our subscription plan and incorporate up to more than 50 privileges, including access to more music and audio content as well as digital albums for monthly.
Fee of 30 renminbi.
Additionally, in the first quarter, we continue to explore the tie ins between celebrity artists with our music pets digital collectibles and put her more.
To captivate more Gen Z users and cultivate a young and trendy cultural community. We further embraced our deep roots in the college campus scene and spared no effort in bringing more and more promising voices to be heard with our campus musician cultivation plan Valla campus.
So in.
In the first quarter, we are particularly proud of the positive impact we have had on female campus musicians included in the winner of the first prize scholarship of vault campus and Chinese folk <unk> musician Georgina Shan Shan renewed.
Who created a Chinese ancient style of original work Mulan Mulan based on the classic heroine.
With this song Georgina Bloomed on CCTV program Sing my heart tons rewards Simpson.
Exemplifying female bravery and spiritual power we.
We were also instrumental in her collaboration with household names and brands such as the award winning <unk> Vincent Fung following Shan Li.
Income non coal pub T mobile <unk> and QQ speed mobile QQ <unk>.
To produce original theme songs, helping her achieve accelerated professional growth and broader recognition.
Now, let's turn to our social entertainment services, both <unk> and paying users were affected during the quarter.
By seasonality as well as macro headwinds.
Facing the fast challenging landscape, we will continue to improve our competitiveness through ongoing product innovations and new initiatives in social entertainment, such as audio live streaming international expansion and virtual interactive product offerings.
Four we sing to achieve our goal of making singing more fun and recording more professional we provided innovative easy to use features and tools to elevate uses singing and playing experience as well as energized and relationship among our users.
Our investment in these innovative singing and playing twos in the past few quarters started to pay off as the adoption rate of and the user time spent in our singing room, both improved year over year and quarter over quarter.
Facing competition.
Competition for our traditional live streaming services, we will strive to generate more differentiated content and user experience.
Firstly, we use we continue to make progress in vertical content category expansion.
<unk> on the sheet economy Kugel live launched the Goddess Festival event in March which successfully attractive female users with premium arpus to enjoy our audio live streaming routes.
Our audio live streaming business achieved a double digit year over year increase in revenues in the first quarter and will become a key component of our overseas development strategy due to higher monetization efficiency in international market.
We also broadened we target user base by adding live streaming educational content addressing seniors online learning and sharing needs such as lessons on square dancing Callimachus calligraphy and traditional Chinese offers.
Secondly, cross platform collaboration is another way we can differentiate for example, our first real time life singing event.
Lessing came in by short term co hosted by QQ music live streaming and leasing brought premium karaoke content to live streaming.
<unk> music live streaming advanced steadily with the number of hosts increasing rapidly and daily active hosts reaching a record high of 10000 during the first quarter.
In conclusion, we kicked off 2022 by facing challenges head on but we remain confident as we execute our dual engine content and platform strategy.
Will assist in making our ecosystem, our content product differentiated and highly specialized which in turn will help us capture the hearts and minds of hundreds of millions of music lovers and unlock the massive opportunity in front of us with that I would like to turn the call over to Shirley our CFO .
Closer review of our financials.
Thank you Tony Hello airline extra discussed our results from a national perspective.
Our total revenues for Q1 2022 were RMB five 6 billion and.
And by 15% year over year and 10.
27% sequentially.
In the first quarter of 2022 hour.
That's perfect.
649 million and.
Net profit was RMB 909, meaning.
<unk> represented a sequential increase of 8%.
As a result of our corporate update.
In the first quarter of 2022.
Unit.
Brexit has been a continued healthy growth with revenue RMB 199 billion on a year over year growth of 18%.
We benefited from expanding sales channels and the paying users.
High quality content and services we provide.
Online music paying users.
$82 million up 32% year over year victory.
Full meaning net accretion.
Honestly.
Ed.
Quarter compared to RMB Atlanta.
Yes.
After the effective promotions to attract the user.
Taking out the impact from fewer calendar days in Q1 actually maintained stable.
Okay.
Network and the quality growth of our growth perhaps is eminent.
Revenues from advertising.
And yet and sequentially our advertising business.
<unk>.
That can impact.
GAAP net and this is another case.
Our advertising revenues were also impacted by uptake of <unk> and the lockdown kind of maintenance.
We are actively expanding the API inventory.
Optimizing.
And in rolling out innovative advertising format to manage these challenges.
