SHENZHEN, China, Nov. 15, 2022 /PRNewswire/ -- Tencent Music Entertainment Group ("TME," or the "Company") (NYSE: TME and HKEX: 1698), the leading online music and audio entertainment platform in China, today announced its unaudited financial results for the third quarter ended September 30, 2022.
Financial and Operational Highlights
In the three months ended September 30, 2022:
"As we are employing a balanced approach to grow paying users and ARPPU, revenues from online music services increased at a healthy pace in the third quarter, driven by year-over-year gains in subscriptions. Meanwhile, effective cost optimization measures and improved operating efficiency led to increased profitability amid challenging macro conditions this quarter," said Mr. Cussion Pang, Executive Chairman of TME. "Leveraging our dual engine content-and-platform strategy, we introduced more resources and optimized services to furnish music content creators and musicians with the tools they need and music lovers with the sounds and features they want. Each new element we offer drives the development of our business and the overall industry. Furthermore, completing our listing on the Main Board of The Stock Exchange of Hong Kong, in addition to our primary listing on the NYSE, demonstrates our commitment to protecting long-term value for shareholders. Also, as a token of confidence in our Company's bright future, as of the end of the third quarter, we had repurchased over $800 million of our stock, pursuant to the $1 billion share repurchase program we announced last year."
"Propelled by our innovative spirit, we introduced numerous immersive and connective product upgrades in the third quarter. Users now have even more unique ways to interact with our content and with one another as they listen, watch, sing and play," said Mr. Ross Liang, CEO of TME. "Today, we cater to more diverse music tastes and nuanced user demands than ever before. Improved experiences, together with more privileges, translate into new, attractive monetization opportunities for us to actively tap into, such as TME Live, TMELAND, Super VIP Membership, Artist Subscription and more. To supplement our expanding world of music content, we also introduced a number of tech-supported tools to facilitate long-form audio podcast creation. Our deepened connection with Tencent's broader ecosystem has continued to bolster our content production, promotion and monetization capabilities. Finally, developing music experiences with resounding positive influence is the backbone of our company. As we nurture these strengths, we continue to bring more social awareness and value to our music-empowered charity programs while supporting music and its evolution."
Recent Operational Highlights
3Q22 | 3Q21 | YoY % | |
Mobile MAU - online music (million) | 587 | 636 | (7.7 %) |
Mobile MAU - social entertainment (million) | 155 | 205 | (24.4 %) |
Paying users - online music (million) | 85.3 | 71.2 | 19.8 % |
Paying users - social entertainment (million) | 7.4 | 10.0 | (26.0 %) |
Monthly ARPPU - online music (RMB) | 8.8 | 8.9 | (1.1 %) |
Monthly ARPPU - social entertainment (RMB) | 177.3 | 163.9 | 8.2 % |
[1] Non-IFRS net profit and Non-IFRS net profit attributable to equity holders of the Company was arrived at after excluding the combined effect of amortization of intangible assets and other assets arising from acquisitions, share-based compensation expenses, net losses/gains from investments and income tax effects. |
[2] For the definitions of the cited key operating metrics, please refer to the introduction section in the Company's 2021 20-F filed on April 26, 2022. The monthly ARPPU of social entertainment services is calculated based on revenues from social entertainment and others, including advertising services provided on our social entertainment platforms. Online music mobile MAUs for a given month refers to the sum of mobile MAUs of our music products, including QQ Music, Kugou Music and Kuwo Music, for that month; duplicate access to different services by the same device is not eliminated from the calculation. |
Third Quarter 2022 Financial Results
Revenues
Total revenues for the third quarter of 2022 decreased by RMB440 million, or 5.6%, to RMB7.37 billion (US$1.04 billion) from RMB7.81 billion in the same period of 2021.
Cost of Revenues
Cost of revenues for the third quarter of 2022 decreased by 9.7% to RMB4.96 billion (US$698 million) from RMB5.50 billion in the same period of 2021. The declined revenues from social entertainment services led to the decrease in revenue sharing fees, which was the primary reason for the overall decrease in cost of revenues on a year-over-year basis.
