Tencent Music Entertainment Group (NYSE: TME) reported its fourth quarter financial results after market close on Tuesday. The Chinese online music platform reported in-line earnings, but narrowly missed revenue estimates, causing shares to tumble by 7.1% on Wednesday morning.
For the fourth quarter, Tencent Music reported earnings of USD 8 cents per share on revenue of USD 785 Million. Analysts expected earnings of USD 8 cents on revenue of USD 785.8 Million.
Tencent Music saw its revenue increase by 50.5% year-over-year. The revenue growth was primarily driven by increased revenues from subscriptions, sublicensing music content to third parties, and sales of digital music albums. Revenue from paid music through sales of subscription packages totaled USD 101 Million in the quarter. Social entertainment revenue was mainly driven by the growth in Tencent Music’s online karaoke and live streaming services.
Tencent Music reported mobile monthly active online music users increased by 6.8% to 644 million, while the monthly active users on social entertainment rose by 9.1% to 228 million. Paying online music users rose by 39.2% to 27 million, while paying users for social entertainment rose by 22.9% to 10.2 Million.
The Company’s average revenue per paying user fell by 1.1% for its online music segment to RMB 8.6, however, social entertainment average revenue per paying user rose by 24.3% to RMB 126.7.
Tencent Music noted in its press release that cost of revenue was significantly increased year-over-year. Cost of revenues for the quarter rose by 62.5% to USD 518 Million. The Company said the increase in costs was due to content fees in order to maintain higher in-house production costs as it continued to increase its investments. Primarily, Tencent Music invested back into producing high-quality original music such as music-centric variety shows.
Tencent Music’s library now includes over 30 million tracks, both domestic and international music labels. The Company has been enhancing its products and technology offering by integrating music into its users’ daily lives such as multi-mic singing room, short-video product features, and using data analytics.
“We delivered strong revenue growth during the fourth quarter of 2018 driven by the increase in paying users across our online music and social entertainment services as well as the increase in user spending in social entertainment,” commented Shirley Min Hu, Chief Financial Officer of Tencent Music. “We achieved strong operating cash flow throughout the year. We continued to invest in our content offering, including through partnering with more domestic and international music labels and producing more proprietary in-house content to meet user demands for diverse forms of music entertainment. We believe that such investments over time will not only improve our user engagement and monetization but also strengthen our competitive advantages.”