Earnings preview: How is Q2 shaping up for Tencent Music?

Tencent Music Entertainment Group (NYSE: TME) is scheduled to report second quarter 2019 earnings results on Monday, August 12, after regular hours. Analysts expect the company to report earnings of $0.08 per share on revenue of $873 million.

Tencent Music, which is the music streaming division of Chinese tech giant Tencent Holdings, continues to benefit from the double-digit growth seen in the number of paying users across its online music and social entertainment services.

The company’s strategy of content diversification and expansion has helped drive growth in monthly active users (MAU) across both its segments. These growth trends are likely to continue in the second quarter.

For content development, Tencent has entered into partnerships with music labels. The company has managed to both expand its music subscriber base and increase the retention rate of subscribers. Tencent is looking to slowly transition into a pay-for-streaming model over the coming years. Overall, the second quarter appears to be shaping up well for Tencent.

In the first quarter of 2019, Tencent Music beat profit estimates, with a 17.4% year-over-year growth in earnings to $147 million. Revenues rose 39% to $855 million, driven by higher revenues in online music and social entertainment services.

Revenue from online music services rose 28% helped by increased revenues from user subscriptions, sublicensing music content to other companies, and sales of digital music albums to users. Revenue from social entertainment services and others jumped by 44.3% driven by revenue growth in the online karaoke and live streaming services.

Mobile MAU increased 4.6% in online music and 0.4% in social entertainment. Paying users grew 27.4% in online music and 12.5% in social entertainment. Monthly average revenue per paying user (ARPPU) fell 1.2% in online music but rose by 28.1% in social entertainment.

Tencent Music’s shares have gained 9.5% so far this year. The majority of analysts have rated it Buy and the stock has a price target of $17.63.

The company’s main rival Spotify (NYSE: SPOT) reported its second quarter results last month, delivering higher revenue and a narrower loss.

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