Tencent Music Entertainment Group Q1 2023 Earnings Call
And thank you for joining our call today.
Speaker 1: Thank you, Tongli. Hello everyone and thank you for joining our call today.
We are off to a great start in 2023. Our strategic emphasis on quality growth propels strong growth of our online news in the first quarter.
As the revenue size of our online music services has now catch up with social entertainment services for the first time, it signifies that our long-term commitment to developing a sustainable online music business model is very improved.
In addition to a healthy increase in our total graphics.
Our focus on efficiencies optimization also drove robust net product growth.
Content is the bread and butter of our business.
to continue to deepen partnerships with top music labels and actors.
so as to enrich our iconic music catalog and vertical content offerings, as well as to expand our music standards.
We established a strategic collaboration with rock records, Gua Qigong Tian, providing users with iconic time songs and original time tracks of popular TV dramas, such as the work of Zhang Zhenyu, Yiming Zhao, and Zuo Huajian. lengthen the music, and eliminate further
Lee Jong-shang, Wu Bai, and Mei Zhey in Reotient. We also strengthened our strategic partnership with Li Yong-hao and Feng Huaxoshe, whose management artists including Lu Han and Black Panthers, K-pop users, as well as with Kite from South Korea.
who have optics such as BPS and 17 on the flow test.
Additionally, with the feature of a 7-day tech sub-period, our partnership with J.J. Ling for his new digital album was well-received among users.
The new album also broke his previous sales record in terms of GMB on our platform.
On top of that, we also wish the collaboration with well-known actors including Kun, Tai Xiu-Kun and all in, meeting me.
for head start benefits on their new song releases from other areas.
Such as merchandise sales, online and offline performances, and artist-spend interaction events.
As for music verticals, to satisfy the increasing demand for web music among younger audiences, we have enriched our web offerings by adding a number of new songs from heavyweight directors, such as Mark Hsu-hui. Meanwhile, we have reinforced our competitiveness in different genre verticals.
such as electronic music, gaming, and classical music, among others.
In parallel with our efforts to expand our content library, we have facilitated the production of high quality original content.
and locking more opportunities in the growing music industry.
We have taken it upon ourselves to foster creativity and nurture access for a rich variety of support programs, space performances, and modernization opportunities.
with dedication to and by the influence of musicians and their works. So please hold your mind.
We participated in and promoted the artist's growth through our Tencent Musician Task Force.
which offers abundant resources and diverse monetization avenues.
As a result, the number of active musicians and singers who release new songs kept growing sequentially on our platform during the quarter, heading to the vibrant of our ecosystem.
For example, we have built a new initiative, the Emerging Force Program.
Thank you everyone.
to discover musicians with high potential and encourage the production of high-class music.
The program offers a wide range of IT services including traffic support, weapon sharing, and on and offline performance opportunities.
By increasing the exposure and popularity of quality songs, along with amplifying actors' influence, we enhance the brutality of the musicians' decal system on our platform.
As of the first quarter, we have assisted 260 up-and-coming musicians in wishing their first medium streams. And how do multiple actors make their debut performance on stage?
Notably, after joining our amazing course program, the singing songwriter, Dan
and slow-mo.
o yang min yang
Both saw a search in their followers and streams.
Going forward, we will continue to discover musicians with great potentials by bringing together top artists, producers, and music programs, particularly in band, rap, and pop music legends.
Recently Q2 Music also launched a customized homepage for musicians, Tran Xun, India Reentry, Ye. Through this page, musicians can access data and insights in terms of streaming, followers, and comments.
This can empower better management of sound distribution and promotion.
In addition, this page also provides up-to-date support resources and policies about Python.
Zoom organizations. Jean- temples is running full-time both physically and financially. One of the changing universities fell up in our brains and sharing the history of their Lowe Genres but I understand they do haven't been
In the first quarter, we signed her to our Tencent decision platform, elevating her profile and promoting new songs through a variety of internal external resources. As a result, the number of her followers more than doubled, growing from 50,000 to over just 4%.