Lastly back at the growth that continued impact in the short term.
Okay.
From regulation.
Okay.
And the regional COVID-19 outbreak, we remain confident about long term growth potential.
A factor otherwise.
To start recovering in the second half of 2022.
<unk> revenues also dropped on a year over year.
Sequentially.
Q2 restructuring agreement with certain musical labels.
Social Entertainment services and other revenues.
Okay.
Download by 21% year over year at lease space and evolving macro environment and increased competition.
From other payment entertainment headphone.
To adapt to the changing environment and to stabilize revenue scale, we have initiated our content offering.
Our leesville in academic put backs operator in Italy.
<unk> cross platform collaboration and.
We are also expanding our international footprint as discussed earlier.
Gross margin in Q1 was 28% down by three 5% year over year due to the following factors first.
Given the continuous growth in music subscription revenue.
Our revenue mix shifted based revenues from online music.
Ladies generally have a lower gross margin accounting for a higher percentage of revenue.
Second revenues from audio live streaming hosts across market was relatively lower also factor in a country for a higher percentage of revenue.
In addition, the decrease of advertising.
Revenues also impacted the margin.
New map, our try to control our content costs with increased.
Requirements as well as lower revenue sharing ratio for social entertainment business.
I will favorably impact our gross margin on a sequential basis.
Now moving on to operating expenses total operating expenses for Q1 2022 were RMB, one 2 billion authentic bad debt as a percentage of total revenue.
Which was relatively stable compared with last year.
Out of the impact from acquisition of Maison ordeal.
<unk> expenses as a percentage of revenues would have been slightly lower year over year.
Selling and marketing expenses were RMB $313 million.
15, 15, 1% year over year.
During the quarter two megawatts to employee facing closely Morningstar.
Each promotion channel at least last external promotion channel and evaluated our internal checks to attract users and from our most of our brands.
General and administrative expenses were RMB one.
At <unk> year over year, excluding the impact of <unk>.
<unk>.
Yes.
$44 million from the acquisition.
Audio.
<unk> would have increased by 10% year over year.
The increase was generated by a higher number of employees.
As of lately.
Sure.
Technology innovation, and a more diversified product offering.
Meanwhile, we have been closely monitoring handling.
Painting, and taking actions to improve.
Facing which starts the battery.
And that resulted in the decrease.
On a sequential basis.
Our effective tax rate for Q1, 2022 was 12, 2% compared to 11, 5%.
<unk> in the same period of 2021.
Greece in Iraq.
Tax rate, mainly due to some of our entities.
I tried to defer the tax benefit in 2021 and 2022.
Our medical fate was RMB $649 million and net profit attributable to equity holders of the company for Q1.
Okay.
600.
$9 million.
Non <unk> net profit.
It took $9 million.
Net profit attributable to.
Africa continent.
819 accelerating now.
Net profit margin was 14, 1%.
As of March 31, 2022, our coupon.
Cash cash equivalent.
In the short term.
RMB $105 9 million, representing an increase of one.
One 2 billion from December 31, 2021 looking.
Looking for what we have.
We'll continue to focus on our community.
The investor.
In new products and services, including telephone audience.
Okay.
With our first argument.
Future growth potential.
While we will continue to effectively control high content related costs, and our sales and marketing expenses to improve overall operational efficiency.
This.
Our prepared remarks, operator, we are ready to open the call for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and we would like to withdraw your question. Please press Star then two.
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 will come from Alicia Yap with Citigroup. Please go ahead.
Hi, Good morning management, Thanks for taking my questions.
Have a question related to.
How the Lockdowns and the Covid has impacted that so if management can share I'll elaborate.
So overall, okay great.
Hum.
<unk> has seen.
For example, the prolonged lockdown in Shanghai impact.
Any positive impact on the time spent on the online music.
Or even the foreshadowed came in active user specifically can you have you seen any spike in the use of email or time span for your long form audios water Park.
And then any negative impact.
From the spending willing that said no that's fine. Thank you.
Yes.
Thank you.
Sure in terms of traffic on the music side.
As a result of various.
Investments in the innovative features that we have been making over the past several quarters, particularly in QQ music.
We actually did not see any meaningful negative impact from the lockdown.
So as we reported during the <unk>.
Early remarks.
Actually saw year over year increase in the Mou with QQ music.
And then with regards to the social entertainment side, specifically with regards to leasing in the online singing components of that product feature.
We actually saw a slight increase in the online singing activities as a result of people spending more time with Carryout featuring quarantines.