Gross Profit and Gross Margin
Gross profit for the third quarter of 2022 increased by 4.1% to RMB2.40 billion (US$338 million) from RMB2.31 billion in the same period of 2021. Gross margin for the third quarter of 2022 increased by 3.0% to 32.6% from 29.6% in the same period of 2021. This increase in gross margin was primarily due to our effective control of content costs including revenue sharing fees for our live streaming business, as well as improved operational cost efficiencies and the increase in revenues from advertising services and sales of digital albums.
Operating Expenses for the Period
Total operating expenses for the third quarter of 2022 decreased by 12.3% to RMB1.44 billion (US$202 million) from RMB1.64 billion in the same period of 2021. Operating expenses as a percentage of total revenues decreased by 1.5% to 19.5% in the third quarter of 2022 from 21.0% in the same period of 2021. After excluding the impact from the expenses related to our secondary listing, operating expenses as a percentage of total revenues would have decreased by 2.1% year-over-year.
Operating Profit for the Period
Operating profit for the third quarter of 2022 increased by 37.2% to RMB1.26 billion (US$177 million) from RMB919 million in the same period of 2021, resulting from our improved gross profit and effective control over operational efficiency.
Income Tax Expenses
Effective tax rate in the third quarter of 2022 was 12.2%, compared to 11.5% in the same period of 2021. The increase in effective tax rate was mainly because some of our entities were entitled to different tax benefits in 2021 and 2022.
Net Profit and Non-IFRS Net Profit for the Period
Net profit attributable to equity holders of the Company for the third quarter of 2022 increased by 43.4% to RMB1.06 billion (US$149 million) from RMB740 million in the same period of 2021. Non-IFRS net profit attributable to equity holders of the Company for the third quarter of 2022 increased by 35.9% to RMB1.38 billion (US$194 million) from RMB1.02 billion in the same period of 2021. Please refer to the section in this press release titled "Non-IFRS Financial Measure" for details.
Earnings per ADS
Basic and diluted earnings per American Depositary Shares ("ADS") were RMB0.67 (US$0.09) and RMB0.66(US$0.09), respectively, for the third quarter of 2022. Non-IFRS basic and diluted earnings per ADS were RMB0.87 (US$0.12) and RMB0.86 (US$0.12), respectively, for the third quarter of 2022. During the third quarter of 2022, the Company had weighted averages of 1.59 billion basic and 1.60 billion diluted ADSs outstanding, respectively. Each ADS represents two of the Company's Class A ordinary shares.
Cash, Cash Equivalents, Term Deposits and Short-term Investments
As of September 30, 2022, the combined balance of the Company's cash, cash equivalents, term deposits and short-term investments amounted to RMB25.45 billion (US$3.58 billion), compared to RMB25.80 billion as of June 30, 2022. Such combined balance was also affected by the change in the exchange rate of RMB to USD at different balance sheet dates. The exchange rate was 7.1135 to 1 on September 30, 2022.
Share Repurchase Program
Pursuant to the US$1 billion 2021 Share Repurchase Program announced on March 28, 2021, as of September 30, 2022, we had repurchased approximately 114.0 million ADSs from the open market with cash for a total consideration of approximately US$860 million.
Conference Call Information
TME's management will hold a conference call at 7:00 P.M. on Tuesday, November 15, 2022 (Hong Kong time) (6:00 A.M. on November 15, 2022, U.S. Eastern Time) to discuss the financial result for the three months ended September 30, 2022. The dial-in details of the conference call are as follows:
United States Toll Free: | +1-888-317-6003 |
International: | +1-412-317-6061 |
Mainland China Toll Free: | 400-120-6115 |
Hong Kong, China Toll Free: | 800-963-976 |
Access Code: | 2420087 |
The replay will be accessible through November 22, 2022, by dialing the following numbers:
United States Toll Free: | +1-877-344-7529 |
International: | +1-412-317-0088 |
Access Code: | 4004801 |
Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at https://ir.tencentmusic.com/.
Exchange Rate
This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.1135 to US$1.00, the noon buying rate in effect on September 30, 2022, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.
Non-IFRS Financial Measure
The Company uses non-IFRS net profit for the period, which is a non-IFRS financial measure, in evaluating its operating results and for financial and operational decision-making purposes. TME believes that non-IFRS net profit helps identify underlying trends in the Company's business that could otherwise be distorted by the effect of certain expenses that the Company includes in its profit for the period. TME believes that non-IFRS net profit for the period provides useful information about its results of operations, enhances the overall understanding of its past performance and future prospects and allows for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.