100,000, within just two bits of her own body.
with our diverse performance stage and all-round support in music production.
We have been dedicated to elevating the influence of QISPI and other aspiring ED musicians alike.
Furthermore, we teamed up with Billboard China to hold our first original music contest, the one.
Our collaborative contest is designed to discover imaging with the ability to produce quality original Chinese music.
as well as to help expanding their global reach.
To that end, we invite the excellent song, famous songwriters, and renowned singers in China and abroad, including Grace and Chance.
Lenka, Mika, and Hie Wei, you're now awake.
Among others, to inspire contestants to produce original music and assess their performances,
Through this cooperation, we will leverage Buport's global resources, influence and hire international centers to provide kind of relationship end-to-end services.
ranging from bending evaluation, song release, worldwide promotions, and all the ways to customize the performances.
Upon the solid foundation of our Tencent Musician Platform, we are well positioned to effectively facilitate the production and promotion of original content.
We also...
We are also excited to see that we produced a number of rockbusters songs, creating many megaphits in the first quarter.
For instance, words of no man's land, wu yan chi mei quai. Bye.
Xilai Xin has accumulated streams over 100 million, with its melody and nearest pair that we have treated on our 5-string pedal.
Not only did this song make its way onto several music charts, but also it garnered additional music market exposure. We are writing a relay of fiction stories inspired by its lyrics on short video platforms. Policies in the first quarter include OK Go, Yo Jita Baka,
We got regret in the wind.
The wind we can't hold, we would use the phone. Baby, I love you. Love on fire, I would walk. See in the sky, I would be here. And the wanderer, careful.
Excelling and producing prime original contents, we have created an integral role in expanding IP values across the entertainment industry.
As a case in point, we have created quite a few musical works for iconic films, games, animations and other media. In the first quarter, we could produce the chosen Chinese cover of the film song of Makoto Sin Kai-chang movie.
have created quite a few musical works for iconic films, games, animations and other media. In the first quarter, we co-produced Joseph's Chinese cover of the film song of Makoto Shinkai's movie. Susumet.
Choosing
This song ran in over 100 million streams within only 3 weeks of its release. It also ran the first on the CNG Global Chinese Music Popularity chart, CNG Chuanxiu, Huaiyu, Yinghe, and Yuxingba, and topped 12 other music charts.
As you may notice, this song is also the whole music for today's Eonie Talk.
Meanwhile, we continue to cooperate with the border tension ecosystem, producing singles for 11 well-known games and 4 animations in the first quarter. Notable examples including Praying for the Mountain and the Sea, Xi Yuan, Shanghai, For Under the Pins, Long Zhe Rongyao and Light of Dawn.
Lin Min de Guang for UNDOG. Lin Min, Zhe Xin, Sheng Ti, which simultaneously enhances users' gaming and listening experience.
Before I conclude, I would also like to highlight the progress of TME Live, our comprehensive online-merge-offline performance grant.
Amid the performance market recovery, we are exploring innovative ways to monetize and interrupt users. With the ability to better market options, we are doing all that Barely anyone of the GI
T&E Live is well positioned to capture this market. Opportunities via our online merch offline capabilities.
allowing us to provide users with superior audio visual experience anytime and anywhere. In the first quarter, we host a total of 29 online and offline concerts, including online concerts for Justin Wang.
Med Prom portrait
and Qidangqing. Look at this. Could beÍ.
generating a total of 1.4 billion social media views and attracting almost 70 million unique visitors in the 10th technical system.
We also provide the fans with the option to purchase custom merchandise while enjoying the show.
TNE Live's unique performance performance.
Coupled with its high profile in the industry and with users, appeal to many well-known advertisers for sponsoring such as PepsiCo, Yang Yuanqin and JD.com.
We also continuously increase our presence in the offline performance.
particularly as the profit shows a growing interest for offline activities.
In the first quarter, the organized tools in cities such as Shenzhen,
Chang-Cha and Hang-Zhou for musicians including Cola Xiaokou.mirexx
Lu Xi Jian and the rock and roll band white paper. Bai Bixun. You too.
