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In an industry with sparse profits, Chinese music streaming company Tencent Music Entertainment earned net income of $641.4 million in 2020 on revenues of $4.5 billion, the company announced Monday (March 22).

That helps explain why Tencent Music’s market capitalization is just 1.5% lower than Spotify’s ($51.8 billion to $52.6 billion) with only 51.3% of its revenue ($4.5 billion to $8.7 billion).

Tencent Music’s revenues rose 14.3% to $1.28 billion in the fourth quarter and 14.6% to $4.5 billion in 2020. The name of the company doesn’t convey the sources of the money, however: music accounted for just 28.1% of total revenue in 2020 while social entertainment and “others” — live streaming and karaoke apps — represented the other 71.9%. Social entertainment monthly average users may have decreased 4.3%, but their average revenue per user grew 26.3% to become more than 18 times larger than online music’s ARPU.

But music revenues are picking up steam through the use of a paywall, improved subscriber retention and a 100% gain in advertising revenue in the fourth quarter.

The growth will continue into 2021, said Tony Yip, Chief Strategy Officer, during the earnings call, and the company expects “average net [user] adds to be approximately 45 million per quarter” during the year. It’s music to investors’ ears: shares of Tencent Music have risen 234% to $30.87 from $9.22 a year ago.

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Financial results

• Fourth quarter revenues rose 14.3% to RMB 8.34 billion ($1.28 billion).

• Fourth quarter profit rose to RMB 1.21 billion ($185.9 million).

• 2020 revenues rose 14.6% to RMG 29.2 billion ($4.5 billion).

• 2020 profit rose to RMB 4.18 billion ($641.4 million).

Music service metrics

• Revenue from online music services rose 29% to $423 million in the fourth quarter and grew 30.7% to $1.43 billion in 2020.

• Monthly mobile users: 622 million, down 3.4% year over year.

• Subscribers were 56 million, up 40.4% from 39.9 million.

• Fourth quarter music subscription revenue grew 41.9% year over year.

• Average revenue per music user: RMB 9.4 ($1.44), up 1.1%.

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Social entertainment metrics (for December 31, 2020)

• Month mobile users were 223 million, down 4.3%.

• Subscribers were 10.8 million, down 14.3%.

• Average revenue per user: RMG 172.1 ($26.45), up 26.3%.

Subscriptions and live performances are growing.

• Subscriber conversion ratio (of free users) was 9% in 2020 up from 6.2% at the end of 2019.

• Subscriber retention has improved every quarter since the first quarter of 2019.

• TME Live hosted more than 50 online live performances in 2020 (by Billie Eilish, aMei, Mayday and others) and 25 in the fourth quarter.

Non-music audio continues to play a vital role

• In the fourth quarter, long-form audio reached 14.8% of monthly active users (about 90 million), up from 5.5% a year earlier, and reached 90 million monthly active users.

• TME believes that long-form audio’s total addressable market is similar to music and in the high several hundred millions.

• The number of licensed titles in the fourth quarter was up 370% (year over year).

• Non-music audio is not cannibalizing music listening. “When we provide audio content to our music users, they don’t switch off and listen less to music. The actually end up increasing total time spent” listening, said Tony Tip, Chief Strategy Officer.

2021 forecasts

• Revenue growth will increase to about 20% from 16% in 2020.

• The long-form audio user base will double.

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