Tencent Music Entertainment Group

Let me walk you through some concrete examples. On content coverage and appeal, we recently renewed our multi-year partnerships with Universal Music Group, UMG, to bring users ongoing access to its fast and growing music catalog, as well as a notable sound quality upgrade with music streaming in Dolby Atmos and high-definition formats. Taylor Swift's re-recorded album, 1989 Taylor's Version, topped all charts in the first week of its release on our platform in October. We also capitalized on this success and further promoted fan engagement with a series of customized interactive song guesting contests. In addition, we renewed the collaboration with Picard Records. the record label for renowned duo Legend of Phoenix, 凤凰传奇, deepening cooperation across head-starter song releases, physical albums, and various artist-related services. We further enhanced our content appeal and leadership across pop, rock, and Chinese ancient style music genre, allowing us to better attract and retain young users. Next, on differentiated content offerings through in-house and collaborative creation. From mid to long-tail music content, we leveraged our wealth of multi-faceted resources to enrich our offering and promote its prosperity. As of the year of 2023, over 480,000 Indian musicians had contributed over 3 million songs across multiple genres on Tencent Musician platform. By providing comprehensive music training programs and art support, we effectively unlocked their creativity and nurtured their music careers. To accumulate our music access in different genres, we have broadening collaborations with our strategic partners artists. For these more mature artists, we boost their popularity and advance their career through increasingly tailored support. For example, this quarter, we assisted jazz singer Liu Lan with her EP production and release, greatly rising her profile and strengthening the fan-artists' relationships. Our in-house and collaborative content continue to grow from string to string. As a case in point, we had 10 songs showcased during China Media Group 2024 Spring Festival Gala. Our self-produced song, She, Boughing in the Light, 整着光的她, was one standout. Such performances generated massive social buzz, pushing user engagement on our platform and greatly evaluating our national influence. Another notable example is our self-produced hit song, Performed by our strategic partner artist, and covered by our popular Chinese crosstalk performer, This song went viral, totaling over 1 billion streams on our platforms as of March this year. Last but not least, on maximizing content value through innovation, we scale up our live performance business through diverse events formats in 2023. Capitalizing on the resurgence of offline music events, we host a growing number of offline music tours, festivals, and live house performances to meet strong demand. In the fourth quarter, we hosted world-renowned DJ Alan Walker's Six City electronic music tour in China. During the tour, we facilitated unique offline merged online services, encompassing interactive fan activities, artist merchandise, ticket sales, and performance management, which in turn boosted our industry influence. In the fourth quarter, we collaborated with Hype Entertainment to launch a line of artist merchandise for K-pop bands such as Seventeen and Lee Jin, diversifying our offerings of content-related peripherals in various formats. As a result, revenue from artist merchandise recorded robust year-over-year growth. Moving on to our continued commitment to social responsibility. In the fourth quarter, in collaboration with local government agencies, we conducted a series of music events to promote cultural and economic development in African minority regions. For example, we partnered with Tencent Charity to organize the 2023 Shenzhen music festival, leveraging offline music performances to help rejuvenate the rural economy with increased tourism. These initiatives not only broaden music's reach geographically, but also expand its positive impact across the industries, maximize its societal value. In conclusion, we're excited about the rising growth of the music industry for the years to come. Our powerful content and platform dual engines, underpinned by online music's relatively contrast cyclical nature, will enable us to capture more multi-faceted opportunities in 2024 and beyond. Now, I would like to turn the call over to Ross for more color on our platform development. Ross, please go ahead.

