China Merchants Securities recently reported that Tencent Music Entertainment Group (TME, Financial) recorded a revenue of 7 billion yuan in the third quarter, marking a 7% year-over-year growth, a positive shift from the 2% decline in the previous quarter. This performance aligns with market expectations.
TME's subscription revenue grew by 20% year-over-year, consistent with forecasts, while its number of paying users reached 119 million, a quarterly increase of 2 million, slightly exceeding projections. Average Revenue Per Paying User (ARPPU) increased marginally to 10.8 yuan.
Non-subscription revenue saw a 20% year-over-year growth, a slight dip from the 24% increase in the second quarter, due in part to delays in concert schedules. However, advertising revenue remained strong, outpacing the growth in subscription revenue.
China Merchants Securities has largely maintained its forecast for TME's 2024 fiscal year but has reduced the core earnings projections for 2025 and 2026 by 8% and 10%, respectively. This adjustment reflects a strategic shift towards enhancing ARPPU, resulting in slower net subscriber additions than previously projected. The delay in concert plans also contributed to slower growth in concert-related income.
TME continues to invest in marketing, talent, and technology, which has led to higher operating expenses than initially anticipated. The firm projects that TME's revenue will grow by 2% in 2024 and 10% in 2025, with core net profits increasing by 24% and 12%, respectively.
Based on these adjustments, China Merchants Securities revised TME's target price from $16 to $15, maintaining an "Overweight" rating.
