Tencent Music Entertainment Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 13, 2024

There are 11 speakers on the call.

Operator

Good evening, good morning, and welcome to Tencent Music Entertainment Group's First Quarter 2024 Earnings Conference Call. I'm Elsin Tu, Head of IR. We announced our quarterly financial results today before the U. S. Market opened.

Operator

An earnings release is now available on our IR website and via newswire services. Today, you will hear from Mr. Keshun Peng, our Executive Chairman and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. And then Ms.

Operator

Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings release, which applies to this call as we will make forward looking statements. Please note that the Company will discuss non IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in the Company's earnings release and filings with the SEC. At this time, all participants are muted after management's remarks, there will be a Q and A. And please be advised that today's call is being recorded.

Operator

With that, I'm pleased to turn the call over to Ka Chun, Executive Chairman of TME. Ka Chun?

Speaker 1

Thank you, Melissa. Hello, everyone, and thank you for joining our call today. 2024 is off to a great start. Strong execution of our dual engine content and platform strategy is yielding impressive results and pushing vitality industry wide. In the Q1, the number of music paying users increased to 113,500,000, propelling 43% year over year growth in online music revenues.

Speaker 1

Our high quality growth strategy also drove a robust net profit margin expansion. Subscriber growth in this quarter significantly exceeded our expectations, reaching a quarterly historic high of 6,800,000 net adds. What's more, we maintain the AR PPU at a healthy level. Both achievement demonstrate our keen understanding of users' needs and our knack for anticipating and meeting their demands operationally. As you have seen in our earnings release, supported by our strong fundamentals, we are very pleased to announce an annual cash dividend policy and US210 $1,000,000 in cash dividends for the year of 2023.

Speaker 1

On top of our ongoing buyback program, this reflects our confidence in future growth and commitment to sharing our success with shareholders. Next, I would like to share an overview of this quarter's content development efforts. Through a balanced combination of copyrighted music and original content, we enable users to discover the latest and trendiest content and enjoy a superior experience on our platform. Let me go over a few highlights. 1st, we renewed and reinforced the partnership with record labels to broaden our music library's comprehensiveness and popularity.

Speaker 1

Our innovative value added privileges, features and promotion services extend far beyond mere licensing, further unlocking the value of music content industry wide. We renewed our cooperation with TimeFengjun Entertainment, ShilaiFengjun, featuring 30 day head staffs benefits on new songs and adding Dolby Atmos upgrades for popular groups like TF Boys and Teens in Times. We also expanded our agreement with HIM International Music, incorporating an industry first component authorizing TME to use licensed AI feature to promote XIM's iconic Cpop content. This will ensure the authentic and responsible use of AI. Showcasing TME's commitment to protecting artists' rights and interests in the AIGC era.

Speaker 1

Artists benefits from TME's tech powered promotions and copyright protection, while users enjoy the latest interactive features, which is a win win. Yoga Ling's Ling Yu Jia's new album Love Lord Wang is one recent success. For its premiere on our platform. We connected our AI sing, song along feature and TMB live offline concerts, spurring fan interaction within new scenarios. We enriched our K pop content and related offerings with various artist fan activities, digital albums and artist merchandise for new generation groups like ILEAK, Baby Monster and RISE.

Speaker 1

In the Q1, K Pop user engagement and streams both grew year over year. Next, we expanded our original content, a key differentiator to attract users and enhance engagement. Based on our keen grasp of trends, we delivered an array of his catering to users ever changing taste guest quota. We produced the original soundtracks for hit TV dramas, The Legend of Sun Li, Yu Fengxin and in Bronson, Hua Jianming, including 17 songs and 30x scores, featuring top tracks by TME strategic partner artists such as Jess Lee, Li Jiawei and Wang Jing Wen. These catchy OSTs create massive social media buzz that boost the streams and viewership.

Speaker 1

Their outstanding performance showcases our ability to spot and set content trends while maximizing the value of content. Our OST for the Legend of Sunmi produced by Tencent Video also highlight the power of collaboration within the Tencent ecosystem. It smashed the records with over 150,000,000 streams within 30 days of release, making it the number one OST debut for the fall this year. We also partnered with strategic artists and indie musicians on music production and promotion to build our performance qualities music offering. Our self produced song Riverflow by Tianwei, Yuanyawei and what I anticipate is not snow was by Zhang Miaoge became the top rated hits on social media quarter.

