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Tencent Music (TME) Q2 Earnings Beat, Revenues Improve Y/Y

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Tencent Music Entertainment Group (TME - Free Report) reported second-quarter 2019 adjusted earnings of 10 cents per American Depositary Shares (ADS) that beat the Zacks Consensus Estimate by a penny.

Net profit attributable to equity holders of the company was RMB927 million ($135 million), compared with RMB904 million in the year-ago quarter. Non-IFRS net profit was RMB1.13 billion ($164 million) compared with RMB1.07 billion in the year-ago quarter.

Revenues jumped 31% year over year to RMB5.90 billion ($859 million).

Top-Line Details

Revenues from online music services increased 20.2% year over year to RMB1.56 billion ($228 million), driven by higher revenues from user subscriptions and sales of digital music albums.

Revenues from paid music through sales of subscription packages were RMB798 million ($116 million), up 31.9% year over year.

Revenues from social entertainment services and others soared 35.3% to RMB4.34 billion ($632 million), primarily driven by higher revenues from both online karaoke and live streaming services.

User Base Expands in Q2

Mobile MAU - online music increased 1.2% year over year to 652 million. Paying users - online music jumped 33% to 31 million. However, monthly ARPPU - online music declined 1.1% to RMB8.6.

Mobile MAU - social entertainment increased 4.8% year over year to 239 million. Paying users - social entertainment improved 16.8% to 11.1 million. Moreover, monthly ARPPU - social entertainment rose 16.5% to RMB130.2.

During the reported quarter, Tencent Music released QQ Music app version 9.0 that features a refreshed visual and interactive experience along with a new personalized recommendation tab.

Moreover, the company added short videos on the Kugou music streaming page. This enabled users to watch high-quality videos while listening to music on the platform.

Tencent Music also took initiatives to diversify content by adding video content, and long and short-form audio content, including podcasts and audiobooks.

Regarding the WeSing app, Tencent Music launched a lite version in the reported quarter. WeSing was also launched in Southeast Asian countries.

Operating Details

Tencent Music’s second-quarter 2019 cost of revenues increased 26.1% year over year to RMB1.05 billion ($576 million), primarily due to increased content and revenue sharing fees.

Nevertheless, gross profit improved 8.1% to RMB1.94 billion ($283 million) in the reported quarter.

Selling and marketing expenses were RMB416 million ($61 million), up 26.1% year over year due to increased spending to promote the company's brands, products and content offerings.

General and administrative expenses were RMB634 million ($92 million), up 38.1% on higher research and development expenses.

Operating profit rose 7% to RMB1.09 billion ($158 million) in the reported quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2019, Tencent Music’s cash and cash equivalents and term deposits were RMB19.90 billion ($2.90 billion) compared with RMB18.10 billion as of Mar 31, 2019.

Net cash from operations was RMB1.89 billion ($275 million) compared with RMB1.98 billion in the year-ago quarter.

Zacks Rank & Stocks to Consider

Tencent Music currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer & technology sector include Chegg (CHGG - Free Report) , Cirrus Logic (CRUS - Free Report) and Garmin (GRMN - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Chegg, Cirrus Logic and Garmin is 30%, 15% and 7.4%, respectively.

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