However, with respect to revenues.
There was.
Meaningful impact on the advertising revenue.
As a result of a large number of advertising customers.
Being in lockdown situations in major cities.
And also it had an impact on our live streaming revenues because both the house.
Also effective in terms of the activities and <unk>.
That the users' willingness to spend on large field.
Okay.
Thank you.
Okay.
Our next question will come from Alex Poon with Morgan Stanley . Please go ahead.
Good morning, Thanks management for taking my question. My question is related to our music trends.
Since the beginning of this year, we have started scaling back some of the promotions to balance between the growth of that action.
Offer growth and we are also launching new membership programs, which has very high <unk>. So how should we think about the upward trend from second quarter third quarter fourth quarter onwards. Thank you very much.
Yes. Thank you.
I think let me spend a minute to talk about the overall subscription revenue growth because that plays hand in hand with the upward trends.
In terms of subscription and our overall goal for subscription revenue year over year growth for this year is to achieve close to 20% for the full year.
And there are two ways to achieve this objective.
The previous approach was to focus on subscriber net adds of three $5 million to $4 million per quarter.
Which translates to approximately 20% subscriber growth.
Accounting from the end of last year, and then Arpus that is on a slight downward trend.
A new approach that we will be implementing going forward is to have a better balance between subscriber growth and arpus.
And we will work on improving Arpus.
Through less promotions and other measures such as Super VIP that we mentioned.
And as a result, we expect <unk> to increase going forward with Q1 as a base for.
Subscriber numbers because of the better better <unk> growth, we can have lower quarterly net adds.
Less than the three $5 million to $4 million range that we previously talked about but overall still achieved at close to 20% growth in subscription revenue with a more healthy mix of <unk> improvement and subscriber growth.
Okay.
Our next question will come from Jay King Hang with TICC. Please go ahead.
Hi, Good morning management. Thank you for taking my question and my question is <unk> to the ecosystem.
Actually cooperation ways away check.
It seems to us.
When you say a series of meal functions have launched on wechat.
Benjamin shall we'd ask that Keith Eric Shen.
Asian and functions.
Helpful.
And wondering how does it help with the operational update.
Thank you.
Okay.
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I'll just spend a quick minute to do a short trend translation in the interest of time.
We continue to deepen our cooperation with Wechat.
With the overall objective of.
Letting music to become an important part of the social use cases.
And as Ross mentioned, there are a number of areas of our corporation.
Includes.
Things like <unk>.
In the wasting profile you can change the profile based on the music that you have been listening on.
In the <unk> audio call ring tone, you can now customize using music from QQ music.
During wishing chat you can directly share music from QQ music.
And then also with regard to video account, which we've mentioned in the prepared remarks, we continue to see very rapid growth in the operating metrics such as daily video views.
And with respect to live concert. That's also a key area that we are looking to expand our cooperation in.
We have done a number of very successful live concert events, such as the ones with Leslie Cheung May day.
Cetera, and increasingly these events would have the monetization element such as AD sponsorships and others. So overall.
We provide a very healthy music content.
Vertical to help enrich E.
Video account content ecosystem for wishing in return, we can provide us with very complementary promotional capability and we also help them with <unk> partnership.
To strengthen that partnership.
Okay. Besides the content distribution and promotional capabilities that mentioned that we will move together with leasing I think that's best one more important point.
Working with them really closely on the program development site.
<unk> such as online concerts, we are not just distributing it but we are also work on the details productions to ensure a high quality of online music answers will be delivered to our users. So this is the top priority of the <unk> team and also the leasing Vito account team as well.
We have been in Tencent copper capella umbrella for a longtime and we work together peer to peer and side by side. So I think that we are really working together to create synergies and we are looking forward to have a lot more were really high.
Our high quality content provided through this platform.
Besides we view the top tier artist concepts. We are also working on the long peers and also some of the really high potential was musicians' content as well so a lot more a wonderful content, we can be expected in the future and we have a lot more to come.
Okay.
Our next question will come from Eddie Leung with Bank of America Merrill Lynch. Please go ahead.
Good morning, guys. Thanks for taking my question.
Can you talk a little bit about the outlook for your live streaming pieces Filipino peso per year.
Especially different.
And regulations.
Our wholesale taxation problem as well as protection of minors.
<unk>.
Okay.
Thank you.
In terms of the outlook for the full year.
In the last earnings call we.
We said that for the full year 2022.
