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        Tencent Music Q3 Earnings Review: Performance Met Expectations, with Strong Growth in Music Subscription Revenue

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        ETFWorldSavior wrote a column · 11/29/2023 14:46
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        On November 14th, Tencent Music(TME) released its Q3 financial report. On November 15th, CMB International released a commentary on Tencent Music's Q3 financial report, stating that the company's performance in the third quarter met expectations, and that music subscription revenue growth was strong.
        Tencent Music Q3 Earnings Review: Performance Met Expectations, with Strong Growth in Music Subscription Revenue
        1. Valuation
        Stock rating: BUY
        Closing price on the day of the financial report release: $8.25
        CMB International target price: $8.90
        Recent closing price: $8.40 (as of 11/28/2023)
        Source: Moomoo
        Source: Moomoo
        2. Key Points
        TME released its Q3 2023 financial report, with total revenue decreasing by 11% YoY and 10% QoQ to RMB 6.6 billion, mainly impacted by the weakness in social entertainment business. Non-IFRS net income increased by 2% YoY to RMB 1.41 billion.
        The core music subscription revenue further accelerated its growth in Q3 2023, with a YoY increase of 42%, mainly driven by steady growth in paid users and ARPPU. It is expected that total revenue in 4Q23E will decrease by 10% YoY to RMB 6.7 billion, and the management's current goal is to achieve positive total revenue growth and net profit margin expansion in FY24E.
        CMB International has given a buy rating with a target price of $8.90, based on DCF valuation method (with WACC of 11.6% and terminal growth rate of 2.5%).
        Tencent Music Q3 Earnings Review: Performance Met Expectations, with Strong Growth in Music Subscription Revenue
         The main business is shown in the following figure:
        Source: Moomoo
        Source: Moomoo
        3. Performance Outlook
        Tencent Music Q3 Earnings Review: Performance Met Expectations, with Strong Growth in Music Subscription Revenue
        (1). Strong growth in music subscription revenue in the third quarter
        In 3Q23, TME's online music business grew by 33% YoY to RMB 4.6 billion, accounting for 69% of total revenue. Music subscription revenue grew by 42% YoY to RMB 3.2 billion, mainly driven by steady growth in ARPPU/paid users. Non-subscription music revenue grew by 15% YoY to RMB 1.4 billion and more innovative advertising formats were adopted to increase advertising revenue. TME will increase efforts to develop IoT business, promote Super VIP subscriptions, and launch family membership plans to drive music subscription revenue growth in 2024.
        (2). Social entertainment revenue declined YoY in the third quarter, but is expected to stabilize in FY24.
        Social entertainment revenue decreased by 49% YoY to RMB 2 billion, accounting for 31% of total revenue in 3Q23. It is expected that social entertainment revenue will decrease by 53% YoY and 9% QoQ in 4Q23E, and gradually stabilize on a QoQ basis in FY24E.
        4. Future Expectations
        The management expects GPM to continue to increase QoQ in the fourth quarter, further expanding the gross margin. It is expected that with the support of improving gross margin and cost control, non-IFRS net income in the fourth quarter will increase by 2% YoY to RMB 1.46 billion.
        Tencent Music Q3 Earnings Review: Performance Met Expectations, with Strong Growth in Music Subscription Revenue
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        Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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        • 104660389 : Do you expect TME to go back double-digit pricing level after massive selling two years back?

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