Speaker 1

Moving on to our commitment to social responsibility, we cooperate with Tencent Charity for 3rd consecutive year on our film program to drive autism awareness. If music has a shape, this year, to honor it, performed the project's film song, Do You Understand What's Left of Me? More than 60 other renowned artists and groups including Jay Chow, Zhou Jie Lun, Soka Zhen, Xue Zixian, with autism inspired by these musical works, leveraging multimedia to amplify our caring message and boost music's social value. In conclusion, by expanding content and introducing more tailored platform offers that resonate deeply with users, we continue strengthening our vibrancy to drive industry development. We are confident that our powerful content and platform dual engines and ever deepening understanding of content will propel our sustainable growth in 2024 and beyond.

Speaker 1

Now, I would like to turn the call over to Ross for more color on our platform development. Ross, please go ahead. Thank you,

Speaker 2

Ka Shing. Hello, everyone. Strong execution once again resulted in solid online music growth, record high net subscriber adds, steady AR PPU and HiLC MAUs all reflect this robust performance. Our efforts to attract and retain users were the driving force behind it, utilizing our extensive industry experience and peerless insights into users and content, we are laser focused on anticipating and meeting users' needs with enhanced experiences and trending telecommunic journeys. 1st, I want to talk about user retention.

Speaker 2

We have taken a multi pronged approach to engaging users through constant innovation of trend sighting filters. I will walk you through a few examples. Our new AIGC applications make music discovery more fun, engaging and convenient. In the Q1, we launched a large audio model that increases promotion accuracy, helping users discover more high quality music content. Initial results show that streaming share of promoted songs increased notable following the model's release.

Speaker 2

We also tested an AI assistant that supports text and voice chatting for more customized search experiences, as well as an AI playlist assistant to curate playlists, a key personal music site that strengthens users' techniques. Recently, we introduced an interactive rewards program. Users can exchange the points they earn for benefits such as trail subscription, digital albums and personalized privileges. While enhancing user experience, the program also opens new avenues for commercialization for the future. Ongoing platform upgrades continue to reinforce our products' appeal.

Speaker 2

This quarter, we introduced a light leasing mode, to facilitate a smooth listening experience in low bandwidth environments. Our enhancements allowing greater interface customization are driving increased user adoption of our platform's players. Beyond the listening experience, we captivated users with a variety of interactive activities, including same song guest contests, subscriber budgets, and more. These interactive filters not only boosted sound streaming volumes, but also boosted more artist follows and additions to favorites. As users' personal music assets on our platform grow, so does their loyalty to TME.

Speaker 2

Moving now to user acquisition. Our focus here is on discovering and cultivating users with long term paying potential through refined marketing and operations. During Chinese New Year, riding on the favorable seasonality, we utilized our deep understanding of users across various demographics to roll out a series of effective promotion activities. Our targeted multi channel promotions with e commerce, telecom operators, and long form video platforms contributed to a stronger than expected subscriber growth in the Q1. We also teamed up with all the auto companies to launch holiday themed playlists and common share promotions.

Speaker 2

This organically broadened our reach to new users and increased user activity, contributing positively to the sequential MAU recover in our online music services. On partnerships, we recently focused the pre installation partnership with Xiaomi Suxi. We also enhanced our collaboration with rideshare leader Cao Cao Chuxing. Our new self-service Real Estate Music Selection Filters offers rideshare passengers a easy to navigate music consumption, further extending our reach. Our trend is citing a new QQ Music Dianfeng Awards, QQinyue Dianfeng Shengdian, for the first time, included online merge offline offerings.

Speaker 2

Participation in interactive online filters rewarded fans with tickets to artistsmeet and greet artists merchandise and more. Thanks to a lineup of popular artists and inspired performance, this event reinforced our appeal among our core young user base. In short, our rich content and unparalleled product offerings continue to fuel users' acquisition and engagement. With user needs at the heart of everything we do, we remain committed to creating a music platform that users cherish. With that, I will turn the call over to Shirley, our CFO, for a deep dive into our financials.

Speaker 3

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our success in effective monetization for music services and operational efficiency management continued to need to strong financial results in the Q1 of 2024. IFRS net profit increased by 28% year over year for RMB 1,500,000,000 and the non IFRS net profit rose by 24% to RMB1.8 billion. Our total revenues were RMB6.8 billion, down by 3% year over year.

