Q3 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.
Welcome to the Tencent Music Entertainment Group third quarter 2022 earnings Conference call.
Today, you will hear discussions from the management team of Tencent Music Entertainment group.
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 Mr. Tony.
Please go ahead Sir.
Thank you operator, Hello, everyone and thank you all for joining us on today's call.
<unk> announced its quarterly financial results today after the market close today, you'll hear from Mr question Pam.
Executive Chairman who is <unk>.
On the call with an overview of our recent updates.
Next Mr. Rusty on CE.
And Tony <unk>, our CSO, who will offer additional thoughts on our product strategy 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.
For 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 ifr as in our earnings release, and SEC filings with that I'm pleased to turn over the call to Ms to caution executive chairman of <unk>.
Catherine.
Thank you Tony Hello, everyone and thank you for joining our call today.
I would like to begin by acknowledging all of the hard work that went into our successful listing on the main part of the stock exchange of Hong Kong and the stockholder 16 98 on September 21.
In addition to our primary listing on the New York Stock Exchange, we are truly grateful to our users employees partners and investors, who have been with US along the way and helped us with this important milestone.
From this we engage point we plan to further his filings our dual engine content and platform strategy to support our original content on our platform expand our innovative business models work with more partners to tap into the music market potential.
And fulfill our social responsibilities.
Yes.
On behalf of the promoting the healthy diverse and sustainable development of Chinese music industry.
Providing a differentiated content, particularly by way of original content production is our bread and butter.
And further expand our already large and diverse content library that appeals to cost generally channel audiences.
And in the third quarter, we rolled out a voice synthesis technology.
The means to quickly and easily replicate this thing this was for us in our original songs of any style and language Utah.
Utilizing these patent the technology, we have developed at the surface like voice in memory of legendary artist such as Theresa Tang sung.
And anytime movie May yes.
And create an AI seeing a lineup that their voices of trending source such as young Hollywood among others.
As of the end of the third quarter, we have launched the over one <unk> with AI since 19 mortgage.
Notably the female songs version of today Timken, Nissan that has become the first song by an AI Sina to be streamed at over 100 million times across the Internet.
Additionally, we pay tribute to anytime with by creating an AI voice based on Hood for the <unk> framed Cherokee salt after new Sunshine Cherokee Foundation.
May you be treated centrally by the road <unk> wanted to leave that which is also the hold music for today's earnings call.
Well, we see a bit by a wide range of listening to this cohort showing the book, which of our social commitment to technology and music.
As the digital newspaper industry trials music lovers paces in Newsday have grown increasingly very well.
We are thrilled that the concept album endless farewell.
You've seen the target by our Indian musicians Ah Kee managing too.
D C was.
<unk> recognized that as a monthly paid by Pitchfork our worldwide of royalty in music, we lose in the third quarter. We also produce a number of original singles, which went viral on the internet and is rapidly.
Correctly in over $100 million themes, such as HUD upon new kidney swap by you don't need to add.
All of these achievements demonstrate our ability to expand the influence of our original work by bringing them to both domestic and overseas audiences.
Furthermore, in deep collaboration with the border Tencent ecosystem, we exported to <unk> between new Se and popular IP <unk>.
Including these of <unk> flowers' excellent news on <unk>.
<unk> mobile QQ fascia and sold five Nissan along with renowned opposites, such as Stefanyshyn soon yes.
Angela Chang Gung Ho Hum and Joseph Tung here to create indicating music in the third quarter fully stimulating collaboration as well as both online and offline promotions. We have further right that the popularity of streaming music on our platform.
Next let's look at the Tencent musician platform, leveraging our robust technology to innovate and augment our one stop service offerings, while musicians in the third quarter, we launched a new feature.
And the artist Elba.
Tomcat. This feature helps musicians released digital albums on all <unk> platforms at the prices they set with automatically generated sales pages.
By the end of the third quarter 281 of our missions at utilizes this new feature and we see the income generated by the ELD themselves softening the release time and lowering the barrier for them to afford closer connections with their audience.
Second we continue to launch a broad array of activities and initiatives to support our musicians and help them shine on stage in the third quarter, we discover the Wang <unk>.
Our young high for musicians, providing seamless comprehensive guidance from songs collection towards styling and personnel expressions and finally came up for the China, Some warehouse lending or I'd say show some starting his career as a musician within just two months plus more.
More in the first quarter, we also recommended a diverse group of our musicians, including cellulite alignment.
Okay margin <unk>, new client a condition to to GNC.
New swap.
So again seeing Changyou and home volume falls off to various shows and events hosted by PMT and sponsored by a spike.
IC Aldi and Ingo.
Demonstrating our commitment to providing substantial promotion and commercial resources for all musicians.
