The company broadly met expectations in Q2, but China’s regulatory squeeze continues to impact tech companies.
Tencent Music Entertainment Group, the music-streaming business of the Chinese tech giant, posted second-quarter earnings that largely met analyst’s predictions.
The company posted quarterly revenues of 8.01bn yuan ($1.24bn), a 15pc year-on-year increase, just barely missing market expectations of 8.13bn yuan ($1.25bn). Earnings per share were 0.66 yuan ($0.10), edging out predictions of 0.62 yuan ($0.096).
Average mobile monthly active users (MAU) for the core music streaming service of Tencent Music fell 4.3pc to 623m. Its social entertainment MAU count fared similarly, dropping 13.3pc to 209m. On the other hand, the number of paying music users jumped by 40.6pc to 62.2m while paying social entertainment users fell by 12.7pc to 11m.
While it has a much smaller number of users, social entertainment makes up two-thirds of Tencent Music’s revenue, compared to one-third for music. This is mostly driven by the difference in average monthly revenue per user.
Despite the solid results, the company’s stock price tumbled on Wednesday morning (18 August). At time of writing, shares in Tencent Music had fallen more than 12.4pc since the results were announced.
This drop is part of a larger trend. Since peaking in April, shares of Tencent Music have slid as China undertakes a broad regulatory crackdown on tech companies.
Tencent Music went public in 2018, having been created in 2016 when tech giant Tencent bought China Music Corporation. Approximately 9pc of the company is owned by Spotify, while Spotify is in turn 7.5pc owned by Tencent Music.
Cussion Pang, the company’s executive chair, said Tencent Music “sincerely accepts the decision issued in July by the regulator pertaining to exclusive music-licensing arrangements”. Last month, the company was ordered to relinquish exclusive licensing rights on music by antitrust authorities in China.
“While we expect some impact to our business operations as a result of this decision, we remain steadfast in our ongoing goals of fostering innovation, fulfilling our social responsibilities, providing users with better services and promoting the long-term, healthy development of the digital music industry.”
The full implications of China’s ratcheting up of regulatory pressure remain to be seen. Rich Karlgaard of Forbes speculated that it is part of the government’s desire to achieve “tech supremacy” in core technologies rather than consumer products and services.
Austin Carr and Coco Liu of Bloomberg put it more straightforwardly, saying the Chinese government simply does not want tech companies to amass too much power. It is undoubtedly affecting investor confidence across the board, with SoftBank recently expressing trepidation about new Chinese investments.
CNBC reports today that chipmaker Taiwan Semiconductor Manufacturing Company (TSMC) has now overtaken Tencent to become Asia’s most valuable firm, as Beijing’s regulatory crackdown continues to hit the market cap of some of its biggest tech companies.