Speaker 3

Our online music services achieved significant revenue growth, which largely offset the decline in revenue from social entertainment and other services. In the Q1 of 2024, our online music revenues increased by 43% to RMB5 1,000,000,000 on a year over year basis. This surge was driven by the strong extension of our music subscription and the growth in advertising business, supplemented by an increase in revenues from offline performances. Music subscription revenues in the Q1 reached RMB3.6 billion, marking a 39% increase year over year and a 6% rise sequentially. Our refined operation and effective pricing strategy enabled us to achieve higher than expected growth in music subscribers while maintaining a healthy monthly AR PPU.

Speaker 3

Monthly AR PPU was 10.6, up from 9.2 in the same period last year. Taking the difference in number of days into consideration, our monthly AI PPU would have remained relatively stable sequentially. The number of online music paying users were 113,500,000, representing a 20% increase year over year and a record breaking quarterly net adds of 6,800,000 users. Our enriched content offerings and enhanced member privileges such as 2B, utmost upgrades have made our products more attractive and improved user stickiness. Advertising revenue also had a strong year over year growth primarily due to the growth in ad supported advertising.

Speaker 3

We upgraded our incentive ad experience and provide more attractive interactive features to our users, which helped the improvement in entrance rate. We continue to innovate and diversify our product suite and advertising formats. Social entertainment services and other revenues were RMB1.8 billion, down by 15% year over year. This was mainly due to adjustments in certain live streaming interactive functions and more stringent compliance procedures as we implement several service enhancement and risk control measures since the Q2 of 2023. As these adjustments and procedures are largely completed, we expect our social and entertainment services to remain relatively stable.

Speaker 3

Our gross margin for Q1 reached 40.9%, marking an increase of 7.8 percentage points year over year due to a few factors. 1st, growth of revenues in online music subscription and advertising has generated the benefits of economies of scale. Over the years, we have made significant efforts and investments in the music industry and have built win win relationships with labels and artists. And now these efforts and investments started bearing fruits. Additionally, the ramping up of our own content continued to impact our margin favorably.

Speaker 3

Lastly, we have optimized revenue sharing ratio for live streaming and also improved monetization in VC membership and advertising, which also benefit our gross margin. All above factors have collectively enabled us to move to a healthy margin model. Moving on to operating expenses, in the Q1 of 2024, they amounted to RMB1.1 billion, representing 16.8 percent of our total revenues, compared with 70.5% in the same period to last year. Selling and marketing expenses were RMB 187 1,000,000, down by 12% year over year. We will continue to spend in areas such as online music with long term growth perspective as well as content promotions.

Speaker 3

General and administrative expenses were RMB949 1,000,000, down by 7% year over year, primarily driven by lower employee related expenses. Our effective tax rate for Q1 was 19.9% compared to 12 point 2% in the same period of 2023. This increase was primarily attributable to the macro of withholding tax of RMB107 million related to earnings to be remitted by our PRC subgrace to offshore entities. Additionally, changes in preferred ratio tax rates for certain entities also impacted our effective tax rate. For Q1 2024, our net profit and net profit attributable to equity holders of the company were RMB 1,500,000,000 and RMB 1,400,000,000 respectively.

Speaker 3

Non IFRS net profit and non IFRS net profit attributable to active holders of the company were RMB1.8 billion and RMB1.7 billion respectively. Our diluted earnings per ADS reached a record high this quarter at RMB0.91, up 25% year over year. Non IFRS diluted earnings for ADS increased to RMB1.1, up 23% year over year. This results underscored our robust financial performance, enhanced operating efficiencies and the beneficial impact of our share repurchase program. As of March 31, 2024, our combined balances of cash, cash equivalents and term deposits were RMB34.2 billion, as compared with RMB32.2 billion as of December 31, 2023.

Speaker 3

This combined balance was also affected by changes in exchange rate of RMB to USD at different balance sheet dates. Under share repurchase program announced in March 2023, as of March 31, 2024, we had repurchased 32,200,000 ADEs from the open market for total cash consideration of US dollar $235,500,000 of which approximately US 61,000,000 were repurchased in the Q1. Looking forward, we will continue to invest in high quality contents and original content productions, as well as new products and technologies such as AIGC. We remain confident in the prospects of music industry and our music subscription and advertising business. This concludes our prepared remarks.