To foster closer and more encouraging...
and more engaging connections between musicians and their followers.
They encourage online audience to share their thoughts and feelings through online bullet types during performances.
Going forward,
We will continue to explore the on- and off-line integrated performance formats.
offering integral artist lineups and exciting music experience.
evaluate our COG 10 ecosystem and user engagement, and first capture incremental monetization opportunities.
That concludes the update on our growing content capabilities.
Now I would like to turn the call over to Ross. He will share more about our platform strategies.
Now I would like to turn the call over to Ross. He will share more about our platform strategies. Ross, please go ahead.
Thank you, Kashi. Hello, everyone. Moving on to our platform innovations. In the first quarter, we further refine the users' music consumption experience. We are advancing our audio live streaming services.
In addition, by further exploring large language models,
We energize our platform ecosystem with a broader range of AIGC applications.
I am not a meeting user diverse and nuanced music taster in new and exciting ways.
On the front of users music consumption experience.
Our efforts to enhance sound quality and effects combined with our optimized operations in different listening scenarios.
Our efforts to enhance sound quality and effects combined with our optimized operations in different listening scenarios have been well recognized by authors.
This further bothers users' thickness and overall monetization capabilities.
As a result, higher users' engagement brought us a year-over-year growth of average daily time span per daily active user who listen to the music on our platform.
We have extended our premium sound quality and effects to cover a wider range of scenarios during the quarter.
In addition to drawing out the automatic sound effect.
They also introduced a customized sound effect for Ting's In-Times Shinai Shaonian Twin's album, Wu To Bong Shaonian.
This sound effect highlights vocal details and instrumental layers, creating an air of a loud performance.
A total of 2.3 million users have used this sound effect in 170 million streams. Moreover, we extended our premium sound quality to encourage your users to use this sound effect.
For example, our QQ Music's Galaxy Sound Effect in the initial maximized the performance of in-car audio systems. I think it can fine-tune its sound effects to match many in-car audio systems of mainstream car models.
This has further enhanced our users' listening experience.
In addition, we also offer a highly personalized and engaging music experience that caters to users' unicorns, preference, and taste test.
For instance, we launched a 3D music player interface and customized playlists with various design templates.
where users may choose their favorite stance, stealth.
Beyond that, we tailored playlists to specific holidays and festivals such as the Chinese New Year and the World Sleep Day to offer a listening experience for this special occasion and the user's current state of mind.
Thanks to our ongoing algorithm upgrades and product optimizations, we are able to constantly advance our recommendation efficiency.
This brings us deeper insight into content and users' behavior, allowing us to create a more personalized listening experience.
In the first quarter, QQ Music and QG Music's recommendation stream volume together with its 10 spend per user increased both year-over-year and quarter-over-quarter, taking the proportion of recommended streaming to a new hire on our platform.
On the front of Audio Live Streaming, it has become an important growth driver for us as we offer a unique engagement manual for our users and performers.
With our differentiated content and interactive features that drive its growth, we keep enhancing user experience and attracting more vibrant audio anchors.
In terms of content, we differentiate our audio live streaming content offering with focus on audio categories of music, emotional hearing and talk shows, highlighting our performance exception talent.
Meanwhile, our vibrant audio anchor ecosystem also benefits our musician community as it provides them with a platform to showcase their skills and reach a wider audience.
may have nurtured rising musicians on our OQQ Music live streaming platform. For example, Shi Kuo, Xiao Ye, Du Yao, Su Mu, and Xiangqing, these four musicians contributed a total of 110 million song strings.
Notable, upon the promotion in one of our audio live streaming programs, Xitangqing's all-ranging single Go. Gunya quickly made it to QQMeOS's new sound recommendation chart.
In the first quarter, the number of performance in audio live streaming continued to rise year over year and quarter over quarter. In terms of user interactions, we added new social interactive features to our platform. We have created additional traffic under scenarios.
and will better serving users' entertainment needs.
As important ice breaking tools between performers and users, this interactive feature also draw year-over-year and quarter-over-quarter increases in its daily time spent per user.