Non-IFRS net profit for the period should not be considered in isolation or construed as an alternative to operating profit, net profit for the period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-IFRS net profit for the period and the reconciliation to its most directly comparable IFRS measure. Non-IFRS net profit for the period presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. TME encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.
Non-IFRS net profit for the period represents profit for the period excluding amortization of intangible and other assets arising from acquisitions, share-based compensation expenses, net losses/gains from investments and income tax effects.
Please see the "Unaudited Non-IFRS Financial Measure" included in this press release for a full reconciliation of Non-IFRS net profit for the period to its net profit for the period.
About Tencent Music Entertainment
Tencent Music Entertainment Group (NYSE: TME and HKEX: 1698) is the leading online music and audio entertainment platform in China, operating the country's highly popular and innovative music apps: QQ Music, Kugou Music, Kuwo Music and WeSing. TME's mission is to use technology to elevate the role of music in people's lives by enabling them to create, enjoy, share and interact with music. TME's platform comprises online music, online audio, online karaoke, music-centric live streaming and online concert services, enabling music fans to discover, listen, sing, watch, perform and socialize around music. For more information, please visit ir.tencentmusic.com.
Safe Harbor Statement
This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the SEC and the HKEX. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.
Investor Relations Contact
Tencent Music Entertainment Group
ir@tencentmusic.com
+86 (755) 8601-3388 ext. 818415
TENCENT MUSIC ENTERTAINMENT GROUP | |||||||||||||
CONSOLIDATED INCOME STATEMENT | |||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2021 | 2022 | 2021 | 2022 | ||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | ||||||||
Unaudited | Unaudited | Unaudited | Unaudited | Unaudited | Unaudited | ||||||||
(in millions, except per share data) | (in millions, except per share data) | ||||||||||||
Revenues | |||||||||||||
Online music services | 2,888 | 3,430 | 482 | 8,587 | 8,924 | 1,255 | |||||||
Social entertainment services and others | 4,917 | 3,935 | 553 | 15,050 | 11,990 | 1,686 | |||||||
7,805 | 7,365 | 1,035 | 23,637 | 20,914 | 2,940 | ||||||||
Cost of revenues | (5,496) | (4,962) | (698) | (16,425) | (14,588) | (2,051) | |||||||
Gross profit | 2,309 | 2,403 | 338 | 7,212 | 6,326 | 889 | |||||||
Selling and marketing expenses | (587) | (245) | (34) | (1,928) | (878) | (123) | |||||||
General and administrative expenses | (1,051) | (1,192) | (168) | (2,942) | (3,318) | (466) | |||||||
Total operating expenses | (1,638) | (1,437) | (202) | (4,870) | (4,196) | (590) | |||||||
Interest income | 131 | 186 | 26 | 408 | 487 | 68 | |||||||
Other gains, net | 117 | 109 | 15 | 368 | 438 | 62 | |||||||
Operating profit | 919 | 1,261 | 177 | 3,118 | 3,055 | 429 | |||||||
Share of net profit/(loss) of investments accounted for | 1 | 8 | 1 | (48) | 22 | 3 | |||||||
Finance cost | (30) | (24) | (3) | (90) | (77) | (11) | |||||||
Profit before income tax | 890 | 1,245 | 175 | 2,980 | 3,000 | 422 | |||||||
Income tax expense | (102) | (152) | (21) | (342) | (366) | (51) | |||||||
Profit for the period | 788 | 1,093 | 154 | 2,638 | 2,634 | 370 | |||||||
Attributable to: | |||||||||||||