<unk> and <unk> and power our musicians to build a full lifecycle Korea, while also facilitating the communication and connection with defense.
By the end of the third quarter. We have served a total of 350000 mutations, which also allowed us to attract more active and viable and creators to our platform further pushing the prosperity of our ecosystem.
Our comments today May also include a keen eye towards improving the diversity of collaborations with top music labels that market.
Both domestically and internationally in.
In the third quarter with team up with widely entertainment for a while.
One way one long UN late John <unk> and others.
To provide our users with benefits in the 30 day Headstart period following the release of their new songs.
Notably change House digital album quickly worked of up to one <unk> record sales of close to seven media and copies by the end of the third quarter.
<unk> latest EEP west.
Let's move to the new pop album, Midnight, and <unk> digital single paying venom an album Bond Pink also achieved.
Softening sales, reflecting our users pent up demand for user engagement with August from home and abroad.
Ongoing cooperation with professional institutions and industry partners also help bolster our reputation as a go to destination across diverse music verticals, such as gaming Costco and get us on the music in the third quarter, we cooperated with the music label of SEPA.
Assets.
What's our thoughts in this half.
Allows us to debuted had to stock benefits for their releases.
We also collaborated with the worlds top 100, Bjs and also 30 domestic and international electronic music labels to launch Tomorrow dropped.
And loan helping to bring electronic music into the limelight at the JV platform for international or what meaning and global acclaim to electronic music.
Lastly, moving on to <unk> life.
Our comprehensive online merge offline performance this brand, which has consistently for positive music entertainment and performance industry toward by exploring innovative interactive formats and monetization avenues.
In the third quarter T&D life hosted 32 online and offline performances by various a list the staff, including <unk> home and so hot in at.
At the same time.
The multiple innovations to refresh the user experience for example.
Watson installed online concert, we pioneered the TM utilized moment interactive activity moves Youre AMCOL E mail chat anchor marking the first time, a large screaming concert audience was in.
To vote on the conscious clothing song.
Creating a customized offline interactive experience for our online users and successfully accumulating close to 15 million unique viewers with independent ecosystem.
Going forward, we will incorporate more interactive formats in PNG life moment Julian to performances.
That concludes the update on our growing content capability.
Now I would like to turn the call over to Ross, who will share more about our platform strategies Ross. Please go ahead.
Thank you Hello, everyone moving on to our platform strategy may continue that will enhance our users interacting experienced by enabling new ways to leasing watch seeing underplayed on our platform on the offering more satisfying experiences that.
Our drive.
<unk> tested and then you also need.
For me that Youll sort of coal demand.
Rather in on providing on nebo user interface.
<unk> oriented professional leasing experience.
In terms of selling the effects.
Improvements in this call term may became the first time.
Domestic only to offer immersive audio experience with <unk>.
Dolby surround the phone <unk> shown to our fuel power may actually membership subscribers on the <unk> side as well as in the music releases on all of our Tencent musician platform.
In August QQ music also built adaptive Fung shampoo, pushing <unk> addressed the song the volume moving up I think particular song based on Creelman arbitral perception characteristics to maintain a small small listening experience.
We will simplify the leasing profile.
<unk> music unequivocal music launch the lock screen.
On the <unk> 16, <unk> Mehta efficiently monthly Sodcast ISI another primary anymore.
So off grid.
This function.
The authors flow generated playlists single click by importing those songs referenced in types of pictures on the web links.
<unk> now support the auto <unk> in place with <unk> sung effects on the customized playlists to pulse pulse to inspire more sharing among users.
Will bolster discovery you finish listening.
I think further optimizing the OLED modern recommendation future with an upgraded <unk> and some in the third quarter.
As a result out of this.
Im requirements QQ music unequivocal mill.
Foundation streaming volume on the time spend the closer also registered year over year increases.
Cosmo as increasing virtualization it takes hold.
I think more exciting on a fine music in the 10 minutes scenarios.
Key abundant monetization opportunities.
In the third quarter, Camelon or virtually same park teamed up with <unk>.
Idaho growth keeping type of fleet to host another in Marseille, which host <unk> Shah.
Hence the by a 360 degree so coolers screen and screen.
The solid regulated or million dollars funds daunting, either Tammy Atlanta, Neal built lighthouse station all of our brand and a new landmark menu.
In addition, we had to build Peter zone to the water in the active community for users to Nathan to purchase.
I have almost playing musical instruments and the <unk>.
Based on other either their SaaS calculated what's your homes.
<unk> also launched an entertainment feature on QQ music Tango tiny time, which allows the user to play with and I truly feel there is an offer select selecting songs by touching on.
On the screen following the tempo of the song.
As a pioneer in the application of our innovative leasing was seeing underplay functions <unk> has continued to improve year over year, indicating <unk> youll see our engagement.