Going forward, we will keep upgrading and expanding our social interactive offerings to higher user retention and additional commercialization opportunities.
Turning to AIGC, ILM has imported us to produce content more efficiently, as well as to create an increasingly engaging user experience.
In the first quarter, we launched PME Studio in a trans-social, an AI-enabled smart tool for music production.
We also introduced the local producer in the future.
pulled by our Li Yingqing.
With these tools, musicians can be more efficient in lyrics, writing, composing, music content analysis and editing.
Such tools also have generated outstanding
content by simulating the blinding user's original voices into different songs.
On top of that, our first AI music company, Xiaoqin, hosted a live streaming show.
Her singing and dancing provided an immersive entertainment experience.
Users were also able to interact with Xiaoching through AI-generated virtual games and personalize the gameplays.
Furthermore, in fostering a more customized listening experience,
QQ Music pioneered an AIGC Imported Music Player.
With various AI-generated virtual sets, users can enjoy different themes of music players.
Ms. Lai, I'd like to give the floor to Tony to reveal our business operations. Tony, please go ahead. Thank you, Ross. Hello, everyone. During the first quarter, we have seen enhanced monetization in our online music services.
We put robust year-over-year growth in online music services revenues driven by the advancement of both subscription and non-subscription businesses.
On the subscription side, its strong performance was propelled by the growing number of paying users and its ARPPU, which comes to $94.4 million and RMB 9.2 respectively.
Notably, our online music paying ratio hit a record high at 15.9%, while our ARPPU expanded sequentially for the fourth consecutive quarter.
All these results reflect our refined content operations, users' higher willingness to pay for premium sound and effect features, as well as more effective promotions.
In addition, our IOT service has been growing over the past few quarters.
Seeing its increasing importance to our overall business development, we began to include certain IoT devices in the disclosure of operating metrics for our online music services, starting from the first quarter.
On the non-subscription side, it also delivers strong year-over-year growth.
Advertising revenue grew notably year over year, mainly due to lower revenues last year caused by COVID-19 impacts, increasing interest from advertisers in our innovative advertising formats, as well as improved macro environment.
In particular.
We have seen an increasing advertising spend from advertisers in the e-commerce, gaming, travel, and food and beverage industries.
Meanwhile, revenue from our ad-supported mode also grew well as more users adopted this model. In addition, revenue from our ad-tr begin growing as AS CANO AlVP offers increasingzh
to TMD Live's advertiser sponsorship mentioned by Kushin earlier.
We cooperated with Uni President Sukhdaran, Tony Thangdaran and Heineken in the first quarter to create customized brand zones, playlists and music festivals.
Helping advertisers increase brand visibility with our innovative ad formats.
On top of advertising, we also enhanced our ability to monetize through artist merchandise, long-form audio, and music distribution.
In terms of artist merchandise in the first quarter, we worked with well-known artists such as Ren Jiawen, Lu Han, Huang Minghao to introduce collection cards, action figures, t-shirts and more. As a highlight.
Platform within two days. As a highlight, sales of the album Utopia, U Tho Bang Sow Nian, by Teens in Times, exceeded one million copies on our platform within two days of its release. In the future, we will keep expanding the offerings of artist merchandise on our platform.
and we also have a number of artist cooperation projects underway. In terms of long-form audio, its revenue has expanded year over year as we increase our offerings of popular content in the first quarter.
For example, we introduced a new format that combines leading IP and radio drama. During the quarter, we released Reunion, The Sound of the Providence.
Chongqi Zuji Hai-Ting Wei, adapted from the original work of Nan Paishang Xu.
Its streaming volume exceeded 340,000 in the first week after launch.
These distinguished content further complemented our music offerings and increased overall user engagement.
Moving on to our social entertainment services. Facing a tough market environment, we focus on product innovation to differentiate ourselves and gain user mindshare.
For WeSing, based on our multi-person singing room in both video and audio settings, we upgraded our chorus features to Chorus for All, which can support a real-time chorus of 1000 people.
further enriching users' immersive experience. In addition, we released extra interactive features in our singing rooms, such as score competition and red envelope sharing.
