Tencent Music’s profits plummet in turbulent year

Profits for Tencent Music Entertainment, China’s biggest online music group, tumbled in a year of regulatory turmoil and market shifts.

The company’s revenue recorded a 7% year-on-year increase to RMB 31.2 billion ($4.90 billion) from RMB 29.15 billion in the same period of 2020, the company said in a filing Tuesday. Net profit attributable to shareholders in 2021 was RMB 3.03 billion ($475 million), down 28% from net profit of RMB 4.16 billion in 2020.

The company also released figures for the three months October through December, showing revenue of RMB 7.61 billion ($1.19 billion), down 8.7% year-on-year. ‘other. Quarterly net profit more than halved to RMB536 million ($84 million), from RMB1.20 billion in the last quarter of 2020. It was the third consecutive quarter in which profit fell .

Despite the decline in profitability, the company said it would seek a secondary listing of its shares on the Hong Kong Stock Exchange without raising additional capital. The company is controlled by Chinese tech giant Tencent, but its shares are currently listed in ADR form on the New York Stock Exchange.

The company said the secondary listing would provide greater liquidity to shareholders. It would also be a defensive measure in case the US authorities force Chinese companies to withdraw from the NYSE and NASDAQ markets, as has been discussed. The company described the secondary listing as offering “protection in an evolving regulatory environment”. The Hong Kong Stock Exchange website does not currently feature a listing prospectus for the company.

Tencent Music was hit in mid-2021 by Chinese regulators who stripped the company of its exclusive supply contracts with major music labels and ended its ability to defraud sub-licensees.

In response, Tencent Music said it was changing its line of business to minimize music licensing, play social entertainment (i.e. karaoke) and expand other sources of revenue, such as production. original music, live concerts and long-form audio.

The financial data published in the filing seems to suggest the opposite is happening. Music subscription revenue increased 32% to RMB 7.33 billion ($1.15 billion), from RMB 5.56 billion for the whole of 2020. It benefited from 39% increase in the number of paying users, but these led to a drop in revenue. per user of 8.9 RMB per year (compared to 9.4 RMB per year in 2020).

Social entertainment and other services revenue for the full year of 2021 remained unchanged at RMB 19.8 billion ($3.10 billion). The company highlighted the negative impact of increased competition from other pan-entertainment platforms and a changing macro-economic environment, which were mitigated by strong growth in live audio revenue.

The reduction in overall profit margin appears to be largely the result of a sharp RMB 1.11 billion ($174 million) increase in operating costs and an increase of almost RMB 2 billion ( $313 million) in cost of revenue, which was attributed to investments in new products such as the Tencent Musician platform.

“Going forward, we will focus on optimizing our cost structure and improving operational efficiencies across our businesses while continuing to drive innovation, better user experiences and growth. industry,” said Cussion Pang, Executive Chairman of TME. “We will continually expand content production, licensing, exploitation, promotion and monetization efforts to increase scale and strengthen the quality and competitiveness of our music catalog.”

Tencent is expected to release its 2021 annual financial statements on Wednesday.

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