Our flagship products.
Now turning to our long form audio.
So supplement Paul Coster ecosystem.
A mail to the symbol <unk>.
Putting on my installed audio creation assistant.
Meanwhile, helicopters focus.
On the <unk> RPM is Martha.
<unk> of copyrighted books, although part of customers can now use a late onto the studio for auditions and distribute their content.
<unk> platform with a single click.
Managing their protocols are programs with a sizable operations data.
Generating income.
In addition, we are.
With a breakthrough in type two song <unk> technology.
<unk> AI audio creation on the Michael loss, increasing water processing efficiency by five times and are growing the content synthesize speed of our material halter's by fourfold in the third quarter.
As a starting point of <unk> technology.
We have launched.
Our virtual hotter two.
Provided these differentiated sleep audio content, which has received with a wider acclaim from <unk>.
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.
Now, let me walk you through our operating results in the third quarter.
This quarter, our online music and May use we're at $587 million down year over year, primarily Q2 churn about casual users amid competition from Pan entertainment platforms as well as cost optimization measures to focus on boosting monetization efficiencies at <unk>.
The platform of scale.
Nevertheless, QQ music da use continue to increase year over year, indicating healthy user engagement with our flagship product.
Notably online music paying users a cohort representing high quality users continued to grow at a robust pace and drove paying ratio to a new record while <unk> also kept improving sequentially.
Driven by our expanding content offerings and product enhancements as well as broadened sale channels and moderated promotions as a result, our subscription revenue continued to deliver healthy year over year and quarter over quarter growth.
Our Iot <unk> continued to achieve double digit growth year over year, as we enriched and established collaborations and added new ones to our partner roster such as BMW and BD.
We have also broadened our leading auto industry coverage by supporting new EV models, including Lee autos.
Alicia LG.
And BYD Tri Gate <unk>.
B R E Kuwait tending sheet.
To improve users' entire music experience, we launched updates for our in car ads in the third quarter.
Featuring a brand new user interface and upgrades to sound effects and content.
Our online music services revenues achieved healthy growth in the third quarter.
With 19% subscription revenue growth year over year.
We have been promoting the higher value Super VIP membership <unk> with an elevated experience powered by not only premium sound features jumping into and Dolby surround sound effects.
Will be changing soon.
But also customized content.
For instance at teens in times TMT light online concert endless summer.
Should I sell in plan.
Hi, <unk>.
Titanium totally.
Each registered massive social media buzz totaling over 2 billion mentions.
Users with a super VIP membership, we're entitled to a variety of privileges such as a Blu ray playback of the concert at the highest resolution cash in projection on TV screens.
Leading to a 20% increase in the number of Super VIP memberships subscribe.
Subscribers.
Going forward, we will rollout more privileged content and higher sell quality features to drive its membership conversion and retention.
Meanwhile, we strengthened the artist subscription offering.
<unk> bye.
By Onboarding more office.
Whether up and coming well established or even AI singles as well as by expanding the scope of benefits in the package to include privileges such as customized who live streaming events online chat and priority access to concerts and Elvis singing.
As of the end of the third quarter.
We had launched a cumulative 28 artists debuting their subscriptions.
In addition in the third quarter, we unveiled merchandise related to 'twenty. One at this with a total of over 100 skus in the portable with households.
Our company and the launch of <unk> digital album Greatest works apart.
We sold 100000 pieces of kit artist related merchandise.
At the same time carrying out a series of warm up promotional activities, calling a music lovers to look back on <unk> classics as a result <unk>.
95 out of 100 of <unk> existing songs made their way back onto <unk> popular chart.
Demonstrating a strong promotion capabilities and our skill in rejuvenating our music library.
Additionally, our advertising business continues to improve sequentially from the second quarter, thanks to our innovative and diverse advertising product offerings.
Demonstrating solid resilience.
For example.
We made headway with our AD based free listening mode.
Which showed initial success with mutually reinforcing growth in revenue and user engagement.
Going forward, we plan to expand the free listening mode user coverage.
While enhancing engagement and boosting its revenue industry.
Moreover, we made further progress in innovative commercial advertising format on <unk>, Eli and TMA leg, securing extensive sponsorships from well known domestic and international advertisers across e-commerce food and beverage.
And banking industries, among others as we help them raise the value and influence of the brands.
In the third quarter, we also continue to explore various business models.
First on the sub licensing side, our SaaS based music copyright licensing service has expanded from the live streaming vertical to other use cases that require a legitimate music licensing such as short videos supermarket ambient music offline public performance.
And advertising soundtracks.
Second we launched the industry's first professional data platform.
T&D business intelligence platform <unk>.
<unk>.
And going into <unk>.
With high frequency data updates totaling 150 times per day.
This tool can assist music label partners in tracking the performance.