These features allow the singing room's penetration rate to grow year over year for the fifth quarter in a row.
In the future, we will leverage these chorus and singing features to explore collaboration across different products on our platform such as PME live, artist fan interaction events and sponsored advertising.
In terms of WeSing membership, we expanded VIP privileges to include features such as customizable sound effects, recording interface themes, and name tags, all resulting in year-over-year revenue growth in the first quarter. Meanwhile, WeSing's revenue grew steadily in the overseas market. We will expand its presence further through both organic growth and M&A.
For live streaming services, although revenue from traditional live streaming remains adversely affected by the macro environment, our audio live streaming delivers double digit year over year growth rate in the first quarter.
OJIN has become a growth engine for our live streaming services as we keep providing differentiated content and interactive features.
We also strive to build a growth path for more live streaming performers, further tapping into their potential while strengthening their connection with users, which in turn cultivates users' willingness to consume and pay for content. In the first quarter, the platform for Heather excelled atanchez46.
Kugoo Music rolled out its Singing Room feature following QQ Music's successful validation, delivering year-over-year revenue growth as well. Lastly, we remain committed to fulfilling our social responsibilities through music. For example, CMU provided care for people with autism through music for the seventh consecutive year.
We launched a caring program called if music has a shape We invited over 50 groups of singers and musicians from China and abroad Including she's a 10-shot done you anyway and to perform in a program and share the love
Simultaneously, we debuted the caring through music theme song, Secrets Hidden in the Stars, Hange Yi Xing Li, the Mi Mi, sung by Lucy, TME's first hyperrealm virtual pop idol. This program's social media views have exceeded 500 million, raising awareness of autism among the public.
In conclusion, we started 2023 on high notes with innovations across content and platform. This establishes a clear path for our creative and sustainable development in the coming year and beyond.
Our progress in monetization efficiency, cost optimization, commercialization, and user experience has also positioned us for ongoing business growth.
Going forward, we'll continue to explore the intersection of music and technology, pioneering new forms of art and entertainment, while upholding our commitment to society and fostering a healthy, more diverse music industry. With that, I would like to turn the call over to Shirley, our CFO , for a closer review of our financial. Thank you, and hello everyone.
Next, I'll discuss our results from a financial perspective. In the fourth quarter of 2023, our total revenue resumed year-over-year growth and the ratio of RMB, seven billion, up by five percent year-over-year. With the success of effective cost control and improved operation efficiency,
our long-advised net COVID margin reached 20.9% this quarter.
In Q1, news suppression revenue continued its rapid growth and reached RMB 2.6 billion, up by 30% year-over-year and by 11% sequentially, propelled by rapid expansion of both online with 10 users and ARTPs. Space is coming!
The mouse ARPPU in Q1 was Mb 9.2, increased by Mb 009 from last year and Mb 03 from last quarter, recording for consecutive quarter of expansion.
Online means paying user grew to 94.4 million up by 18 percent year-over-year. They presented a 5.9 million net ads sequentially. The strong ARPPU and paying user growth resulted from high quality content and services, and attractive member privileges.
and more effective promotions. As we expand use cases and service offerings, we are seeing growing demands in IoT services and expect more opportunities to monetize these in this area in the future. Therefore, starting from this quarter, we have updated the definition of online missed MAUs.
and includes certain IoT series users in our online news MAUs.
Additionally, revenue from advertising achieved strong growth year over year due to strong performance from our database-free listening model, as well as lower advertising revenues for comparison in Q1 2022 due to the impact from COVID-19.
We are pleased with such results and remain confident about the long-term growth potentials in advertising business.
Social entertainment service and other revenues were under 3.5 billion, down by 13% year-over-year, due to the evolving macro headwinds and competition from other platforms.
To adapt to the changing environment, we focus on cultivating talented performers and division-18 our content to stabilize the revenue scale of the traditional life streaming, and making efforts in increasing our competitiveness through ongoing product innovation and the new initiatives in social attainment services.
such as audio live streaming, real-time interactive periods, and international expansion. Growth margin in Q1 was 33.1%, up 5.1% points year-over-year, primarily due to the strong growth of online music revenues, our effective control of content plus, as well as improved operational...
percentage of total revenues in the same period last year.
