The pain of Tencent Music 2023 remains the same： Chairman Cussion Pang was ＂slapped＂ and his monthly life continued to decrease.

Wen | Bedo Finance

A number of indicators have declined, and Tencent Music is still mixed in 2023.

On March 19th, online music and audio entertainment platform Tencent Music Entertainment Group (TME, NYSE:TME, HK:01698) released its unaudited financial results for the fourth quarter of 2023 and the whole year as of December 31st, 2023.

The financial report shows that Tencent Music’s performance in 2023 was mixed. In 2023, the total revenue of Tencent Music was 27.75 billion yuan (US$ 3.91 billion), a decrease of 2.1% compared with 28.34 billion yuan in 2022. According to Bedo Finance, Tencent Music’s revenue has declined for two consecutive years, with a year-on-year decrease of 9.3% in 2022.

In particular, Tencent Music "increased profits without increasing income" in 2023, which failed to meet the previous expectations of executives. Not only that, the monthly users of Tencent Music are also decreasing. However, the number of paying users of its online music service has increased significantly, which has become the core of driving profit growth.

First, the performance was not as good as the executives had expected. On a quarterly basis, the revenue of Tencent Music also continued to decline. In the fourth quarter of 2023, the revenue of Tencent Music was 6.89 billion yuan, a year-on-year decrease of 7.2%. In the first quarter and the second quarter of 2023, the revenue of Tencent Music was 7.004 billion yuan and 7.286 billion yuan respectively, up by 5.4% and 5.5% respectively.

In the third quarter of 2023, the revenue of Tencent Music dropped to 6.569 billion yuan, down 10.8% year-on-year and 9.8% quarter-on-quarter. However, the company’s profit level is optimizing. In the first quarter, the second quarter, the third quarter and the fourth quarter of 2023, its net profit attributable to the mother was 1.148 billion yuan, 1.298 billion yuan, 1.168 billion yuan and 1.306 billion yuan respectively, showing an increasing trend.

In the fourth quarter of 2023, Tencent Music’s online music service revenue was 5.02 billion yuan, a year-on-year increase of 41.1%, accounting for more than 70% of the total revenue. In contrast, the income from social entertainment services and other services was 1.87 billion yuan, a sharp drop of 51.6% year-on-year, accounting for less than 30%.

The same is true throughout 2023. The financial report shows that Tencent Music’s revenue in 2023 was 27.75 billion yuan, down 2.1% year-on-year. Among them, online music service revenue was 17.33 billion yuan, up 38.8% year-on-year; Revenue from social entertainment services and other services was 10.43 billion yuan, down 34.2% year-on-year.

"2023 is a crucial year for the company’s transformation. We continue to promote the vigorous development of the music industry and are full of confidence in the prosperity and growth of the industry in the next few years," said Cussion Pang, executive chairman of Tencent Music. "We are confident to seize more development opportunities."

When releasing the financial report for the fourth quarter of 2022, Cussion Pang once said, "Looking forward to 2023, we will seize the development opportunity, and it is predicted that the online music service revenue in a single quarter will exceed the social entertainment service revenue in the same quarter this year", and said that we are confident to achieve the year-on-year growth of total revenue and profit and the continuous improvement of user quality in 2023.

However, in 2023, Tencent Music experienced a situation of "increasing profits without increasing income", and actually "faced" executives. According to Bedo Finance, Cussion Pang was appointed as the executive chairman of Tencent Music in April 2021, and Ross Liang was appointed as the CEO and board member of the company.

Previously, Dowson Tong, senior executive vice president of Tencent, was also the chairman of Tencent Music. Earlier, when CMC (the holding company of Cool Dog Music and Cool Me Music) and Tencent Music (including QQ music and national karaoke) merged, Xie Guomin, the founder of Cool Dog Music, who was the co-president of Tencent Music, also left the team in June 2019.

Second, the monthly users continue to reduce the financial report, showing that the core operating indicators of Tencent Music have fluctuated. In the fourth quarter of 2023, the number of monthly active users (MAU) of its online music service sector was 576 million, a decrease of 4.2% compared with 601 million in the fourth quarter of 2022 (year-on-year) and a decrease of 3.0% compared with 594 million in the third quarter of 2023.

However, the number of paying users in the online music service sector reached 106 million in the fourth quarter of 2023, an increase of 20.6% compared with 89 million in the same period of 2022, and 103 million in the third quarter of 2023; The average monthly income (ARPPU) of a single paying user was 10.7 yuan, which was in 8.9 yuan in the same period of 2022, up by 20.2% year-on-year, and was 10.3 yuan in the third quarter of 2023.

As far as social entertainment services are concerned, the number of monthly active users of Tencent Music in the fourth quarter of 2023 was 104 million, a year-on-year decrease of 28.8% and a quarter-on-quarter decrease of 19.4%. The number of paying users was 8 million, up 6.3% from 7.6 million in the same period in 2022 and 2.6% from 7.8 million in the third quarter of 2023.