Hilarity and listen the profiles of this thing is and copyright itself.
Quick.
<unk> music professionals with a deeper understanding of the business value behind the data.
Now, let's turn to our social entertainment services in.
<unk> and paying users and paying users declined year over year due to macro headwinds.
We will continue to innovate our product and explore initiatives such as audio live streaming international expansion and virtual interactive product offerings.
But we think we continue to provide differentiated tools and content to help our users enjoy the singing experience.
In the third quarter, we implemented an upgrade of privileges and benefits for leasing VIP users by launching the sound quality enhancement feature in backing tracks.
Bunzl from challenging.
As well as Super remix.
When shell and.
And smart cars Sundar person sound effects to create an authentic and fun singing experience.
What's more as an important social platform, we think caters to diverse real time communications scenarios.
During the third quarter leasing launched multi person singing and chat groups in both video and audio settings.
Further driving growth in the penetration rate and user time spent in these groups. We also brought our experience in these areas overseas.
Our international business development.
For live streaming services, we continue to expand our differentiated content offerings and user experience.
<unk> from our streaming format innovations and deeper cooperation with our music content revenues from audio live streaming growth double digit year over year in the third quarter to reach a new high.
What's more leveraging our audio live streaming business combined with our Knowhow in artist incubation, we are providing ample space in support for musicians to grow for instance, a leading musicians and lapsed Dreamers Marsh do we all.
Sure.
Sure.
And finally you.
Started their careers via audio live streaming.
With <unk> support in one stop musician services.
They released songs and earned copyright income with the music, adding another layer to their live streaming revenues.
Theyre solves the stock are not as good as you maintain shinhan puccini.
And where did you go whole either need China became blockbusters during the third quarter and topped multiple Tms music charts.
Last but not least while pursuing business growth, we have endeavored to fulfill our social responsibilities by creating an innovative model of music empowered charity program on.
The 99, giving day Jojo.
We partnered with artists, including multiple <unk> and Tencent charity to launch here the light of music Kingdom in Guam.
<unk>.
Your line Tropic, Elba and surprised by musing Pucci our unit.
Sure. So a charity concert to raise awareness and funds for environmental protection as well as young and elderly groups in rural areas.
These events were well attended and garnered coverage from over 100 authoritative media outlets, resulting in huge buzz with over $600 million mentions on social media.
In summary, we are actively expanding and making connections through music.
Innovation and technology, we are introducing more products and services to Chinese dynamic music market elevating the industry as a whole and reinforcing our business competitive edge and resilience with that I would like to turn the call over to Shirley our CFO for a closer review of our financials.
Yes.
Thank you Tony Hello, everyone next I will discuss our results from a financial perspective in.
In the third quarter of 2022, our total revenues.
Stay tuned for beating up by 7% sequentially with the success of our <unk>.
Effective cost control and improve the operating and pay for it.
Our profit profit position continued its growth trajectory since Q4 last year.
Net profit for Q3 2022.
One 1 billion.
Net profit for Q3 2022.
And one point competing.
33% year over year basis.
And by 32% appreciably.
In Q3 2022.
Subscription revenue grew to RMB, two 2 billion up by 18% year over year and by 7% sequentially.
Online music paying users grew to 85 3 million up by 20% year over year, representing 2.6 million sequentially.
Sequentially.
Up in Q3 of 2022 was RMB eight eight upfront.
In the second quarter of this year.
As evidenced our strategy to grow the business healthily.
So dependably hasnt shown initially success.
Our ongoing efforts to calculating dose at the millennium base pay for music and high quality content per.
For what Optimizes per tablet functionality and improved operation are bearing fruit, we believe increase and willingness to pay per minute.
Drive health growth in mix, that's correct itself in the future.
Revenues from advertising grew both on a year over year basis and sequentially at both online and offline market begin to recover from the impact of COVID-19.
In addition, we have launched a new advertising put back.
Eight.
Basically less any model to reinforce the user engagement.
Improved monetization.
We remain confident about the long term growth potential.
Hi, Thank you.
In addition, with the launch of new digital ever.
The successful launch of <unk> and our promotional capability.
Hi Tech revenues growth in sales of the album, both on the year over year basis.
<unk>.
Social Entertainment services and other revenues.
Safe <unk> 9 billion.
By 20% year over year due to the evolving macro environment and increased competition from other platforms.
To adapt to the changing environment and to stabilize revenue SKU, we have differentiated our content offering.
Enrich our Alicia.
Perfect.
And enrich cross platform collaboration.
Meanwhile, the continued <unk>.
Oh last streaming and expand our international footprint in Portland.
Okay.
Gross margin in Q3 was 32, 6% up by 3% year over year, and two 7% and sequentially the.