And the market expenses were RMB 211.12 million.
down by 36% year over year. All of the reduced spending on user acquisition had impacted on our MAUs. Our core music subscription service delivered us drum groups.
We continue to take measures to improve efficiency, closely monitor the ROIs of each promotion channel, better utilize external promotion channels, and leverage our internal traffic to attract users and promote our products.
When elevating the healthiness of business and assessing our eye, we focus more on measures such as level of engagement, user detention rates, etc.
General and administrative expenses were unbilled, one billing, which was relatively stable comparing to the same period of 2022. We continue to closely manage and employ related benefits by improving telecom efficiency and advance in research and development to further empower news-related content creation.
enhance production expenses, and improve sound quality and effects. Our infected test rate for Q1 2023 was 12.2%.
For Q1, our net profit and net profit attributable to active holders of the company were RMB 1.2 meetings and RMB 1.1 meetings respectively. Long-auguage net profit and long-auguage net profit attributable to active holders of the company were RMB 1.2 meetings.
were RMB 1.5 billion and RMB 1.4 billion respectively. The local earnings per ADS was 0.73, up 97% on the year-over-year basis.
Now, with diluted earnings per ADS with MBI 0.89, up 65% on a year-over-year basis, such results demonstrate our commitment and continued success on operating business improvement, as well as the impact from shared repurchase programs.
We are integral to provide high quality investment returns for our investors and shareholders and remain confident about our financial performance, the development of our business and our industry.
As of March 31, 2023, our combined balances of cash, cash requirements and the term deposits for RMB 28.5 billion as compared with RMB 27.4 billion as of December 31, 2022. The increase was primarily due to our healthy operating cash flow of RMB 1.8 billion.
our online music service.
caught up with social entanglement services for the first time.
Going forward, we continue to expect balanced growth of both ARP and pain users, and remain confident in the growth of potential of our advertising business. Social entertainment service continues to face evolving micro headwinds and competition from ARP platforms.
and we will continue to differentiate our content and entertainment appearance and create more high quality content to better stabilize revenue scale for social entertainment services. Meanwhile, we continue to invest in new products and services.
high quality content and technology, especially in areas such as IoT, gaming, saving room, and original content, and AIGC to build up a solid foundation for our healthy, welcome growth.
This concludes our prepared remarks. Operator, we are ready to open the poll for questions. Hello everyone. If you are downloading by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you are accessing the poll from the Trenson meeting or Wolf's meeting application, please press 5 to unmute yourself.
please click the red-hand button at the bottom left. For the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, you can re-enter the queue. If you ask your questions in Chinese, please repeat them in English. And today's first question comes from Alex Hu from Mobis Den.
Alex, your line is open. Please go ahead.
Thank you management for taking my question and congratulations on very strong results. My first question is regarding our music subscriber growth business. 5.9 million net ads is our record high number.
and it's been accelerating from the last two quarters. Can management explain the drivers behind this and how should we think about the NetEd's growth outlook for the rest of the year? Thank you very much. The subscription revenue, which is very much our focus because we..
are seeking for a balanced growth between both paying users as well as ARPU. Subscription revenue grew at a 30% rate on a year-over-year basis, which as you pointed out is an accelerated pace compared to previous quarters.
This can be attributed to a number of factors. First, the quality as well as the value of our subscription service continues to improve. It was a long-term effort in the making and we're providing more and more attractive content and features within that subscription service.
Secondly, as a result of our long-term effort and focus, users' willingness to pay for premium features such as sound quality as well as sound effects continue to increase. Thirdly, we continue to improve the promotion of those high-quality content and product features.
And finally, more effective as well as targeted promotional discounts around new subs as well as better retention programs also help drive our pool higher. And as a result, we continue to expect a very strong growth in our subscription revenue looking forward. Thank you.
