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Tencent Music’s Sales Soar Over 50% During the Fourth Quarter

Shares of Tencent Music (NYSE:TME) recently slipped after it released its first quarterly report as a public company. For the fourth quarter, its revenue rose 50.5% year over year to 5.4 billion RMB ($785 million), beating estimates by $4 million.

On the bottom line, it reported a net loss of 876 million RMB ($127 million), compared to a profit of 536 million RMB a year earlier. The loss was attributed to a one-time 1.52 billion RMB ($221 million) accounting charge from the issuance of shares to two music partners — Warner Music Group and Sony Music Entertainment.

Image source: Getty Images.

Tencent Music’s adjusted net profit (which excludes that stock-based charge, stock-based compensation, and other one-time charges) rose 37% year over year to 916 million RMB ($133 million), or $0.08 per ADS, which matched Wall Street’s expectations. Tencent Music’s headline numbers look solid, so why did some investors sell the stock?

The key numbers

Tencent Music is the largest music streaming platform in China. It splits its business into two main divisions: online music, which includes the streaming platforms QQ Music, Kugou, and Kuwo; and social entertainment, which includes its WeSing live-streaming karaoke platform.

During the fourth quarter, mobile monthly active users (MAUs) for its online music platform rose 6.8% annually to 644 million, while MAUs on its social entertainment platform rose 9.1% to 228 million. However, the social entertainment platform generated much higher revenue than Tencent Music’s online music platform.

Data source: Tencent Q4 earnings report. Chart by author. YOY = year over year.

Tencent Music monetizes its online music users with premium subscriptions and sales of digital albums. It monetizes its social entertainment user base by selling virtual gifts and concert tickets for WeSing’s live-streaming karaoke users.

Over the past year, Tencent Music’s paid online music users rose 39.2% to 27 million, while its

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