The increase was primarily due to our effective control on a revenue sharing fee and content as.
As well as improved operational cost and efficiency.
This all resulted from the implementation of our fourth.
<unk> total cost of control megawatts this year.
The gross advertising revenue.
Revenues from sales of digital albums also contributed to the growth in gross margin.
We will continue to take a matter of us to manage our costs effectively and improve overall efficiency.
Now moving onto operating expenses.
Total operating expenses for Q3, 2022, well RMB, one 4 billion.
19, 5% as a percentage of total revenue.
But one 5% from 21 protection as a percentage of total revenues in the therapy or the lack of it yet.
Excluding the impact from the expensing you dedicate to our application for second Gen <unk>.
<unk> expenses as a percentage of total revenues would have decreased by 2% over a year.
Selling and marketing expenses were RMB 245, meaning some by 58% year over year.
And this is our third quarter with more than 50% cost saving in marketing expenses.
On a year over year basis.
Oil to reduce the spending on user acquisition had an impact.
Yeah.
Our core music question surveys continued its rapid growth trajectory.
Continued to take a megawatt for two important phases closely.
Monitor.
Each promotion channel battery utilize external promotion channel.
Leverage our internal checks to attract to use us and promote our prep.
When evaluating the Hercules business and assessing.
They are focused more on mail, such as leverage of engagement user retention rate, etc.
General and administrative expenses were RMB, one 2 billion.
By 13% year over year.
Excluding the impact from Approx.
Approximately 40.
$44 million, especially the.
Nature to our application for a second.
John .
<unk> increased by 9% year over year.
Yes.
Mainly due to increased investment in research and development.
We continue to closely manage the employee relationship banking battling high countless Nathan.
Our effective tax rate for Q3 2022.
<unk>, 2% compared to 11, 5% in the same period of 2021.
Increase in effective tax rate was mainly because some of our entities.
Two different benefit thank you.
Thank you Chris.
For Q3 of 2022, our net profit and the net profit attributable to equity holders of the company.
The $1 1 billion.
I think net profit.
Net loss attributable to <unk> of the company was RMB, one 4 billion net profit margin was 19, 2%.
With the third quarter of 2022.
Annuity earnings.
Well.
They're reporting to sixth statement.
No real point.
<unk> six respectively.
Up 49% on a year over year basis.
<unk>.
And diluted earnings per well.
<unk>.
<unk> statement in RMB.
<unk> 86, respectively.
Up 41% on a year over year basis.
Actual results demonstrated our commitment and the initial success.
Sure.
<unk> as well as the impact from share repurchase program.
We are antibody to provide high quality investment grade tenant.
Investor and a shareholder and I remain confident about our financial performance.
Many of our peers and the overall industry.
As of September 32022 hour confined to financing cash cash equivalent.
Deposits and the short term investment.
$25 4 billion as compared with RMB $25 8 billion at June .
With 38 2022.
Such combined balance was also impacted by the change in exchange rate of RMB to USD at different balance sheet date.
Looking forward, we will continue to grow our core business with a knowledge and that that was put that and affinity for our user.
And the investor market for any new products and services, including our portfolio and international building.
To maximize our <unk>.
Great times and.
Future growth potential.
Meanwhile, we will continue our focus.
Greetings and basic and.
Tighten the control on costs and expenses to a true health.
Nice performance.
This concludes our prepared remarks, operator, we're ready to open the call for questions.
Thank you we will now begin the question and answer session.
Youre asking question here My first Star then one on your Touchtone phone.
If you are using a speaker phone we ask you. Please pick up your handset before pressing maturities.
To withdraw your question. Please press Star then two.
And 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.
We will pause momentarily to assemble our roster.
And today's first question comes from Alex Poon with Morgan Stanley . Please go ahead.
Hi, Good evening management. Thank you for taking my question Congrats on very strong results.
Question is about our music segment gross margin and net margin in Q3.
What roughly what levels at those two numbers and going forward, how should we think about the pace of these to margin expansion.
Considering we have a lot of levers, including advertising revenue music, our pool music content cost long form audio cost.
Et cetera et cetera. Thank.
Thank you very much.
Yeah.
This quarter our.
Our gross margin.
Our music.
Keep increasing and.
Our operating.
Net.
Net profit also Africa.
<unk>.
<unk>.
There are some reasons first half hour.
Yes.
Our increased our.
The increase that the obviously your comment of content costs and optimize the model of our fleet.
This charter.
Agreements with some music labels.
<unk> switch empty model to revenue sharing model or cut more reasonable.
It isn't about empty.
Have the party.
Cut back and also had a positive impact on our gross margin.
And second.
Our subscription revenue growth, especially at our ops increased continually so that have a positive impact on gross margin in the third.