We were expecting total revenue year over year decline to be around mid single digit.
And obviously that was prior to a number of recent regulatory announcements such as once you mentioned.
As well as from the very recent impact from the pandemic measures.
And without those impact obviously, the previous guidance would have continued to apply.
However, following these recent pandemic of measures as well as latest regulation.
Specifically the live streaming one that you talked about which comes into effect in June .
Are we likely to see live streaming revenue be impacted for the rest of the year.
Because the new regulation and the new restrictions.
Around tip ranking as well as around PK E competition between performance during live streaming sessions.
Come into effect until next month.
We're not yet in position to quantify that impact for you at this point.
We it because the details will depend on the actual detailed execution and the implementation of those restrictions.
We'll be working very closely with the regulator.
To figure out exactly.
How do your best to be fully compliant.
And then on to.
To offset some of these.
A challenging pressures obviously, we will continue to invest in building new opportunities to mitigate.
And these opportunities in social entertainment lie mainly around audio live streaming where some of the restrictions recently announced less prevailing in audio live streaming.
And then secondly, with international expansion.
Within our social entertainment business that we see opportunities in southeast Asia, Japan, as well as Middle East and then lastly in the longer run as.
As we continue to build out our meta versus experience through our first pioneering virtual music playground, TMA land will continue to host more than more exciting and interactive virtual events.
To pioneer a new form of social entertainment.
Got that thank you Tony.
Our next question will come from way sewing with UBS. Please go ahead.
Hi, Good morning management. Thank you for taking my questions.
My question is on margins.
I mentioned about a few factors that affected our gross margin is now so just wondering how should we think about the gross margin trending in the next few quarters and also together with our focus on efficiency improving this year.
Any areas, where you still have potential for further cost saving and how will that impact the net margin for this year. Thank you.
Okay gross margin is 28% in Q1.
Yes.
8% sequentially the mandate.
Passing revenue quickly.
That has a higher <unk>.
Contribution gross margin.
<unk>.
Some positive factors on gross margin. So, let's just revenue sharing ratio of social and tend to have been controlled and a decrease of sequentially stable.
<unk> adapted to new macro environment lay in place that the IFC the requirement of the continent.
When you discussed the equipment, Mr. Thomas <unk>, and labor and estate attractive netback that have positively impact our gross margin.
And then looking forward to 2022, we expect our gross margin will be increased in the next quarter.
Our social entertainment again will can be stable.
They were focused on increasing the basis of all business unit and our cluster I kind of.
And therefore the operating.
And as much.
Cost.
Cost control to improve operation efficiency is one of our top priorities. This year, we have taken a tight control of cost saving in the market.
In Q1, resulting in 51% decrease on a year over year basis.
We will further monitor.
Egypt promotion, Kendall and manage the internal and external resources.
Effectively.
To improve.
Sailing in the Mexican capacity.
And therefore headcount mentioned, Nick Lai will continue to invest.
And then you period, such as a long form audio.
International <unk> and <unk> program.
Meanwhile, we will pay more attention to improve the profitability.
Disney and such.
Such as optimizing organizational alignment and including the head count and Fitbit.
And then looking forward.
'twenty two we expect that our adjusted net profit of compete increase sequentially.
Adjusted net margin can meet or above next year, 2021 and our music ability can breakeven operational lever.
Paul.
Okay.
Okay.
Our next question will come from Robert.
Ronald Keung with Goldman Sachs. Please go ahead.
Okay. Thank you. Thank you management.
On the ASP on the pricing side on subscription given that the approval has fallen.
Over the past six months.
For the past few quarters, so what the COVID-19 impact with the macro impact yet.
Do you think the competition has been quite rationale so wanted to hear about the pricing trend outlook worldwide, where we see the.
Stabilization in subscription and also any.
<unk> on the maturation of our long term pain targets. Thank you.
Yes, I think as I previously mentioned.
The <unk>.
A new approach that will be taking with our subscription revenue is to have a better balance between subscriber growth and arpus growth.
And even though our reported Arpus for Q1 saw a slight.
Sequential decline there.
It was mainly a result of.
So the lower number of days in Q1, if we adjust for that the Arpus for Q1 versus Q4 is actually fairly stable.
And on the and using Q1 as a base.
We are actively working on improving the arpus.
Two obviously less price promotion as well as through autumn measures such as <unk>.
Bundling Super VIP and other measures.
As well and so we will be expecting the arpus to increase as a trend with Q1 as a base.