Speaker 3

We are now open to taking your questions.

Operator

Thank you, Shirley. If you are dialing in by phone, please press 5 to ask a question and then 6 to unmute yourself. If you are accessing from the Tencent meeting or vote meeting application, please hit the resend button at the bottom left. For the benefit of all participants on today's call, please limit yourself to 1 question. And if you have additional one, please re enter.

Operator

If you ask your questions in Chinese, please repeat in English. And the first question comes from the line of Alicia Yap from Citigroup. Alicia, please.

Speaker 4

Hi. Thank you, Madison. Good evening, management. Thanks for taking my questions. Congratulations on solid results.

Speaker 4

I'm going to ask in Chinese first, then I will translate myself. My question is for 2024 outlook. So after achieving strong set of results, especially with record high quarterly net add, what should we be expecting for the net add trend for the 2nd quarter and also the AR PPU trend for the Q2 and also the rest of the year? And any comment on the overall growth rate expectation for the total online music revenue? Thank you.

Speaker 1

Okay. Thank you so much, Alicia, for your questions. And for the full year of 2024, our online music and subscription revenue are well on track and the profitability is also expected to be slightly better than the previously anticipated. So for the subscription side, I think that we are pleased to see that the Q1, the net adds is really quickly existing our expectation. So, it really give us a really strong start for this year.

Speaker 1

And therefore, we are confident that the total net adds for the 2024 will exceed our initial projections and indicating to be a total greater than the year of 2022 and yet slightly slower than last year, which is 2023. But on the other hand, we remained really committed in a healthy long term growth of our business. So on a full year ARPPU side, we expect it to continue to expand year over year. Although at the moment, I think more modest growth rate compared to 2023 And to recap, I think the last year's rapid year over year growth was primarily due to the scale back of the discounts. So based on the last year healthy ARPPU level and benefits of some of the operational optimization to be introduced throughout this year.

Speaker 1

We expect a slightly AR PPU growth in the second half of this year when compared to the first half. However, we will remain unchanged and confident in long term AR BPU expansion potential supported by our experience in users education and also a variety of operational strategies. A couple of points that I would like to add should be we have a better than expected Q1 as which is primarily due to a couple of reasons. First of all, I think Q1 is a typically the peak season for the entire year, especially due to the Chinese New Year. So as user are more willing to pay for the entertainment.

Speaker 1

And secondly, we are also expanding the effective promotional activities which attract more high potential users. So we food our multi channels promotions across different areas and we significantly drive the good growth of our user base. But I think that as we communicate and seen the 2020 three pattern, I think rolling off the strong seasonality, the net edge should return to more normalized and sustainable levels over the next few quarters. So besides subscription business, I think that for the loan subscription business, we will also had a strong start in q1 this year, and we expect growth to be solid in the remaining of this year as we continue to innovate the advertising products and expand the merchandise sales with labels and artists as well.

Operator

Thank you. The next question comes from the line of Alex Poon from Morgan Stanley.

Speaker 5

Congratulations management on very strong quarter. My question is related to gross margin. We in Q1, while we have negative seasonality for both advertising and social entertainment, we still expanded gross margin significantly sequentially from 38% to 4%, almost 41%. Can management share how the revenue and cost structure has changed on sequential basis? And how should we think about gross margin in rest of 2024?

Speaker 5

Thank you very much.

Speaker 3

Gross margin is 40.9% in q1, increased by 7.8% year over year and increased 2.6 quarter over quarter. There are several reasons as follows. The first, music subscription revenues and advertising revenues have significant growth. 2nd, we have made significant efforts and investments in the music industry and have built bringing relationships with labels and artists. Additionally, we focused on ROCE to manage content costs more efficiently.

Speaker 3

Our online music revenues growth ratio was higher than net growth ratio of content cost. And the third, we gradually ramp up our self owned content, which is a positive impact on our gross margin. And the 4th, even the live streaming revenue decrease, we optimized the live streaming revenue sharing strategy. The live streaming revenue sharing ratio decreased and the VIP revenue and the advertisement revenue on WeSing platform increased. Or above benefit our gross margin.

Speaker 3

Our gross margin has improved for 8 consecutive quarters. Looking forward to Q2, we expect subscription revenue and advertisement revenue will continue to be health growth. On the cost side, we expect our in house made content will have positive impact on gross margin continually. And we will continue to increase our operational emphasis and monitor each cost items for ROCE model. We expect our gross margin will be increased in Q2 continually.