Equity holders of the Company | 740 | 1,061 | 149 | 2,493 | 2,526 | 355 | |||||||
Non-controlling interests | 48 | 32 | 4 | 145 | 108 | 15 | |||||||
Earnings per share for Class A and Class | |||||||||||||
Basic | 0.22 | 0.33 | 0.05 | 0.75 | 0.78 | 0.11 | |||||||
Diluted | 0.22 | 0.33 | 0.05 | 0.74 | 0.78 | 0.11 | |||||||
Earnings per ADS (2 Class A shares | |||||||||||||
Basic | 0.45 | 0.67 | 0.09 | 1.50 | 1.57 | 0.22 | |||||||
Diluted | 0.44 | 0.66 | 0.09 | 1.47 | 1.55 | 0.22 | |||||||
Shares used in earnings per Class A and | |||||||||||||
Basic | 3,305,669,441 | 3,176,110,236 | 3,176,110,236 | 3,334,040,031 | 3,224,870,392 | 3,224,870,392 | |||||||
Diluted | 3,337,499,968 | 3,206,799,580 | 3,206,799,580 | 3,382,627,682 | 3,255,991,564 | 3,255,991,564 | |||||||
ADS used in earnings per ADS | |||||||||||||
Basic | 1,652,834,720 | 1,588,055,118 | 1,588,055,118 | 1,667,020,016 | 1,612,435,196 | 1,612,435,196 | |||||||
Diluted | 1,668,749,984 | 1,603,399,790 | 1,603,399,790 | 1,691,313,841 | 1,627,995,782 | 1,627,995,782 |
TENCENT MUSIC ENTERTAINMENT GROUP | |||||||||||||
UNAUDITED NON-IFRS FINANCIAL MEASURE | |||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2021 | 2022 | 2021 | 2022 | ||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | ||||||||
(in millions, except per share data) | (in millions, except per share data) | ||||||||||||
Profit for the period | 788 | 1,093 | 154 | 2,638 | 2,634 | 370 | |||||||
Adjustments: | |||||||||||||
Amortization of intangible and other assets arising | 127 | 130 | 18 | 357 | 372 | 52 | |||||||
Share-based compensation | 202 | 226 | 32 | 551 | 656 | 92 | |||||||
(Gains)/Losses from investments** | (21) | - | - | 16 | (141) | (20) | |||||||
Income tax effects*** | (33) | (38) | (5) | (103) | (106) | (15) | |||||||
Non-IFRS Net Profit | 1,063 | 1,411 | 198 | 3,459 | 3,415 | 480 | |||||||
Attributable to: | |||||||||||||
Equity holders of the Company | 1,015 | 1,379 | 194 | 3,314 | 3,307 | 465 | |||||||
Non-controlling interests | 48 | 32 | 4 | 145 | 108 | 15 | |||||||
Earnings per share for Class A and Class B | |||||||||||||
Basic | 0.31 | 0.43 | 0.06 | 0.99 | 1.03 | 0.14 | |||||||
Diluted | 0.30 | 0.43 | 0.06 | 0.98 | 1.02 | 0.14 | |||||||
Earnings per ADS (2 Class A shares equal to 1 | |||||||||||||
Basic | 0.61 | 0.87 | 0.12 | 1.99 | 2.05 | 0.29 | |||||||
Diluted | 0.61 | 0.86 | 0.12 | 1.96 | 2.03 | 0.29 | |||||||
Shares used in earnings per Class A and | |||||||||||||
Basic | 3,305,669,441 | 3,176,110,236 | 3,176,110,236 | 3,334,040,031 | 3,224,870,392 | 3,224,870,392 | |||||||
Diluted | 3,337,499,968 | 3,206,799,580 | 3,206,799,580 | 3,382,627,682 | 3,255,991,564 | 3,255,991,564 | |||||||
ADS used in earnings per ADS computation | |||||||||||||
Basic | 1,652,834,720 | 1,588,055,118 | 1,588,055,118 | 1,667,020,016 | 1,612,435,196 | 1,612,435,196 | |||||||
Diluted | 1,668,749,984 | 1,603,399,790 | 1,603,399,790 | 1,691,313,841 | 1,627,995,782 | 1,627,995,782 | |||||||
* Represents the amortization of identifiable assets, including intangible assets and prepayments for music content, resulting from acquisitions | |||||||||||||
** Including the net losses/gains on deemed disposals/disposals of investments, fair value changes arising from investments, impairment provision of investments and other expenses in relation to equity transactions of investments | |||||||||||||
*** Represents the income tax effects of Non-IFRS adjustments |
TENCENT MUSIC ENTERTAINMENT GROUP | ||||||
CONSOLIDATED BALANCE SHEET | ||||||