It has in Germany, as a color and digital revenue increased also have positive impact on gross margin. So this quarter, we have a very good.
Performance under gross margin of the.
Music.
And the <unk>.
Expect.
Of course, the margin with us for music.
The service can be increased next quarter because of me.
We expect our.
But the backlog of advertising revenue.
And the subscriber revenue can be increased healthily.
We're also testing.
To control our content.
So that's the gross margin and <unk>.
Not much at all.
The LP.
We'll be increasing that to four.
Okay.
Thank you and our next question today comes from the home.
Bank of America Merrill Lynch. Please go ahead.
Oh hi.
Thanks for taking my question congrats on the start of the courtyard.
Namely our pool.
Okay.
So I'll take that and we have another.
Yeah.
Carpool, so how can we look at our trend.
I knew that so we have lots of Q2.
Maybe like subscribers.
Hi, there.
So.
<unk> seen that trend and the overall house.
R R.
<unk>.
Thank you.
Thank you I'll answer the first part of the question regarding subscriber growth and then Shirley can chime in about the <unk>.
We're very pleased with.
Our subscriber growth this quarter.
We continue to record.
High teens percentage year over year growth rate in terms of our subscriber growth.
And that's a trend that we expect to continue.
In the near term.
Within the one year or so.
Give or take.
One or two quarters.
Our near term goal is to reach the round number $100 million.
Our subscriber base.
We now.
80 something million.
So thats to us a very achievable target.
And then in the longer run.
And at the moment, our paying ratio is about 15%.
So in the longer run in a multiyear timeframe.
When we benchmark I'll get ourselves against.
Other verticals such as online video verticals in China.
We feel that we are confident to be able to achieve a mid <unk> percent paying ratio in a multiyear time frame.
Shirley please chime in on the offer side.
Okay. In Q3 marked up music subscriber is 8.8 increased from $8 five in Q2 and.
Increase a two quarter continually.
That's because more displaying promotions more contract operation and optimize the pricing for Jackie.
In the future we will continue to focus more on the quality growth of our overall subs, perhaps examiner.
It will reduce our promotional activity.
Subscriber.
And I suggest that our content operations product.
The other hand, we will provide a super we actually survey that have higher up even more prevalent to our users. So we factor all up can be increased gradually low paying users continued to grow healthily and we expect that.
In the last quarter, our <unk> will be increased gradually yes.
Thank you and our next question comes from onetime Kong Goldman Sachs. Please go ahead.
Thank you for taking my question. So my question is about the advertising business I think this quarter, we have a pretty solid.
Increase for the advertising business.
The decline in China, the first half.
Could management give us more color in terms of what's been the underlying driver of that.
And especially in terms of the new format top app.
Including <unk> lives.
How are we thinking about.
The position for these new.
Format going forward.
If there is any outlook for the fourth quarter in terms of ASP trends.
Thank you.
Sure in terms of advertising revenue.
We're pleased to see that this quarter.
We are starting to see a positive year over year growth.
Which reverse.
The negative year over year growth trends in the previous quarter.
And in particular.
So.
In the previous several quarters.
Splash screen AD represented.
Majority of all.
All of our advertising revenue.
But we're also pleased to report that splash screen at now.
Represent less than half of their advertising revenue as a result of our investment in <unk>.
New formats, and new advertising innovation products.
It's the it's now.
Second quarter in a row, where we seeing our advertising revenue growth on a Q on Q basis.
And so looking forward into the next quarter and also into next year.
Provided that the macroeconomic conditions continue to improve.
In the current.
Trend, we are optimistic about the outlook on the advertising business.
A couple of things is driving this growth.
Number one.
Our sponsorship ads continue to grow at a healthy pace.
We hosted an organized more an increasing number of events. These events events include TMT live events include other sponsored.
Our live events for example on TNT land.
As well as others.
In addition.
Our AD supported free listening mode.
<unk> strong growth.
And now represent approximately 10% of our online music advertising revenue.
So all of these are important drivers together with an improving macroeconomic conditions.
That leads us to.
A an optimistic outlook.
We will continue to work with the recheck.
Video accounts team to continue to provide a high quality.
All flying.
Online.
Tim you like event for our users and what Tony mentioned that he will help us to bring to come more advertising sponsorship, but at the same time you help us to continue to attract more partners to join hands with us.
In the third quarter, we have already successfully launched 30 over 30.
Bends of archived kimberlite, so we're expecting that after the pandemic of Covid I think that the.
Overall situation will be continually improving it will continue to drive the advertising sponsorship for us as well.
Okay.
Thank you and our next question today comes from Alicia Yap with Citigroup. Please go ahead.
Hi, Good evening management. Thanks for taking my questions also congrats on solid results.
I have a question related to that for sure entertainment.
So assuming if.
