Tencent Music (TME) reported a stronger-than-expected performance for the fourth quarter of 2023, with both earnings and revenue surpassing analyst estimates. The company's shares edged up 1.9% following the announcement, signaling investor approval of the results.
For the quarter, Tencent Music posted earnings per share (EPS) of RMB1.00, exceeding the analyst consensus of RMB0.89. Revenue also beat expectations, coming in at RMB6.89 billion against the forecasted RMB6.67 billion. Despite a 7.2% decrease in total revenues YoY, primarily due to a decline in social entertainment services, the company saw a significant 45.3% increase in music subscription revenues to RMB3.42 billion. This growth was bolstered by a 20.6% rise in the number of paying users, reaching 106.7 million.
The company's net profit grew by 16.9% YoY to RMB1.41 billion, with a non-IFRS net profit of RMB1.68 billion, marking a 12.5% YoY increase. The non-IFRS net profit attributable to equity holders of the company saw a 9.5% YoY growth, reaching RMB1.58 billion.
Mr. Cussion Pang, Executive Chairman of TME, commented on the company's performance, stating, "The fourth quarter recorded accelerated year-over-year growth in music subscription revenue, anchored by consistent increases in subscribers and ARPPU." He expressed optimism about the company's future, highlighting the strong performance of online music services in mitigating headwinds from other areas.
CEO Mr. Ross Liang also emphasized the company's focus on efficiency and personalization, which contributed to improved subscriber conversion and retention. Looking forward to 2024, he reaffirmed the company's commitment to enhancing user experience and broadening access to music.
While the company's share price movement was modest, the positive earnings and revenue beat indicate a favorable market response to Tencent Music's financial results and strategic direction. As the company navigates the evolving music industry landscape, its focus on subscription growth and operational efficiency appears to resonate with investors.
Following the report, Citi upgraded the stock to Buy from Neutral, upping its price target to $13 from $9 per share. The bank said they "believe TME’s steady/resilient subscription music business with expanding capabilities of music value chain and ramp-up of long-form audio and diversified use case scenarios across multi-channels/devices would support sustained growth outlook."
Elsewhere, Morgan Stanley lifted its price target for Overweight-rated TME to $13.50 from $11 per share, stating they think "TME is executing well on its medium-term targets - to grow subs and ARPPU by 50% each in 3-5 years from 2023's level."
Analysts added, "TME's 1Q24 music net adds level is tracking similar to its all-time high run-rate in 1Q23. We raise our revenue and margin estimates and still see upside potential, with numerous drivers for the music segment,"