Tencent Music Entertainment Group

Good evening, good morning, and welcome to Tencent Mix Entertainment Group's third quarter 2024 earnings conference call. I'm Nelson Tuho, head of IR. We announced our quarterly financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via newswire services. During today's call, you'll hear from Mr. Khusheng Pang, our Executive Chairman, and Mr. Ross Leung, our CEO, who will share an overview of our company's strategies and business updates. Then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I'll refer you to the Safe Harbor Statement in our earnings release, which applies to this call as we'll make forelooking statements. Please note that we'll discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS and our earnest release and filings with the SEC. All participants are muted at this time. After management's remarks, there will be a Q&A session. And please be advised that today's call is being recorded. With that, I'll now turn over the call to Kassian, executive chairman of TME. Kassian, please.

Thank you, Madison. Hello, everyone, and thank you for joining our call today. The solid third quarter performance once again showcases our ability to deliver high-quality growth. Our faster approach continues to drive both subscriber-based expansion and ARPP growth. Online music services revenue grew by 20% year over year, contributing significantly to a 29% year over year increase in adjusted net profit. During the quarter, we prioritize the deepening integrations across different products. It's evident that the synergies between our dual engines of platform and ribbon content ecosystem have become a powerful force, enabling us to unlock more value to users. Let me give you some examples. First, our ongoing efforts to strengthen partnerships with domestic and international record labels have continued to bear fruit, enhancing our music offerings and diversifying our contents Recently, we renewed the contract with top Chinese labels like YH Entertainment Group, YueHua Music Group, and Image Music Group, Daxiang Music Group, including early access for new song releases from popular artists such as Silence Wang, Wang Sulong. Additionally, we formed a strategic cooperation with Galaxy Corporation, home to the global music sensation G-Dragon, to bring you more international music content, digital albums, and merchandise to our platform. Our scale and unique value proposition have enabled us to become the multi-year proprietary partner for G-Dragon's upcoming tour concerts in Asia and other regions. As our influence in the industry grows, an increasing number of record labels are working with us to launch innovative artist-fan interaction events focusing on new song releases, such as voice-based interactions, song guessing games, and music challenges. Second, we have been partnering with A-listed artists and rising indie musicians to host offline music experiences and concerts, connecting them with their fans in creative ways. Two recent events demonstrated our success in this space. In September, we hosted TME Seabird Music Festival in Anhui, featuring a stellar lineup of artists, including Chen Chusheng, Du Ke Xue, Xue Zixian, and Zhang Yuan, as well as Tencent musicians and other popular artists Leon Liu, Liu Shuang, Zhao Lei, and Su Li Zhang, Yang Pei, Yue Dei. This event attracted an impressive 65,000 fans over two days. earning widespread acclaim and impact. We also organized an offline concert for talented singer and songwriter, Yu Jia Yun, marking his first ever ticket show with over 10,000 attendees. Third, leveraging Tencent's powerful network and ecosystem, we continue to nurture our music content community that inspires interactive engagement. In the third quarter, we collaborated with celebrities Kerry Wang, Wang Junkai, and Esther Yu, Yu Shuxing to produce theme songs titled, The Hero, and Breaking News for popular games, League of Legends, Wild Rift and Peacemaker Elite. This cross promotions with Tencent Games combined with disdain in-game icon redemptions have lead to impressive results. The popularity of these theme songs, which hit our top trending songs chart, and Chinese song chart has increased the use engagement, effectively bridging the music and gaming communities across platforms. We recognize that different users cohorts have the same music consumption needs and preferences. To address this, we are actively expanding unique benefits to our premium members. For our super VIP members, we introduce priority access to extensive iconic digital albums from renowned artists such as Zhou Lincai, Cai Yiling, and Wang Yibo, with new additions of multiple K-pop singers in the third quarter. We also enhanced the SVIP privileges to include unique concerts and fan activities, such as pre-sales for tickets to shows by Jam, Deng Ziqi, Mariah Carey, and Tia Ray, Yuan Yawei. These enhanced privileges have effectively driven growth in our SVIP memberships, and we will continue to unlock new opportunities for both music labels and artists. Last but not least, we published our inaugural ESG report in the third quarter, providing a comprehensive overview of our ESG practice and achievements. This is just the beginning of our sustainability journey. I'm also delighted to share that the Tencent Musician platform was recently recognized as one of China's first model cases for the national copyright powerhouse strategy, honoring our contributions to safeguarding music copyrights. This recognition will further motivate and propel us to promote the music industry healthy and sustainable development. In summary, our sustainable and long-term approach to achieving high quality growth will carry us far and beyond what we have achieved so far. We remain dedicated to fostering a compassionate, inclusive, and thriving music and ecosystem that benefits music labels, artists, users, and the broader industry. Now, I would like to turn the call over to Ross for more details on our overall platform development. Ross, please go ahead. Thank you.