The economy rebounds, and we opened the Max feel margins over the next couple of quarters.
Should we actually expect to see the positive.
Two the social entertainment business or.
Will this weakness continue to wait on that competitive pressure. So any color that you could share would be helpful. Thank you.
Due to the impact of.
Challenging macro environment and increased competition from other Pan entertainment platforms.
The social entertainment revenues.
<unk> recorded a negative year over year growth this quarter as well as the previous few quarters.
We continue to expect.
<unk> and challenges in that area.
However, we will continue to innovate.
More products and explore new initiatives.
Such as audio live streaming and virtual interactive product offerings.
Within audio live streaming.
Segment within the social entertainment revenues.
That has recorded a very healthy.
A mid double digit type year over year growth rate.
And we're very very pleased with that and that can help us offset.
Some of the challenges in the traditional less streaming segment.
In addition, we continue to expand in overseas market.
Both organically as well as through suitable M&A opportunities.
Such as the Japanese leading karaoke App Yogi <unk> acquisition that we made which continued to contribute.
Positive growth.
Both organically and through M&A International business.
Thank you Andrew.
Question today comes from the <unk> zone.
Please go ahead.
Hey, Good evening management. Thank you for taking my question and congratulations John Carter.
From that question of Internet to long form audio things.
How can I make Paul.
That's fair.
Later in the call tariffs. So just wondering a measurement of Christian Moore.
Apart from other things with us.
Such Oh, it's a country of reliable and what's that mean packet keep your eye for this business and how should we expect for the future.
And then on the profit.
Thank you.
Okay.
Thank you.
One for audio has proven itself to be an effective complement to our powerful portfolio of music apps.
As it continues to convert.
More and more music users into long form audio users and drive higher user engagement and Actavis as a result.
We continue to expand and differentiate our long form audio content and three licensed.
Content as well as self produced content.
We also provide users and content creators.
Useful tools to build an active podcasts and UTC content ecosystem.
We will gradually improve its monetization.
Through monthly subscription and focus on our ROI for our content investment.
Our overall target is for the long form audio business too.
Even at a gross margin level by the end of next year.
Uh huh.
Thank you and our next question today comes from Sean <unk>.
Please go ahead.
Hi, Good evening management. Thank you for taking my question and also congratulations on the good quarter.
To follow up on the margin side.
We have made a great deal of effort this year to improve our overall operating efficiency. So just want to understand or maybe cost planning for next year, especially around head count and also marketing strategy and how much more room. We can further improve our net margins for next year. Thank you.
Okay.
Yes.
We expect.
Gross margin and net profit margin can see increases in.
In the end.
Uh huh.
Do you want to know how room too.
We couldn't get the Maxi Yeah, we think we will continue to control the.
Sales.
Sales and marketing expense and we don't.
Okay.
Go to that.
We just monitor the <unk> and <unk> increased.
The lack of gas so what do you think.
I also have some room to two.
Okay.
More performance.
Sales and expenses and for the Ikon pass they think way.
On.
On the one hand, we needed to invest more new products and the funded.
The growth potentials so.
We will continually last two part and the other hand, we will.
<unk> improved the high comp and for the older product.
For the loss, but that's the way it was.
No.
I need to.
We are proud to make up with the U S. So we think this pathway something improved placement so.
I believe with the.
Uh huh.
With revenue up for music music service can be increased healthily and especially.
I, especially want them into revenues can be stable or something.
A lethal.
Yes.
The gross margin and the net profit.
Hum.
Sure.
Chris.
Our next yet.
Yeah, and just to supplement.
Surely has said this.
This quarter marks the second consecutive quarter of revenue growth Q on Q.
But the third consecutive quarter of our net profit growth Q on Q.
And so there's a very clear trend through cost optimization and efficiency programs.
Of improving profitability.
And so even though this year.
For the full year this year as a whole.
Revenue, we saw revenue decline on a year over year basis.
We our goal looking forward into next year is to be able to achieve positive revenue growth next.
Next year and as a result, a positive growth for profitability as well.
Yeah, I think the very strong financial result of this quarter has demonstrated us has been doing a really good job.
Improving our operational efficiencies.
It also demonstrated that we have tried many many ways not just cutting for example, the marketing or channel cost Youre also trying to make our team to be more immune than before and.
It also help us to improve the overall business is as well.
Future, we will continue to try to have a good control on our content costs as well. So we tried to talk to all of our partners and try to.
Our revenue sharing model from the minimum guarantee module recognition model, which will help us further to improve our efficiencies. So is that all of the plans that we are in hand, and we're continuing doing it for.
So you will continue seeing a continued improvement for the future.
Thank you and as a reminder, ladies and gentlemen, Please press Star then one if you have a question. Our next question comes from Thomas Chong of Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions and congratulations on a solid set of results.