Our next question comes from Alicia Yepp from Citi Group. Alicia, your line is open. Please go ahead. Hi, thank you. Thanks for taking my questions. Good evening, management. I would like to get some updates if management could provide us how are we thinking about...
overall growth outlook, especially for online advertising and also the music subscription, if you can give some color as well on the social entertainment as well. Thank you.
Overall, we continue to expect that 2023 to be a year of positive growth for both top-line revenue as well as bottom-line net profit. In addition, most likely from the second quarter, we expect our quarterly revenue from online music services to exceed social entertainment services.
to become a primary source of revenues. In terms of online music specifically, we expect subscription revenue to continue to deliver quality, strong growth driven by both paying users and ARPPU.
In addition, a combination of advertising, long-form audio, artist merchandise, and IoT services are all expected to contribute to the growth meaningfully. In terms of social entertainment, while traditional video live streaming will continue to face competitive pressure, our audio live streaming and international business...
can partially compensate. Combining all of that with our continued focus on cost management to improve efficiency, we expect net profit margins to continue to improve resulting in net profit growth that are likely stronger than previously expected. Thank you.
And our next question comes from Lei Zhang from Dance America. Lei, your line is open. Please go ahead. Hi, Mandy. Thanks for taking my question and congrats on the strong set of results. My question is mainly on the music growth margin. Can you give us some updates on your music growth margin in the fourth quarter?
detail number of this business, we will talk about the whole gross margin of our whole business. Gross margin is 33.1% Q1, increased by 4.5% Q1.
0.1% year over year. Now there are some positive factors as follows. One, the strong growth of monthly ARP PPU and net ads of new subscriptions. And two, the growth of adult health revenue. And third, even social and technical revenue faced a long time.
food performance and high quality content. And the fourth, we optimized the content cost model of ROC and increased the ROC requirements. We also benefit from the development of our in-house original content production.
And fifth, we optimized the technology and operational strategy related to bandwidth and storage capacity and improved utilization of our service and equipment.
And looking forward in Q2 in 2023, we expect the subtraction value and the advertisement value will continue to this general growth. And we will continue to increase our operational business and monitor our costs. We expect our growth margin will increase the equation in Q2. Thank you.
And our next question comes from Wei Xiong from UPS. Your line is open. Please go ahead. Hey, good evening management. Thank you for taking my questions. You guys mentioned just now that you've seen good recovery in offline and also in the performance market. So just wondering if management could elaborate on
how we can participate more and potentially benefit from the offline event opportunities and could these offline events generate meaningful incremental revenues for us and contribute to the better growth of online music segment this year or do they have synergies with our online music subscription business? Thank you. Okay, thank you for your questions.
And yes, after we open the live concerts and music festival market, it's been really successful and for us so far. Our unique positioning will be both of our online and offline capabilities. And we will be also focusing on the quality, rather than the quantity of the shows. So we will continue to upgrade and also improve our PMV live IP by more in-depth partnerships about potential partners.
in resource content, construction, etc. And also it will definitely bring additional revenues to us and also it will further contribute to the healthy development of the TMU's content ecosystem in the long run. There's also a positive trend in the industry driving by the increasing demand.
for life entertainment experience and also the willingness of consumers to spend money on tickets and events. But however, it's also worth looking at, although the online performances have been very polished so far, but this is also a low margin business for the organisations.
So with this in mind, our approach will continue to be RY-based with a proven investment mindset. But we will continue to think that this is going to be exciting for us in the long run. Thank you. And our next question comes from Shen Yeo from CICC.
Shilin, you're lying to him. Please go ahead. Thanks management to take my question. Congratulations on strong performance. My question is about profit guidance. How does the management view the trend of OPACs and net profits in 2020-23 and in the long term? Is it possible to share some guidance? Thanks.
Next question, I got the gross margin, so I will talk about the operational expenses. And in 2023, we will continue focus on improving our efficient Q1, saving and promotion expenses, and operating on low cost level, down by 36% year-over-year.