Speaker 3

And look forward in the second half of twenty twenty four, we think our we expect our gross margin will be also increased.

Operator

Thank you. And the next question comes from Goldman Sachs, Lincoln Home. Lincoln, please.

Speaker 6

Thank you management for taking my questions and congrats on the very strong quarter. So my question is about the online music services, specifically advertising. So could management comment, so what we have seen in terms of advertising campaign in the Q1 and into the Q2 and a split by the different format. So what are the sort of new advertising format company are thinking to implement and any of the trends of those sponsorship as a premium member app, if my question is here. Thank you.

Speaker 7

Thank you very much. Thanks for your question. Indeed, for the advertisement service, in Q1, we have a very strong growth. And I think in Q2, we're going to maintain such a strong growth. You know that we are not expanding our subscriber base, but I think the key challenge for the advertisement is how we're going to leverage the traffic of the non subscribers.

Speaker 7

That is a reason for us we need to continue to optimize the solution we provided to the advertisers and making sure we can also provide a very attractive interest package to continue to operate and optimize the traffic operation. Regarding the advertisement business. Well, regarding what we're going to do for this year, I think for this year we're also going to maintain a very stable growth for the advertisement business. At least from what I can see from Q4 to Q1 of this year, we have a very strong growth. Especially we have the key revenue contributor coming from the e commerce, the gaming industry, the content information and the faster consumption industry.

Speaker 7

And especially due to the e commerce, they are launching the large scale promotional activities during the new Chinese year. So welcoming to say that in Q1 of this year, we also have a very good growth coming from the e commerce channel regarding the advertisement business. We're talking about the Q2 of 2024. I think the key event we're going to have in Q2 would be the 6 AD shopping festival online. In that way, we're going to leverage this great occasion to serve our e commerce advertisers because we hope that by serving them, we will be able to have a better favorable growth compared with last year.

Speaker 7

And we also prepared many of the good solutions in order to continue to serve the e commerce advertisers. You know that besides that, we are also leveraging the very enriched and diversified music ecosystem of GMV, continue to roll out more diversified formats for the advertising and the new advertising business models. For example, for the investment advertising, it could also be well combined with our Earthlife performance and concepts. As I mentioned, in q1 of this year, we also launched an incentive based advertisement format that is based upon the coin. By launching this new model, we hope that we will be able to continue to improve the user retention while at the same time to start a new stream of the revenue for the advertising business.

Speaker 7

Competition, the contracted advertising and investment advertising, we do have a full portfolio of the advertisement solution. In that way, we will be able to leverage this full mix of the product to continue to grow our advertising business in housing and sustainable approach.

Speaker 5

Okay.

Operator

Thank you. And the next question from Chang Lei, Bank of America Merrill Lynch. Chang Lei, please.

Speaker 8

My question is mainly regarding the margin trend, especially the sales and marketing trend. Consider we have Q on Q control on the sales and marketing expense that's maintained MAU sequentially largely stable. So how should we look at the driver and the overall sales and marketing and the margin trend in the following quarter? Thank you.

Speaker 7

Thank you very much. Thanks for your question. Just enough in our private sponsor, we also mentioned about the GP margin. Actually for our GP margin, we registered a significant growth no matter on Y o Y for MOM basis. That should be laid a very solid baseline for our performance.

Speaker 7

I do believe in the near future we're going to continue to grow this number. And in Q1 of this year, talking about the marketing expenses, it was ever going down on YOY and the MLM basis. We're talking about the seasonalities of the marketing expenses. Q1 of each year are traditionally being considered as a low season of the marketing events because majority of the brand promotions and the promotion activity is being conducted in Q4 of each year. So in other words, in Q1, we launched less marketing events.

Speaker 7

Method in place, we do expect we're going to spend more marketing expenses in order to regain the traffic for our channels. Well, my second point is regarding the content, especially the self commissioned or self developed content. This is going to serve as a key driver for our future business. So we're going to make good investment for the content promotion. So we foresee in Q2 of this year, the market expenses will rise.

Speaker 7

But, overly speaking, the market expenses for 2024, the full year, would be in line with what we saw last year in 2023. So coming next, let me comment on GMM expenses and especially the investment we made on the team. And actually, for the past one year, we have already adopted the cost initiative and continue to downsize the team. We are at the same time, we're also going to continue the investment in new technologies and new product, for example, like BIGC. So generally speaking regarding G and A, we still believe that the total G and A expenses in 2023 would be in line with in 2024 would be in line with 2023.

