Institution: Societe Generale Securities
Main points of investment
Summary of company performance: profitability is higher than expected.1) 2019Q3, the total revenue of Tencent Music reached 6.5 billion yuan, an increase of 31% over the same period last year. 2) the revenue from online music services reached 1.846 billion yuan, accounting for a slight increase (28.4% of the current issue 2Q19VR 26.5% () YoY+26.2%), of which the revenue from member subscriptions reached 942 million yuan (YoY+48.3%) and other income reached 904 million yuan (YoY+9.18%); revenue from social entertainment services reached 4.66 billion yuan (YoY+32.9%); and 3) the rate of sales + management expenses totaled 19%. 4) the gross profit margin is 34%, which is 1.1% higher than the previous month. The net profit of Non-IFRS is RMB 1.23 billion, and the net profit of NDFRSPerads is RMB 0.74. The profitability is higher than the same expectation of Bloomberg.
Online music paying users rank firmly in the global Top3, with growth reaching a new high in nearly three years, and payment rates continue to rise strongly. two019Q3, online music business MAU reached 661 million (YoY+0.9%), paying users reached 35.4 million, an increase of 42.2% over the same period last year, and the payment rate increased to 5.4%, an increase of 0.6pcts from the previous month. The monthly ARPPU of online music is 8.9 yuan (YoY+4.7%). In addition, the number of paying users of social entertainment services also increased by 23.2% to 122 million yuan compared with the same period last year, and ARPPU increased by 7.4% year-on-year to 127.3 yuan. At present, the number of total paid households of Tencent Music is second only to Spotify and AppleMusic, ranking third in the world.
The content is expanded and the community is aimed at helping the operation of the enterprise.1) TME has established cooperation with hundreds of universities and higher education institutions in China to expand the network penetration of these young users and launch summer subscription promotions for college students. 2) rich forms, adding audiobooks and podcasts, such as audio, talk shows, history and humanities lectures, etc.; in September, audiobook users spent more than 50 per cent more daily on the platform than music users. 3) add Urban, EDM, ACG and other music styles, and sign a strategic agreement with TotalMediaNiemann, the largest ancient Chinese music brand in China.
Investment advice:We are optimistic about the future growth of paying users of Tencent Music and its ability to continue to supply rich high-quality content, as well as its leading position in the digital music market, and suggest that investors actively pay attention.
Risk Tips:The regulation of the live broadcast industry has been tightened; the cost of content has risen; the rate of payment has not increased as expected; antitrust investigation.