Thank you, Ka-hsuan. Hello, everyone. Alongside our content and user insights, our years of operational expertise have been a key driver in strengthening our industry position and differentiating our value proposition in a dynamic environment. Our third quarter results once again demonstrated our ability to execute on strategies that retain users, attract new paying subscribers, and upgrade more members to premium services. These results bowed down to our commitment to innovation and our increasing ability to meet users' involving building consumption preference. Let me start by sharing some progress on our product upgrades in the third quarter, which have been well received by our large use case. First, our deep understanding in users' needs enables us to further innovate our product features, bringing fresh experiences. For example, recently we launched the industry-first player interface, featuring a horizontal screen as well as real-time interactive comments feature, promoting a deeper sense of community belonging. We also upgraded the top-trending songs chart, Dian Feng Chao Liu Ba, with interactive features attracting millions of participants. This has helped increase the chart's influence. Second, we continue to explore new technologies to enhance users' experiences. For example, we have leveraged large language models to streaming line content production, further improving both efficiency and the quality. Notably, in the third quarter, we deployed AI scene technology to create single fairy town, Tonghua Zhen, which quickly went viral on short video platforms. Our text-to-speech TTS technology also helped us create tens of thousands of audio books on our platform. Take into our efforts to expand our subscriber base. First, we optimized our operational and marketing efforts to drive a new subscriber acquisition across viral environments. For example, central to other mid-autumn festivals' same event, we rewarded new users with subscription benefits through unique interactive features. This has positively contributed to paying users like us. Second, we continue to improve our recommendation algorithm. One example is enhancing the novelty of tailored content suggestions, making it easier for users to discover music. This led to higher recommendation streaming share sequentially in the third quarter, which in turn improved paying user commission efficiency. Third, we collaborated with iconic IPs like Black Myth Wukong, Hei Shen Hua Wukong, Crown Shin Chan, La Bi Xiao Xin, and Disney, allowing us to offer personalized interfaces that attract additional paying users. In terms of SVIP, our highly engaged subscribers We are pleased to report that as the end of the third quarter, we reached an important milestone by surpassing 10 million. The unique benefits of our SYIP plans are gaining traction as shown by the high ARPPU and the long time spent on our platform compared to other tiers of paying users. Let me provide more details on this achievement. First, Our proprietary self-developed audio quality features have enhanced the listening experience for SYIP members. Standout examples from this quarter are QQ Music's premium sound, DTS sound quality, and Kugoo Music's Viper Ultra sound, which bring clear, more immersive audio to our users. Furthermore, we expanded our high-quality sound experience to in-car scenarios with Viper series audio quality designed for our SAP membership during Xiaomi, the auto, and the new vehicles. Second, our enhanced long-form audio offerings have also had a positive impact on user willingness to review their subscriptions. We expanded our audiobook content library with original content and popular IPs across various genres, including hit TV dramas and films, comics, suspense, and children's stories. Third, These are just a few examples of the initial steps that we are taking to grow our SVIP memberships. Coupled with the growing depth of our content ecosystem, as Kashin discussed, we have a solid foundation for delivering richer content benefits. Moving forward, we will continue to focus on both unique content and product offerings. meeting the growing need of our users and delivering delightful music experiences. With that, I would like to 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 effective monetization of online music services and operational efficiency management continued to draw strong financial results in the third quarter of 2024. With strong performance in our military subscription and advertising business, we are pleased to see our revenue growth resume its growth trajectory on a year-over-year basis. RFIS net profit increased by 35% year-over-year to RMB 1.7 billion, and non-RFIS net profit rose by 29% year-over-year to RMB 1.9 billion. Total revenues in the third quarter of 2024 were RMB 7 billion, up by 7% year-over-year. Online music revenues increased by 20% year-over-year to RMB 5.5 billion. This increase was mainly driven by the strong expansion of our music subscription revenues, supplemented by growth in advertising revenues, as well as growth in revenues from offline performances. Music subscription revenues in the third quarter of 2024 reached RMB 3.8 billion, representing a 20% increase year-over-year, and the 3% rise sequentially. Mostly AI PPU was RMB 10.8, up 5% from RMB 10.3 in the same period last year. The number of users were 190 million, representing a 16% increase year-over-year, with