Speaker 7

So, overall speaking, as you can see, we continue to grow the GP margin and also we foresee the revenue in H2 of this year also going to go up, while at the same time, we also stabilized the promotion expenses and the G and A expenses. So I do believe for the full year, the net profit rate and the net profit will be improved. We are coming next. Please allow me to talk about ERT, the effective tax rate. Regarding the effective tax rate in Q1 of this year, it has been risen to 90.9%.

Speaker 7

The key reason as we copes, the dividend payout need to be made from the onshore company to the offshore company. So we're going to pay for the withholding tax. So that's the reason in Q2024, the effective tax rate in Q1 is being on the upward. Generally speaking, the sum is quite small and it's not going to impact the net profit and the net profit rate that much. So, forward looking, I do foresee for net profit and the net profit in 2024.

Speaker 7

It's going to keep a rising momentum.

Operator

Thank you. And the next question from Macquarie, Alex Jiang.

Speaker 4

Thank you so much management for taking my question and congrats on the great results. It's been very great to see the improvements in our music paying conversion. So if you compare the existing users versus the newly acquired users, just wondering if management shed some light on the average pricing gaps between these two cohorts. Also during the opening remarks, management shared some very exciting AI empowered initiatives that have been driving better user engagement. Just wondering anything you can share on the recent trends for the next month retention and whether there could be more operating leverage for higher customer kind of lifetime value down the road?

Speaker 4

Thank you.

Speaker 7

Thank you very much. Thanks for the question. Regarding the existing customer, yes, indeed. For the existing customer or the user, we do have a very high retention rate and because many of them are our long term user, and, if we're going to convert them, that means they just continue to renew our service. So originally speaking, the conversion rate of our existing users would be very high.

Speaker 7

Well, for the newly acquired users, as we mentioned just now, in order to engage those users, we provide some discount and some of the promotional activities. Even if we're already scaling back discounts, But actually the conversion rate of the new users will go in line with our promotional activities and sometimes is subject to the change of the promotional activity timeline. The second part of your question is regarding how AI can empower the user retention. I have to say that, like, AI Large model indeed helped to grow the retention. But let's be clear first.

Speaker 7

For the music platform, the recommendation system was based upon the neural network model, and it is different from the large language model we're talking about today. But generally speaking, I do believe as we're having those great models and by introducing a large set of the parameters into our existing platform, we will be able to continue to improve the recommendation capacity and search capacity. And you can see from our actual operations that can help us to continue to grow and optimize the U Red retention. So indeed, by leveraging those Carty Natch technologies, our overall retention rate has been improved. Actually, we talk about large language model and generative technology.

Speaker 7

In q one of this year, we also launched the open source, our self developed mini cam video model drive, which has already received very positive feedback from the open community. And, something that we're truly proud of is we also newly introduced a large model. We call it AUDI model. This AUDI model can help to distinguish the correlations between 2 nodes and the cells based on the characteristics of the audio. And this is also a very good result that has been harvested from the cutting edge technology.

Speaker 7

Well, regarding the content creation, we have already received very good results from artificial intelligence generated vocals. No matter from the user scale or from the revenue of the users, we are all seeing very good progress being made. In that way, it can actually facilitate the users identifying new lyrics and new songs and the new content. And another milestone I'd like to mention in q1 of this year was we are working with Tencent AI Lab and introduced the 1st music generation model for the folk music and it is through this model we're working with Shanghai National Orchestra to organize the ever first AI empowered concert in China. And besides that, we are also keeping an eye on those leading models in the industry.

Speaker 7

1 is Sonar and another one is UVIO. And we're exploring those new models to see how they can fit into our platform.

Speaker 6

Okay.

Operator

Thank you. And the next question comes from Fan Wei from Mizuho. Fan Wei, please.

Speaker 6

Hello?

Operator

Yes, Paul, we can hear you. Go ahead, please. Okay.

Speaker 9

Thank you. Sorry about that. Yeah. Thank you for taking the question. So one double click on the offline concerts, right?

Speaker 9

So we see pretty good coming back last year and so far this year. Just wondering if management can help remind us your position and your strategy for this segment. And also, what's the business models there other than sponsored advertising? Thank you.