As at December 31, 2021 | As at September 30, 2022 | |||||
RMB | RMB | US$ | ||||
Audited | Unaudited | Unaudited | ||||
(in millions) | ||||||
ASSETS | ||||||
Non-current assets | ||||||
Property, plant and equipment | 243 | 289 | 41 | |||
Land use rights | 1,495 | 2,499 | 351 | |||
Right-of-use assets | 283 | 435 | 61 | |||
Intangible assets | 2,829 | 2,491 | 350 | |||
Goodwill | 19,121 | 19,493 | 2,740 | |||
Investments accounted for using equity method | 3,599 | 4,386 | 617 | |||
Financial assets at fair value through other comprehensive | 7,302 | 3,172 | 446 | |||
Other investments | 199 | 299 | 42 | |||
Prepayments, deposits and other assets | 743 | 659 | 93 | |||
Deferred tax assets | 346 | 392 | 55 | |||
Term deposits | 4,303 | 6,570 | 924 | |||
40,463 | 40,685 | 5,719 | ||||
Current assets | ||||||
Inventories | 24 | 20 | 3 | |||
Accounts receivable | 3,610 | 2,916 | 410 | |||
Prepayments, deposits and other assets | 2,731 | 4,221 | 593 | |||
Other investments | 37 | 37 | 5 | |||
Short-term investments | 1,029 | - | - | |||
Term deposits | 12,769 | 10,294 | 1,447 | |||
Cash and cash equivalents | 6,591 | 8,582 | 1,206 | |||
26,791 | 26,070 | 3,665 | ||||
Total assets | 67,254 | 66,755 | 9,384 | |||
EQUITY | ||||||
Equity attributable to equity holders of the | ||||||
Share capital | 2 | 2 | 0 | |||
Additional paid-in capital | 36,238 | 36,493 | 5,130 | |||
Shares held for share award schemes | (183) | (200) | (28) | |||
Treasury shares | (3,660) | (5,445) | (765) | |||
Other reserves | 3,726 | 5,404 | 760 | |||
Retained earnings | 14,194 | 10,970 | 1,542 | |||
50,317 | 47,224 | 6,639 | ||||
Non-controlling interests | 738 | 1,070 | 150 | |||
Total equity | 51,055 | 48,294 | 6,789 | |||
LIABILITIES | ||||||
Non-current liabilities | ||||||
Notes payables | 5,062 | 5,641 | 793 | |||
Accounts payable | 93 | - | - | |||
Other payables and other liabilities | 32 | 6 | 1 | |||
Deferred tax liabilities | 271 | 219 | 31 | |||
Lease liabilities | 205 | 349 | 49 | |||
Deferred revenue | 86 | 108 | 15 | |||
5,749 | 6,323 | 889 | ||||
Current liabilities | ||||||
Accounts payable | 4,329 | 4,838 | 680 | |||
Other payables and other liabilities | 3,832 | 4,490 | 631 | |||
Current tax liabilities | 363 | 476 | 67 | |||
Lease liabilities | 92 | 99 | 14 | |||
Deferred revenue | 1,834 | 2,235 | 314 | |||
10,450 | 12,138 | 1,706 | ||||
Total liabilities | 16,199 | 18,461 | 2,595 | |||
Total equity and liabilities | 67,254 | 66,755 | 9,384 |
TENCENT MUSIC ENTERTAINMENT GROUP | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||
2021 | 2022 | 2021 | 2022 | |||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||
Unaudited | Unaudited | Unaudited | Unaudited | Unaudited | Unaudited | |||||||
(in millions) | (in millions) | |||||||||||
Net cash provided by operating activities | 1,595 | 1,252 | 176 | 4,417 | 4,987 | 701 | ||||||
Net cash used in investing activities | (1,692) | (1,243) | (175) | (6,995) | (338) | (48) | ||||||
Net cash used in financing activities | (1,651) | (1,668) | (234) | (3,424) | (3,036) | (427) | ||||||
Net (decrease)/increase in cash and cash equivalents | (1,748) | (1,659) | (233) | (6,002) | 1,613 | 227 | ||||||
Cash and cash equivalents at beginning of the period | 6,822 | 10,044 | 1,412 | 11,128 | 6,591 | 927 | ||||||
Exchange differences on cash and cash equivalents | 4 | 197 | 28 | (48) | 378 | 53 | ||||||
Cash and cash equivalents at end of the period | 5,078 | 8,582 | 1,206 | 5,078 | 8,582 | 1,206 |
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SOURCE Tencent Music Entertainment Group