Tencent Music (TME) Stock Analysis - World’s Largest Music Platform

in this video we're analyzing tencent music stock ticker symbol tme tencent music entertainment is the largest online music entertainment platform in china with 881 million total mobile monthly active users its platform has a variety of music entertainment products with 4 of the top 5 music apps in china services include online music online karaoke live streaming podcasts and online concerts tencent music has china's most comprehensive music content library with over 400 domestic and international music label partners including sony music universal music group and warner music group and over 40 million licensed tracks in terms of the user experience tencent music's products go beyond audio incorporating video content community and social features and personalized music recommendations when it comes to making money tencent music has two main revenue streams one revenue from online music services and two social entertainment and other services online music services make up thirty point seven percent of tencent music's total revenue services include subscription packages and premium memberships content sub licensing and advertising tencent music had 51.7 million online music paying players at the end of the third quarter 2020 representing eight percent of the total user base this differs from other music platforms such as spotify which have a larger percentage of their users with premium subscriptions thus contributing a larger portion of their revenue as a result this provides a large runway for tencent music to generate additional revenue if they can successfully increase the number of paying users on their platform instead of online music services the majority of tencent music's revenues come from social entertainment and other services which make up 69.3 percent of total revenues a large portion of this revenue comes from the sales of virtual gifts in which people can send virtual gifts to singers or performers on online karaoke or other live streaming services additional revenues stem from digital album sales and music related merchandise including headsets smart speakers and microphones tencent music's major investors include tencent spotify and pag capital tencent in particular is a major partner since tencent music has access to 10 cents 1.2 billion wechat monthly active users and 600 million qq monthly active users qq users for example have easy access to qq music and we sing users can easily connect with their wechat friends tencent currently owns a 55.6 percent ownership stake in tencent music making it the largest shareholder in the company meanwhile spotify owns 8.4 and pag capital owns 8.2 percent of the company tencent music themselves is also a strategic investor in multiple music companies owning a 2.3 stake in spotify a one percent stake in universal music group and a 0.8 stake in warner music group next we'll highlight some key financial numbers from tencent music's 2020 third quarter earnings report total revenues were 1.12 billion dollars increasing 16.4 year-over-year revenues from online music services increased by point 25.9 percent year over year to three hundred forty two million dollars driven by strong growth in music subscription and advertising revenues revenues from music subscriptions were two hundred fifteen million dollars increasing fifty five percent year over year this was primarily due to the increase in the number of paying users by 46 percent and the improvement of monthly average revenue per paying user by 5.6 however mobile music monthly active users decreased by 2.3 percent year-over-year moving on revenue from social entertainment and other services for the third quarter of 2020 increased by 12.7 year-over-year to 773 million dollars this increase was driven by increased revenues from online karaoke and live streaming average revenue per paying user increased by 32 percent year-over-year however social entertainment mobile monthly active users decreased by 6.4 year-over-year and paying users of social entertainment services decreased by 14.6 year-over-year cost of revenues increased by 19.1 percent year of year to 754 million dollars this was mainly due to increased investments in new products and content offerings increased revenue sharing fees and other increased content costs related to royalties gross profit increased by 11.2 percent year-over-year to 362 million dollars while gross margin decreased to 32.4 from 34 in the same period of 2019 mainly due to additional investments in products such as long-form audio and tencent music entertainment live meanwhile non-ifrs net margin also decreased to 17.8 percent from 19 in the same period of 2019. in terms of liquidity in the end of the third quarter 2020 tencent music had four billion dollars in cash and cash equivalents an increase of 31.2 percent year-over-year next we'll discuss major opportunities and tailwinds for tencent music's future growth to start the size of china's online karaoke and music-centric live streaming services market is expected to grow to 20 billion dollars in 2023 representing a compounded annual growth rate or keger of 34.6 percent from 2017 to 2023. revenues from online karaoke and music-centric live streaming services in china are generated primarily through sales of virtual gifts as well as premium memberships that unlock certain benefits for users including higher soundtrack resolution and additional app themes next the overall market size of china's online music services is expected to grow to 5.6 billion dollars in 2023 representing a keger of 42.7 from 2017 to 2023 meanwhile the percentage of paying users represented by the online music paying ratio in china is expected to reach 28.7 in 2023 significantly higher than the ratio in 2020. other online media for music content distribution includes short and long form video platforms audio platforms and more advertising represents the main revenue driver from this segment the overall market size of china's other online media for music content distribution is expected to grow to approximately 5.3 billion dollars in 2023 representing a cager of 40.4 percent from 2017 to 2023. finally we'll highlight some of tencent music's risk factors to start significant portions of tencent music's offerings are licensed from partners such as music publishers and labels there's no guarantee that the licenses currently available to them will continue to be available in the future at royalty rates and on terms that are favorable the royalty rates and other terms of these licenses may change as a result of various reasons beyond tense and music's control and increased royalty rates could have negative financial implications on tense music in addition government regulation poses another risk in 2019 the state administration for market regulation or samr launched an antitrust probe into tencent music in regards to its deals with the world's three largest record labels sony music universal music group and warner music group competitors claim that tencent music paid high fees for exclusive rights to songs from the record labels and then sub license the rights to other music companies at prices up to twice as high compared to licensing directly from the record labels however in early 2020 the antitrust probe was suspended that being said moving forward there will be increased regulatory scrutiny from samr as evidenced by the 2020 antitrust draft rules regarding china's internet platforms the holding foreign company's accountable act also raises a de-listing risk of foreign companies from u.s stock exchanges that do not comply with the pcaob finally as with many foreign companies that list on u.s stock exchanges tencent music has a complex vie structure that poses another risk tencent music has major tailwinds and investors behind it however we'll have to see what happens moving forward subscribe to stay updated for future videos leave a like and comment down below what companies or 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Keywords: Tencent, Tencent Music, Tencent Stock, Tencent Music Stock, TME Stock, TME Stock Analysis, Tencent Music Entertainment, Tencent Music Stock Analysis, Tencent Stock Analysis, Spotify, Spotify stock, stock market, stock, investing, investment, stock trading, finance, business, company, technology, growth stock, Anivestor, stock analysis, tcehy, tcehy stock, music industry

Id: RxNP8rYf8DY

Length: 8min 3sec (483 seconds)

Published: Thu Jan 07 2021