Question is about.
Positive landscape, how should we think about the competition with the short form video and other incumbents in coming years and on my second question is about also the marketing part.
Our cost control measures to focus on how I.
Can you comment about the online music margin alone pardon me a long form audio on how is the trend going forward. Thank you.
On the competition side I'll start and other management team can complement.
I think we've mentioned in the past that.
With regards to short form video platforms.
Combination of both cooperation and competition.
We obviously leverage.
The short video platforms.
<unk>.
As a marketing tool to help promote our.
Music as well as to help promote.
Some of our brand activities.
And that has been proven to be quite successful.
But on the other hand.
Theres also been news about a potential entry into the music market by the likes of Adobe Inc.
Having said that.
I think we observed that.
The progress being made in the music entry front.
We continue to monitor that.
The scale of the users.
And the music platform <unk>.
<unk> continues to be small.
And the there continues to be a wide gap between the content offering by their service compared to all service.
Obviously, we're watching the competitive dynamics extremely carefully industry extremely closely and we stand ready to react.
But at the moment.
<unk>.
It's something to pay attention to as opposed to something to react to on the margin side I think we've.
I talked about it earlier.
Music margin.
<unk> continue.
Continue to improve.
As a result of a number of factors as Shirley mentioned.
The healthy subscription revenue growth.
Even by a combination of both <unk> increase as well as subscriber growth and largest subscriber growth.
<unk> continued solid increase in advertising as well as Ah Ah.
Good cost control on our content cost side, all leads to healthy and sustainable improvement in music margin.
And then on the long form audio side.
The negative margin there continue to improve as well.
We expect to breakeven on a gross margin basis for long form audio by the end of next year. So overall both of that combined.
To see an improving music margin.
Thank you and our next one.
Some of it comes from Charlotte HSBC. Please go ahead.
Yeah.
Oh Hello.
Paul.
Hum.
Well.
Oh.
Well my question.
Oh Wow.
Oh boy.
Okay.
No.
Oh awesome.
John who ratio.
Hum.
Thanks.
Oh, sorry can you repeat your.
Your line is not very clear what was the question regards to.
Oh boy.
On behalf of Shawn.
Well my question.
Our proposal in Congress.
Okay.
And one small.
NASA or the impact from what.
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All right. Thank you.
Well my question is if a wallboard.
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Okay.
Okay.
Sorry, I don't understand your question.
Okay.
Oh excuse me would you please.
Thanks, Sean.
Paul.
Well long term.
Hum.
Right.
Yes.
Sorry, I think I think we can move on next question. Please.
Thank you.
And our next question today comes from Sean along with <unk> capital. Please go ahead.
Yeah cool, even in measurement and sensing for taking my question and the question is about the cooperation between shabby last edinburg and convey deal and how it don't call out the ratio.
Probe right now and what else will be explored in the long term cooperation them.
To have more of a tennis ball, you'll start catching more commercial baidu Madden sex.
Yes, we continue to deepen our cooperation with <unk>, specifically the video account to enhance music focused collaboration and promotional capabilities.
Both music and live events.
This is important an important means for us to enrich.
The music video based content on both our platform as well as on the wasting platform as well as to leverage we seek to expand our promotional channels for artist, especially for indie musicians.
QQ music and Google music.
Both have official of video accounts on leasing and they constantly evaluate users' preferences through refining operations.
The recommended music content is very popular among users ranking among the best in the music category within wasting video account.
And we can video account service an important channel for music lovers to discover music after which user often come back to the <unk> platform to continue to explore.
And enjoy the music they love.
Concerts.
Tim you live in making PTO account have co hosted many live performances.
Such as conscious by IGN and Hong Kong most recently.
In the future will cooperate more closely to present.
Even more and better shows to users and to explore.
More innovative and expanded monetization avenues.
Okay.
Understood.
Maybe can you just sort of Yangon go on I mean, I would have been the causal.
Could you Omega shall muramoto eagle's embarking on her balance sheet, particularly at a time.
Time, gentlemen, anthropologie enrollment mega not anticipate it'll be not hurting at Homeaway Kumamoto.
Are you guys sort of intelligent motion devoted to immediately name, whether you're going to meet the timing although down emotionally.
Mhm.
We're also saying that obviously, our cooperation with Tencent in particular on the life.
Related shows are more sort.
So on a project by project basis.
We each have a pipeline of projects.
For each project, we discussed timely.
Timeline as well as the revenue sharing arrangements.
Yeah.
Okay.
Thank you.
Ladies and gentlemen, we are now approaching the end of the conference call.
Turn the call earlier speakers, Mr coming to you for closing remarks.
Great. Thank you everyone. Thanks for joining us today, if you have any further questions. Please feel free to contact the Investor Relations team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.