Thank you, Katrin. Hello, everyone. Our laser focus on execution resulted in a year of solid music growth and efficiency gains. Our platform's strength, our insight into users and content, and our dedication to innovation were crucial in achieving this success, all translating into enhanced music journeys for users. Now I would like to elaborate on three areas we prioritized to enhance users' experience. First, we expanded users' privileges. This included more industry-leading sound quality selections, rich sound effects, more individualized players, new skins, and additional interactive features. For example, We amassed China's largest Dolby Atmos music library, offering users a more immersive listening experience. Currently, our Dolby Atmos music service is available on mobile, in-car, and PC platforms, enabling higher quality music experiences across more comprehensive use cases. Furthermore, we hosted a dedicated online MV premiere event for J-Hope's new single, Christmas Star, promoting closer fan-artist bonding and a deeper sense of community. Millions of viewers signed up for the event within 24 hours of the registration opening. We also launched an AI voice feature for this single to further boost user engagement. Thanks to these tailored activities and features, we have recorded a total of over 100 million streams from tens of millions of users. Second, We deepened connections with users through major upgrades across multi-device experiences. QQ Music launched a significant upgrade on mobile and PC in December last year, offering customized user interfaces and music players. As part of Chinese Lunar New Year's offerings, we introduced an annual music report feature that captures each user's unique music journey. Tens of millions of QQ music users joined this annual review activity. This comprehensive report reflects the important personalized mutual bonds that we have built with users on a massive scale. They highlight how and when a user connected with us emotionally. From special moments captured, artist favorite, storage discovery, and the songs streamed to time spent. We also enhance the in-car music entertainment services. For example, we recently upgraded QQ music in-car app for Tesla. bring users a more intelligent interface with better recommendations. Kugoo Music newly added the Viper 3D Music Library to its in-car offerings, specially optimizing audio performance in a closed-cabin environment. Furthermore, we maintained our leadership in smart vocal coverage and recently renewed partnership with Li Auto. Last but not least, our technology infrastructure continued to play a vital role in content promotion, distribution, and discovery. More accurate recommendations drove greater content consumption, effectively improving our user conversion and retention. We are pleased to share that in the fourth quarter, both QQ Music and Google Music recorded another record high share of music streams from recommendations. Finally, AI. We continued to expand AIGC applications to enhance user experience and foster artists' music creation while improving efficiency. On the product side, we integrated AIGC into music streaming and creation, as well as seeing and socializing, creating an increasingly intelligent and personalized music experience for users and creators. For example, By enhancing QQ Music's AI-enabled listening-together feature with additional virtual DJs, each specializing in different music genres, we have made music discovery faster and more personalized. Furthermore, we launched an AI composition tool in Venus, supporting artists' music creation using their original text promos or rhythm clips. Lastly, we integrated an AI-themed function into Google and WeThink. Initial results suggest that users are increasingly willing to pay for this function as it enables easy creation of sound covers in multiple styles and languages. On the operations side, We are using AIGC to make our advertising more efficient and effective, employing us to a better target and convert users. We are also leveraging LLMs to better promote and distribute new songs. They help us analyze songs' audio characteristics and identify the content. that resonates most with users. To sum up, we will continue to leverage technology to achieve more efficiency gains in the future. Our dedication and passion for serving hundreds of millions of music users will further inspire us to deliver more compelling music entertainment experiences seamlessly across a broader range of user cases. With that, I will turn the call over to Shirley, our CFO, for a deep dive into our financials.

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our strong financial results for year 2023 reflected success in effective monetization for our music services and operational efficiency management. With accelerating year-over-year growth in subscription revenues throughout the year, our online milk services delivered faster-than-expected revenue growth, which largely mitigated the revenue decline in social entertainment services and others. IFRS net profit and non-IFRS net profit were RMB 5.2 billion and RMB 6.2 billion, respectively, up by 36% and 27%, respectively, on a year-over-year basis. In the fourth quarter of 2023, our total revenues will unbeat 6.9 billion, down by 7% year over year, primarily due to decline of revenues from social entertainment services and others. Our online music revenues in Q4 2023 increased by 41% to RMB 5 billion on a year-over-year basis. This surge was driven by the strong expansion of our music subscription and advertising business, supplemented by an increase in artist-related merchandise sales. Delving deeper into our music subscription performance for Q4, music subscription revenues reached RMB 3.4 billion, which is a 45% increase year-over-year, and a 7% rise sequentially. Our refund operation allowed us to expand our online music paying user, this while enhancing monthly ARPPU. The number of online music paying users expanded to 106.7 million, representing a 21% increase year-over-year, with quarterly net ads of 3.7 million users. The monthly AIPPU rose to only 10.7, up by 20% year-over-year, and by 4% sequentially. marking the seventh success quarter of growth and setting another record. The continued growth in our paying user base was largely attributable to our enriched content offerings, enhanced member privileges, such as industry-leading sound quality selections, rich sound effects, more individualized players, new skins, and interactive