Tencent Music’s Resilience: Q3 Surpasses Expectations Amid Regulatory Challenges

Tencent Music, a prominent player in the Chinese music streaming industry with platforms like QQ Music and Kugou Music, outperformed expectations in the third quarter despite facing challenges.

During this period, the company’s total revenue experienced a decline of 10.8%, amounting to 6.57 billion yuan ($901 million) compared to the corresponding period last year.

Despite this dip, Tencent Music surpassed Wall Street’s revenue estimates of 6.31 billion yuan.

Operated under the umbrella of Chinese tech giant Tencent, the company found itself in the midst of Beijing’s crackdown on online gambling, which affected various online entertainment entities such as Huya and Cloud Music.

Although Tencent Music explicitly prohibits online gambling on its platforms, the regulatory crackdown impacted features that resembled games of chance, like virtual lucky draws.

Such features were flagged for their potential misuse for gambling activities, prompting Tencent Music and other companies to remove them from their platforms.

Tencent Music's Resilience: Q3 Surpasses Expectations Amid Regulatory Challenges
Tencent Music’s Resilience: Q3 Surpasses Expectations Amid Regulatory Challenges

This regulatory response had significant consequences, leading to a substantial 48.8% drop in revenue for Tencent Music’s social entertainment services during the quarter.

The company’s Chief Financial Officer, Min Hu, attributed this decline to strategic adjustments made to certain app streaming interactive functions and the implementation of more rigorous procedures to align with regulatory requirements.

The challenges were not entirely new for Tencent Music, as the previous quarter had already seen a 24% decline in revenue for its social entertainment services.

However, despite these setbacks, Tencent Music remains optimistic about the future. Cussion Pang, the executive chairman, outlined the company’s primary objective for 2024 as stabilizing the business and enhancing services for their core users.

Despite the regulatory hurdles, he expressed confidence that the social entertainment business would continue to contribute to a robust cash flow within Tencent Music’s broader music ecosystem.

From a financial perspective, Tencent Music’s performance exceeded expectations when certain items were excluded. The company earned 89 yuan per American depository share (ADS), slightly surpassing the anticipated 88 yuan.

Additionally, the net profit attributable to equity holders rose from 1.06 billion yuan to 1.71 billion yuan compared to the same quarter the previous year.

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