And we talked about the subscriber as well because of our goal to achieve.
Overall close to 20% of subscription revenue for the full year and with a rising arpus.
We can have a slightly lower quarterly Latin net at less than the three $5 million to $4 million range that we previously talked about steel, which should be able to achieve that close to 70% target.
Subscription revenue growth for the full year.
Yes, I think we are encouraged by the strong growth of our online music subscription business and especially under the macro headwinds and also we are achieving are pretty good.
<unk> run rate is over 15% right now I think that we will continue to pull in more high quality content into the subscription plan, which help us because we really learned that a lot of users immediate pressure to value of the music content. So that they are willing to pay for it in terms of the op. When we can.
To drive it.
By for example, launching of some of the new VIP plans with new.
Privileges to our users, which has a higher price deck and director level that we have we can also have many different ways to drive monetization. For example, we can also work with different business partners to work on the new channels for production for promotion as well so that I think that the overall the online music subscription business for <unk>.
We are <unk>, we can help amendment.
Wonderful Thank you mentioned.
Our next question will come from Thomas Chong with Jefferies. Please go ahead.
Hi, Good morning, Thanks management for taking my questions.
The amount of cash that we have at the end of Q1 and.
Due to our strategies.
Going forward.
Should we think about the <unk> in terms of cash usage.
<unk>.
More M&A.
International market.
Share buyback, all considering dividends and.
Congrats on the.
Hong Kong listing introduction thank you.
Yes. Thank you.
In terms of our cash.
Utilization, obviously, I think we would be very disciplined and prudent with our cash management.
<unk> announced that.
We will continue and we intend to fully complete our share repurchase program by the end of this year.
As of the.
The latest state just shortly before the earnings release, we have already spent over $670 million on share buybacks since March last year.
And.
As a percentage of our current market cap, that's a very sizeable amount.
And at this stage, we have no intention to declare a dividend.
With respect to M&A, we will continue to be prudent and assess strategic opportunities.
Both overseas as well as domestically in areas that are complementary to our core music as well as our social entertainment businesses.
And in terms of the Hong Kong listing last quarter we.
<unk> talked about that we have already started.
In pursuing the Hong Kong secondary listing we are currently in an active execution phase.
We will strive to move things forward in an expedited manner and obtain the necessary regulatory approvals in due course and to the extent there are major developments, we will be making the appropriate announcement at that time.
Thank you.
Our next question will come from Charlene Loo with HSBC. Please go ahead.
Hi, Thank you for the opportunity.
I wanted to ask about E axle monetization model I think in the last quarter. You mentioned for me a mode, which allows users to unlock use their app to unlock music subscription services by watching Alex can.
Can you share with us the progress on both in terms of penetration and feedback from clients more generally and do you have any bond from target in revenue from basketball. Thank you very much.
Yes.
Advertising overall soar.
Some impact as a result of obviously recent regulation around the splash screen ads as well as the.
The pandemic measures.
Specifically, a large number of our large advertisers actually based in major cities.
As a result, obviously I think the <unk>.
Advertising revenue has been affected and we've seen.
A decline on a year over year basis in the first quarter. However, if we look at the sort of <unk>.
Top categories within our over advertising.
Revenues, we are seeing positive momentum in selected.
New ad formats.
An example of that is the video incentive AD that you mentioned and that we talked about previously.
We continue to increase the.
The penetration rate of new ad products.
The video incentive that specifically, which is gaining very positive momentum and.
And the revenue of this new format is growing sequentially. Despite the difficult overall ad environment.
It is now.
Sort of low single digit percent of advertising revenue at the moment that we would expect it to grow and to become more much more meaningful portion over time.
In the long run.
Despite the short term challenges.
We do expect.
A lot of potential in the advertising business and we expect a recovery into the second half.
We do see certain sectors that are stronger than others.
For example.
The FMC G kind of traditional consumer staple products continue to perform well as well as online games as people spend more time on online games during quarantine and Conversely areas, such as cosmetics, <unk> electronics and E Commerce.
In general has saw a bit of a weakness in the advertising verticals.
Yes.
Well thank you.
We are now approaching the end of the conference call I will now turn the call over to your speakers Mr. Tony <unk> for closing remarks.
Yes, Thank you everyone for joining us today.
Further questions.
Please feel free to contact our Investor Relations team and this concludes the call today and we look forward to speaking with you again next quarter. Thank you and bye for now thank you.
Alright.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.