its first earnings report since going public in December 2018, Tencent Music Entertainment Group reported fourth-quarter 2018 revenue and profit that beat analysts' expectations but also revealed problems that might be roadblocks to growth this year.
China's leading music streaming firm said quarterly revenue jumped 50.5 percent to $805 million, beating analysts' average estimate of $790 million. It did, however, report a net loss of $130 million for the fourth quarter due to a one-off share-based accounting charge. On the other hand, the full-year 2018 net profit reached $273 million.
"To fuel our growth for the years to come, we are firmly committed to continuing investing in the premium content offering, innovative products, and proprietary technology," said CEO Kar Shun Pang in the earnings call yesterday.
Fees for content and revenue sharing plus in-house production costs ballooned 63 percent, squeezing its gross margin to 34 percent from 38.9 percent compared to Q4 2017. Tencent Music owns the copyright to over 90 percent of copyrighted music in China.
Excluding one-off items, Tencent Music earned 0.57 yuan per American depositary share in the quarter, which was in line with analysts' average estimate, according to IBES data from Refinitiv.
"It's a long-term revolution rather than a short-term switch," said Chief Strategy Officer Cheuk Tung Yip in the earnings call. Yip, however, said the company has a lot of growth potential given the paying ratio is still very low compared to international peers.
Paying users of its online music service improved to 27 million in the fourth quarter, an increase of 39.2 percent over the same quarter of 2017, said the company.
The company's Wall Street shares have risen 43 percent since it IPOed in December, but its results published Tuesday reveal that Chinese users need more time to fully adapt to the new pay-to-listen approach the company is fostering.
Tencent Music generates only a small part of its revenue from music subscription packages. Instead, it relies heavily on online karaoke and lives streaming, which are services popular in China.
The music arm of gaming and social network giant Tencent Holdings Ltd raised close to $1.1 billion in its U.S. IPO after pricing its shares at the bottom of its targeted range. It priced its American Depositary Receipts (ADRs) at $13 per share, at the low end of its indicated $13 to $15 per share range.
The IPO valued Tencent Music at $21.3 billion. Tencent Music sold 41 million ADRs while existing shareholders sold a further 40.9 million.