Bedo Finance learned that the average monthly income of individual paying users corresponding to Tencent Music’s social entertainment service sector continued to drop sharply. In the fourth quarter of 2023, the index was 78.0 yuan, a year-on-year decrease of 54.0%, which was relatively "waist-cutting". Not only that, in the third quarter of 2023, the index was 86.2 yuan, a year-on-year decrease of 51.4%.

Looking at it for a long time, the number of monthly active users of Tencent Music is also declining. According to the prospectus disclosed by Tencent Music on the Hong Kong Stock Exchange in September 2022, the number of monthly users of its online music service in 2019 was 653 million, which decreased to 644 million and 622 million respectively in 2020 and 2021, and further decreased to 604 million in the first quarter of 2022.

In contrast, the monthly users of Tencent Music’s social entertainment services in 2019, 2020 and 2021 were 240 million, 240 million and 203 million respectively, showing a downward trend. In the first quarter of 2022, the index was 162 million, a year-on-year decrease of 27.7%.

According to Bedo Finance, the monthly users of social entertainment services of Tencent Music in the second quarter to the fourth quarter of 2022 were 166 million, 155 million and 146 million respectively, which decreased by 20.6%, 24.4% and 16.6% respectively. From the first quarter to the third quarter of 2023, the index was 136 million, 136 million and 129 million respectively, and it was 104 million in the fourth quarter of 2023.

As far as the fourth quarter is concerned, the monthly mobile users of Tencent Music’s social entertainment services in the fourth quarter of 2020 was 223 million, which was reduced to 175 million in the fourth quarter of 2021, 146 million in the fourth quarter of 2022 and 104 million in the fourth quarter of 2023 respectively.

Based on this calculation, the number of monthly users of Tencent Music’s social entertainment service has decreased by more than 100 million in two years.

In addition, in the first quarter of 2023, Tencent Music began to redefine the monthly active users of the online music service sector, covering independent mobile terminals and specific IoT devices, and restated the data of the same period in 2022. Before the adjustment, the index was 604 million, 593 million, 587 million and 567 million in the first to fourth quarters of 2022, respectively.

After adjustment, the monthly active users of Tencent Music’s online music service in the first quarter to the fourth quarter of 2022 were 636 million, 623 million, 620 million and 601 million, respectively, which continued to decline. In the first quarter, the second quarter and the third quarter of 2023, the indicators were 592 million, 594 million and 594 million, respectively, with a year-on-year decrease of 6.9%, 4.7% and 4.2%.

Third, continue to improve the content ecology. In particular, Tencent Music lost many executives in 2023. On December 1, 2023, Tencent Music announced that Shi Mechanics would resign as vice president of Tencent Music and other related positions for personal reasons, and the adjustment would take effect on December 31, 2023.

According to public information, Shi Mechanics has been the vice president of Tencent Music since 2016. When the long audio business line of Tencent Music was established in 2021, the long audio section of Tencent Music was deeply integrated with lazy people listening to books under the promotion of the core management team of the group including Shi Mechanics.

Previously, on July 17, 2023, Tencent Music announced that Cheuk Tung Tony Yip would resign as the company’s chief strategy officer and other related positions for personal reasons. Tencent Music fully respected his personal wishes, and the above adjustments will take effect on August 31, 2023.

In this regard, Cussion Pang, as the chairman of Tencent Music, once said that Tony (Ye Zhuodong) promoted the company to complete two successful listings in 2018 and 2022, which made an important contribution to the gradual development of TME as the leader of online music and audio entertainment services in China.

It is understood that Ye Zhuodong has many years of working experience in investment banking and was the managing director of Goldman Sachs. Before joining Tencent Music in 2018, Ye Zhuodong joined Baidu in September 2015. He was the general manager of Baidu’s investment M&A department and was fully responsible for Baidu’s investment M&A affairs. He was also a member of the board of directors of Ctrip.

On the operational level, Tencent Music is also continuously improving the content ecology. By the end of 2023, Tencent Music’s music library had more than 200 million music and audio tracks. In the fourth quarter of 2023, Tencent Music completed the long-term strategic cooperation renewal with Universal Music Group, and continued to provide users with a world-class music library and more rights.

In 2023, Tencent Music seized the opportunity of the revival of live music performances and held more and more offline music activities with different performances. At present, Tencent Music’s cash reserves are still strong. By the end of 2023, the balance of cash and cash equivalents of the company was 32.22 billion yuan, with good liquidity and financial stability.

Based on the confidence in the company, Tencent Music also continued to promote the repurchase plan. According to the $500 million share repurchase plan announced on March 21st, 2023, as of December 31st, 2023, Tencent Music has repurchased 25.3 million American Depositary Shares in cash from the open market, with a total amount of $174.5 million.

Looking forward to 2024, Cussion Pang said, "Driven by the strategy of" one body and two wings "of content and platform, and benefiting from the relatively strong anti-cyclical nature of online music business, we are confident to seize more development opportunities." Liang Zhu said, "We will continue to work to improve the user experience, make music discovery more interesting and convenient, and make music experience everywhere."