Tencent Music Expects Better in Second Quarter after Narrowly Missed Market Estimates

China’s music streaming service provider, Tencent Music Entertainment Group (Tencent Music) has reported that it narrowly missed market estimates for quarterly revenue on Monday, May 11, 2020, since the COVID-19 crisis impacted the company’s social entertainment services business. Despite its shares down 4.5% in extended trade overnight, the music-based company is expected to show a better performance in the Second Quarter (Q2).

Tencent Music’s Quarterly Revenues

Tencent Music, owned by a Chinese investment conglomerate and tech giant Tencent Holdings Ltd., primarily receives nearly three-quarters of its revenue from the streaming service business, unlike the rival companies including Spotify that make most of their revenues from music subscriptions. Meanwhile, Spotify is also a stakeholder in Tencent Music.

The Chinese company reported that monthly average revenue per subscriber paying for the company’s social entertainment services fell 13% in the Q1 ended March 31. Despite the company reported a rise of the new users in the streaming service to 18.5% to 12.8 million, there was a low earning from the segments including karaoke platform “WeSing” and “Kugou Live”, where users paid for live-stream music performances and concerts.

Slight low from analysts’ expectation of 6.33 billion yuan, Tencent Music, which had warned of soft Q1 sales in March, reported that its revenue in the period rose about 10% to 6.31 billion yuan ($889 million). Nonetheless, the company posted a profit of 0.66 yuan excluding one-time items, ahead of the 0.63 yuan forecast by analysts.

Expected Better Result in Q2

Observing the numbers of the paying subscribers of Tencent Music’s online music service jumped 50% to 42.7 million in the March quarter and monthly average revenue per paying user jumped 13%, the company expected a better business performance in the Q2 keeping a view of the rising new users.

Citing the growing numbers of the streaming service, the Chief Executive Officer of Tencent Music, Cussion Pang said, “We have seen some behavioral changes during the lockdown and observed an increasing number of users listening to music with home appliances, especially TVs and smart devices.”

Currently, only 10% of the company’s music service is behind pay-wall but Tencent Music said it projected to increase its volume to 20% by the year-end. Meanwhile, a rival company, Spotify, which also owns some shares in Tencent Music, reported a surged of 130 million paid subscribers in the Q1.

Chief Strategy Officer of the company, Tony Yip said on a post-earnings conference call on Tuesday, May 12, 2020, that the growth of its revenues would be expected in the Q2 even as the rise of the monthly average user might normalize for those people who were heading back to work and having less leisure time. Yip stated, “We strongly believe the worst is behind us, and we do expect the growth rate to recover in Q2.” According to data from Refinitiv, analysts expected that the Chinese company would likely gain an 8.5% sales in Q2 revenue.

I’m Roshan, a journalist, blogger and music lover. I like covering global news related to finance, business, and technology. Focusing on the collection of true and reliable information, I rely on working by conducting interviews with business leaders and talking to the inside sources of companies.

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