All of the reduced spending on user creation had impact on our MAAUs. Our community subscription service delivered the general growth. And for the high cost management, we will continue to invest in product enhancements, technology innovations, new products and new businesses such as IoT over these buildings.
and the new nation program in house content production. Meanwhile, we will pay more attention to improve the profitability of business and products.
And Q1, the adjustment of profit margin is 20.9% and increased on a year-over-year basis and sequentially. And looking forward to Q2, we expect our savings and promotion basis and Gen A will be stable compared naturally in Q1. And with the...
growth of our revenue, respect the adjusted net profit and adjusted net margin, all will be increased.
Thank you. And our next question comes from Wei Fang from Yuzhou. Wei, your line is open. Please go ahead. Okay. Thank you. Okay.
Thank you for taking my question, management. Firstly, can you help update us on your Super VIP membership program in terms of adoption? And secondly, I was just curious, how's your IoT monthly fee compared to your average mobile monthly fee? Thank you. Well, first of all, we continue to have a lot of work to do in terms of the
under the SVIP membership.
In terms of the IoT services, we are seeing very good growth trajectory, primarily in the in-car space. We continue to penetrate more and more car models. For example, recently we penetrated into several notable Mercedes models.
And in those models, we are offering subscription services. And very often you do see those offered at a full price point, at the full price as opposed to at the discount price. You can try recording with theEEE
And increasingly, we'll be separating the price plan between the IoT services as well as the mobile device. So you have to actually pay a separate fee in order to access for IoT subscription in addition to being able to access the subscription for mobile device. Thank you.
And our next question comes from Ewan Jia from Venerable Research. Ewan, your line is open. Please go ahead. Hey, good evening, management. Thanks for taking my question. So my question is regarding the cooperation with the Tansa. We see some very successful cooperation regarding the Tiananmena.
So how should we deepen such cooperation? Do we expect, you know, we should, you know, expand the cooperation to more areas? Thank you. The WeChat music feature is actually powered by QT music to a large extent.
Our objective is to extend the QQ Music service onto WeChat to provide WeChat users with high-quality music experience. And this cooperation enables us to help music creators tap into the significantly broader reach that are offered by WeChat.
and as a way to promote this service, WeChat users can enjoy our service for free for a limited time between now and June 30. From July 1 onwards, to access certain premium content and features, users will be required to become a paying subscriber.
We believe this corporation will generate incremental revenues for TNE as it will allow us to attract incremental subscribers in the long run. Given the significantly broader reach of WeChat vis-a-vis TNE, we are delighted to be able to work very closely with WeChat on this cooperation to bring our music service to more users.
And we no doubt will continue to deepen the cooperation with WeChat as we go.
Okay now we will take our last question today from Lei Zhang from Bank of America. Lei, your line is open. Please go ahead. Hi, thanks for taking my follow-up question. Can you give us some updates on the very hot topic recently on...
AIGC and how we can use this technology and do we see this to tell us to say in general have some cross-tune show or say old packs, any updates or any feedback on AIGC topic. Thank you very much.
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Thank you for taking the time to watch this video for a long time, just we want to thank those groups setting up for us we Sara this evening and we all want to thank our guests and depends on
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We'll continue to deepen our research into the applications that are based on LLMs. One example of that is we'll be looking to develop a chatbot where users can chat to the chatbot about the kind of music they like to listen to and to discover new content.
We'll be cooperating closely with Tencent to develop applications based on their LLMs, as well as to work with open source LLMs to develop other applications such as those around image creation. We'll be working closely with Tencent to develop applications based on their LLMs, as well as to work with open source LLMs to develop other applications such as those around image
Similar to Google's MusicLM, we will look to provide tools to help musicians significantly reduce the barrier to music creation and lower the cost and to improve the efficiency to help them with song creation as well as lyrics writing. And finally in the areas of social entertainment, we will look to...
create virtual idols that will ultimately be used in live streaming type use cases. I am now approaching the end of the conference call. I will now turn the call over to our host, Mr. Tony Yeh, for closing remarks.
Thank you everyone for joining us today. If you have further questions, please feel free to contact TME's IR team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you.
Thank you.