Tencent Music Entertainment (TME) announced better-than-expected fourth quarter results on Monday, showing solid growth in paid user subscriptions across its apps.

Why it matters: Tencent Music is one of the few Chinese music-streaming services that have made progress in converting the country’s massive number of online music listeners into paying users.

  • There were around 750 million online music users in China in 2019, but those who pay to listen only accounted for an estimated 6.3%, according to a report (in Chinese) by market research firm Iresearch.
  • The strong earnings sent Tencent Music’s shares up 3% in US extended trading on Monday. The gain came as many US-listed Chinese tech companies saw their share prices plunge during market open, with e-commerce giant Alibaba down 7.8% and search engine Baidu down 10.6%.

Details: Paid subscribers jumped 47.8% year on year to 39.9 million in the fourth quarter, the company said in a statement on Monday.

  • The company booked RMB 7.3 billion (around $1.05 billion) in revenue in the quarter, the company said, beating analyst estimates of $1.01 billion.
  • Gross profit increased by 35.5% to RMB 2.49 billion compared with the fourth quarter of 2018.
  • Despite the growth in paid subscribers for music streaming, the company’s biggest revenue drivers are social entertainment services, which include livestreams and online karaoke. The segment contributed 70.7% of the company’s Q4 revenue.
  • Chief Strategy Officer Tony Yip told analysts during a call on Tuesday morning that the company expects Q1 year-on-year revenue growth from online music services to be lower than the fourth quarter, citing the impact from the Covid-19 outbreak on ad revenue. However, he said that subscription revenue will “accelerate in Q1” on an annual basis.

Context: Tencent Music has stepped up efforts to license music to boost paid subscription users. In December, a consortium led by TME and its parent Tencent Holdings bought 10% of Universal Music Group, the world’s biggest music label.

  • It is also facing challenges from emerging social media giant Bytedance, which poached a former TME executive to lead its music-related operations for its short video app Douyin.
  • Earlier this month, Bytedance launched a music-streaming app in India and Indonesia.

Wei Sheng

Writing about semiconductors and telecommunications.