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Tencent Music (TME) Q1 Earnings In Line, Revenues Rise Y/Y

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Tencent Music Entertainment Group (TME - Free Report) reported first-quarter 2021 adjusted earnings of 11 cents per American Depositary Shares (ADS) that matched the Zacks Consensus Estimate.

In domestic currency, the company reported adjusted earnings of RMB0.69 per ADS.

Revenues jumped 24% year over year to RMB7.82 billion ($1.19 billion).

Top-Line Details

Revenues from online music services increased 34.5% year over year to RMB2.75 billion ($420 million), driven by strong growth in music subscription revenues, supplemented by growth in advertising service revenues, partially offset by decrease in sublicensing revenues.

Revenues from music subscriptions were RMB1.69 billion ($258 million), up 40.2% year over year primarily due to increase in number of paying users of 42.6% year over year.

Revenues from social entertainment services and others increased 18.9% to RMB5.08 billion ($775 million), primarily driven by increased revenues from live streaming and advertising on social entertainment platform.

Q1 User Base Details

Mobile MAU - online music declined 6.4% year over year to 615 million primarily due to churn of casual users served by pan-entertainment platforms. Moreover, monthly ARPPU - online music decreased 1.1% to RMB9.3. Meanwhile, paying users - online music jumped 42.6% to 60.9 million.

Meanwhile, Mobile MAU - social entertainment declined 14.2% year over year to 224 million. Moreover, paying users - social entertainment declined 12.4% to 11.3 million. Meanwhile, monthly ARPPU - social entertainment rose 35.7% to RMB149.7.

For the three months ended Mar 31, 2021, IoT MAUs through in-car systems, smart speakers, TV and other connected devices were 69 million, representing an increase of 50% year over year.

During the reported quarter, Tencent Music accelerated the addition of PUGC and UGC long-form audio content. QQ Music launched the Ground Zero Podcast program, which offers financial resources and tools that enable original podcast content creation.

In March 2021, the company completed the acquisition of Lazy Audio and started consolidation. Moreover, Tencent Music integrated Kuwo Changting with Lazy Audio to form Lanren Changting in April, a new brand for its long-form audio business.

The company also took initiatives to diversify through enhanced coverage of genres such as hip-hop, Chinese ancient style, music for popular television programs, variety shows and online games.

Additionally, Tencent Music strived to build a wider audience for hip-hop in China through the program Rappers' Alliance while providing both rising and top-tier established rappers with stage and publicity support as well as commercialization opportunities.

Moreover, the company continued to invest in Chinese ancient style music and advocated the popularity of the traditional culture by providing content creation and promotion venues for a number of renowned musicians in this genre and in many cases, helping promote their works to the top of music charts.

Operating Details

Tencent Music’s first-quarter 2021 cost of revenues increased 23.6% year over year to RMB5.36 billion ($818 million), primarily due to increased content and revenue sharing fees.

Nevertheless, gross profit increased 24.7% to RMB2.47 billion ($376 million) in the reported quarter.

Selling and marketing expenses were RMB672 million ($103 million), up 39.7% year over year due to higher user acquisition expenses and spending related to TMEA event.

General and administrative expenses increased 29.7% to RMB883 million ($135 million) due to the company's increased investment in research and development to expand its competitive advantages in product and technology innovations.

Operating profit rose to RMB1.16 billion ($178 million) in the first quarter of 2021 compared with operating profit of RMB1.05 billion reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2021, the combined balance of the company's cash, cash equivalents, term deposits and short-term investments amounted to RMB26.97 billion ($4.12 billion), compared with RMB28.94 billion as of Dec 31, 2020.

Net cash from operations was RMB1.88 billion ($287 million), compared with RMB1.07 billion in the year-ago quarter.

Zacks Rank & Stocks to Consider

Tencent Music currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are NetApp, Inc. (NTAP - Free Report) , Dell Technologies (DELL - Free Report) and NVIDIA (NVDA - Free Report) . Each of these stocks carry a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

NVIDIA, Dell and NetApp are set to report their earnings on May 26, May 27 and Jun 2, respectively.

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