product features, such as in-car enhancement, and interactive features for GX House, NewSync, Christmas Star, Our advertising revenue also had strong growth year-over-year and sequentially, supported by our diversified product suite and innovating advertising formats. Advertise-supported advertising delivered strong performance this quarter, as entrance rate improved significantly. Additionally, the new Double 11 e-commerce sales event generated a higher demand for advertising and contributed to a sequential increase in advertising revenues. Social entertainment services and other revenues were 1.9 billion, down by 52% year-over-year. This was mainly due to adjustments in certain live streaming interactive functions and more stringent compliance procedures as we implemented several service enhancement and risk control measures in the past couple of quarters. We continue to innovate for social entertainment service and have seen growth in advertising revenues and VIP membership revenues this quarter. Our growth margin for Q4 stood at 38.3%, marking an increase of 5.3 percentage points year over year and an increase of 2.6 percentage points sequentially. Increasing user base together with higher monthly AIPPU, growth in advertising revenues, as well as ramping up of our own content have enabled us to move to a health margin model. Additionally, we have built win-win relationships with labels and artists and managed the content costs more efficiently using ROC approach. These efforts have collectively resulted in the increase of our growth margin year over year. Moving on to operating expenses, in the fourth quarter of 2023, they amounted to RMB 1.3 billion, representing 18.4% of our total revenues, compared with 18.3% in the same period of last year. Selling and marketing expenses were RMB 255 million, down by 4% year-over-year. Our marketing strategy is ROI-focused, where we allocate the budget towards areas with long-term growth prospects. We strategically curtailed expense for promotion channel fees associated with live streaming and increased expenses to promote our own content. As our music service continues to grow rapidly, we will continue to spend on channel promotions for these eras. General and administrative expenses were RMB 1 billion, down by 8% year-over-year, primarily driven by low employee-related expenses, partially because we incurred expenses related to laser audio acquisition in Q4 2022, but such expenses did not recur in Q4 2023. Our effective tax rate for Q4 2023 was 17.3% compared to 12.2% in the same period of 2022. This increase was primarily attributed to the accrual of withholding tax related to earnings to be remit by our PRC subsidiaries to offshore entities. For Q4 2023, our net profit and net profit attributable to equity holders of the company were RMB 1.4 billion and RMB 1.3 billion. Non-authorized net profit and non-authorized net profit attributable to equity holders of the company were RMB 1.7 billion and RMB 1.6 billion, respectively. Our diluted earnings per ADS reached a record high this quarter at RMB 0.83, up 15% year-over-year. Non-RFI diluted earnings per ADS increased to RMB 1, up 10% year-over-year. These results demonstrated our robust financial performance, enhanced operating efficiency, and the positive impact from our sure repurchase program. As of December 31, 2023, our combined balances of cash, cash equivalents and term deposits were RMB 32.2 billion as compared with RMB 31 billion as of September 30, 2023. This combined balance was also impacted by changes in the exchange rate of the RMB to USD at different balance sheet dates. Under the Share Repurchase Program announced in March 2023, as of December 31st, 2023, we had repurchased 25.3 million ADs from the open market for total cash consideration of US dollar, 175 million of which approximately US dollar, 72 million were repurchased in the fourth quarter. Next, I'll briefly discuss our performance for full year 2023. Total revenues were RMB 27.8 billion, down by 2% year over year. Revenues from online music service were RMB 17.3 billion, up by 39% year over year. The increase was driven by strong growth in music subscription revenues and revenues from advertising services. supplemented by growth in other music services. Our music subscription revenue will only be 12.1 billion, up by 39% year-over-year, driven by growth in both paying users and monthly AIPPU. Revenues from social entertainment service declined by 34% year-over-year due to adjustments in certain live streaming interactive functions and more stringent company procedures as we implemented several service enhancements and risk control measures in the past couple of quarters. Gross margin in 2023 was 35.3%, up by 4.3% year-over-year, due to the reasons discussed earlier. Total operating expenses for 2023 will unbeat $5 billion, down by 10% year-over-year. Selling and marketing expenses in 2023 will unbeat $0.9 billion, down by 2020. percent year-over-year, largely due to more efficient how I focus the promotional strategies. General and administrative expenses will only be $4.1 billion, down by 7% year-over-year, primarily due to reduced employee-related expenses, including expenses related to lazy audio acquisition and expenses related to the Hong Kong secondary listing incurred in 2022. In 2023, we achieved the highest level of profitability in our company's history. Net profit and net profit attributable to equity holders of the company was RMB 5.2 billion and RMB 4.9 billion respectively. Non-advanced net profit and non-advanced net profit attributable to equity holders of the company was RMB 6.2 billion and RMB 5.2 billion respectively. the 9 billion respectively. Finally, I'll conclude with some remarks on our outlook for 2023. We are excited about the growth of the music industry and remain dedicated to driving our growth across our musical ecosystem. We will continue to focus on effective monetization and operational efficiency while exploring new growth opportunities and expanding our suite of monetization tools such as customized artist merchandise, concerts, etc. Additionally, we will continue to invest in high-quality contents and original content productions, as well as new products and technologies such as AIGC. We are confident about the long-term health growth of the music industry and our company. We remain focused on providing high-quality investment returns for our shareholders. This concludes our prepared remarks. We are now ready to open the call for questions.