Speaker 1

Okay. Thank you so much for your questions. Thanks so much for your questions. And basically I think 2023 is a big year for the live performance businesses. And we are also seeing that you continue to trend in this year, but definitely it's going to be normalized and we will not have such a big growth when compared to last year's performances.

Speaker 1

I think from TME point of view, we have different pillars of strategy to in order to support our overall strategies. First of all, we are committed to build our own IP. For example, like the TMEA music festivals and also the award ceremony. This year is going to be the 5th year of us and we have already received a lot of very good results and from our partnerships as well. And we are focusing on not just bringing the local artists, but also the international artists to our stage as well.

Speaker 1

Besides the our own IP Music Festival and Awards, we also, came up and also helped to organize and produce top tier artists live tour as well in China and also in Southeast Asia that we have successfully launched it out in year 2000 and 23, and we are continuing to doing that. And the last one, which is, we will continue besides the top tier artists, we will be focusing on building some of the smaller stages, for example, like the live host event for the Tencent musicians, which will help us to incubate a lot of younger generation of musicians in order to continue to improve through the live performance events. Besides the strategies that we are the the different types of concerts that we are organizing, we will have different business model as well. First of all, we have the ticketing, we can also have the advertising sponsorship model. And as what we have mentioned before, we are also working on defense based economy like the merchandise and all these kind of things that we are working on.

Speaker 1

We will also continue to collaborate our live event, not just offline, but together with online with different privileges with our super VIP plan as well. So we have a exciting journey that we are looking forward, and we'll continue to pull in more resources in order to grow the live performance business in TMB.

Operator

Okay. In the interest of time, we'll take the last question from Thomas Chong, Jefferies, please. Thomas?

Speaker 10

Hi. Good evening. Thanks management for taking my question. My question is about our new initiative such as long form audio, IoT. Can management comments about our thoughts about the outlook in these areas?

Speaker 10

And my second question is about our long term target. Given we have talked about our 2024 outlook on the top line and the bottom line, Can management comment how we should admission TME in 3 to 5 years' time down the road? Thank you.

Speaker 7

Thank you very much. Thanks for your question. Regarding the long form audio from the business strategy perspective, it's going to complement to our existing online music service. It will help us to cater the needs of the diversified customer base, especially including the user from different categories. So that's the reason we're now continuing to introduce the top content and the new content in the market.

Speaker 7

Essentially, we do see some very good performance in the children related music market. And the second point is that we're going to keep a very close collaboration with Tencent Group, especially with HuyaVen. And I do believe in Q2 of this year, the key event we're going to see is a robot release of 2,000,000,000 second phase. If that had to be successfully rolled out, I do believe and it's also going to help us to continue to improve the user retention for the long form boarding.

Speaker 1

I think for the entire overall strategy of an entire company, I think that we are right now on a really good pace in driving the online music services in a really good form. So we will do it going to be 1 by 1, for example, to continue to improve our the overall subscribers and also our ARPPU as well. But at the same time, this is the core to the most of our company, I think, is very, very important is we have to continue to build our content ecosystem, which ensuring that we will have a good coverage of all of the, digital libraries that we should have. And also we will continue to pull in more resources in doing content, co productions. And besides that, we also extend our footprint, not just locally, but we also can doing some of the international development, for example, according to not just the business size of the platform side, but also the content side as well.

Speaker 1

So I think that is definitely going to be a lot of interesting and exciting projects ahead. I think from our company point of view, I think we definitely is not just doing a 100 meter sprint, we are doing a marathon. So I think that we should strike the balance. At the same time, we continue to have a quarter by quarter growth. But at the end of the day, we will be focusing on a long term sustainable development of the entire group.

Speaker 1

And we are ensuring that we are going to have to ensure to drive a good investors returns to all of our investors as well. So we would like to share our success, not just doing the business well, but also ensuring that we have a good dividend policy and also some of continue to have our share buyback program at the right moment. Okay, I think that's it for today.

Operator

Thank you. Thank you everyone for joining us today. If you have any further questions, please feel free to contact our IR team. And this concludes today's call. And thank you so much again and look forward to speaking to you next quarter.

Speaker 1

Okay. Thank you very much. Thank you.

Operator

Thank you. Bye. Bye.

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Earnings Conference Call
Tencent Music Entertainment Group Q1 2024
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