quarterly net ads of 2 million users with the goal of achieving growth in both subscribers and the monthly ARPPU. We have strategically focused on SYIP membership program and enhanced membership benefits, such as priority access to digital albums, pre-sale for tickets to concerts and fan activities, and high quality audio and sound effects for mobile and in-car users. These benefits and the futures have helped us achieve an important milestone of passing 10 million SVIP members this quarter. Advertising revenues also had a strong year-over-year growth, primarily due to the growth in AD-supported made revenues. We continued to innovate and diversify our product offerings and advertising formats The attractive interactive features and enriched benefits were offered, helped improve entrance rate for our aid-supported advertising and enhance use engagement and eCPM, and attracted more advertisers this quarter. Social entertainment services and other revenues will be 1.5 billion, down by 24% year-over-year. For social entertainment services, Our top priority is safety in operation, and we will keep monitor marketing conditions and the competitive landscape. In well, we continue to innovate and build new products and features to drive quality growth in areas such as racing membership, advertising, racing, social entertainment. Our gross margin for Q3 reached 42.6%, representing an increase of 6.9 percentage points year over year due to a few factors. First, the expansion of our paid user space. The enhanced amount of ARPPU for online music and the growth in advertising revenues have positively impacted our gross margin. Second, we have been focused on ROC as a key metric to manage our content royalty costs. Third, the ramping up of our own content continue to help improve our gross margin. Lastly, the growth in WeSing memberships and advertising within social entertainment also positively impact our gross margin. Going on to operating expenses, in the third quarter of 2024, They amounted to only 1.2 billion, representing 17.4% of our total revenues, compared with 19.3% in the same period of last year. City and market expenses were only 220 million, and remained relatively stable, comparing with the same period of last year. Our ROI-focused approach for promotion expenses, together with product appearance improvement, have contributed to the growth in online music MAUs. We will continue to invest in areas with long-term growth perspective, such as online music and content promotions. General and administrative expenses for RMB, $998 million, 5% year-over-year, primarily driven by low employee-related expenses. Our effective tax rate for Q3 was 17.7% compared to 12.2% in the same period of 2023. This increase was primarily attributed to the accrual of withholding tax of RMB $130 million, related to earnings to be remit by our PRC subsidiaries offshore entities. For Q3 2024, our net profit and net profit attributable to equity holders of the company will all be 1.7 billion and all be 1.6 billion, respectively. Non-office net profit and non-office net profit attributable to equity holders of the company will all be 1.9 billion and all be 1.8 billion, respectively. The financial results for Q3 2024 have reflected an unrealized loss from foreign exchange due to the fluctuation of exchange rate between RMB and USD as of June 6 and September 30, 2024. Our diluted earnings per ADS this quarter was 1.01, up 36% year-over-year. Now our first diluted earnings per ADS increased to 1.16, up 30% year-over-year. These results underscored our robust financial performance, enhanced operating efficiency, and the benefit from our share repurchase program. Under the Share Repurchase Program announced in March 2023, as of September 30, 2024, we have repurchased 42.1 million ADS from the open market for total cash consideration of US$335.5 million, of which approximately US$100 million were repurchased in the third quarter of 2024. As of September 30, 2024, our combined balance of cash, cash equivalents, home deposits, and short-term investment, or RMB, 36 billion, as compared with RMB 35 billion as of June 30, 2024. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance sheet dates. Looking forward, We will continue to drive high-quality growth in our music business, such as expanding SVIP memberships and the advertising business, as well as operational basis improvement. We will also continue to invest in high-quality content, original content production, as well as innovative technologies to further improve user engagement and enhance user experience. We remain confident in the long-term health growth in the music industry and our business and are dedicated to provide high-quality returns for our shareholders. This concludes our prepared remarks. We are now ready to take your questions.

Thank you, Shirley. If you are dialing in by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you are accessing the call from the Tencent meeting or call the meeting application, please click the raise hand button at the bottom left. For the benefit of all participants on today's call, please limit yourself to one question, and if you have additional one, please re-enter the queue. If you ask the questions in Chinese, please let me ask you to repeat them in English. The first question comes to the line from Liu Yang from Morgan Stanley.

I would like to ask the management of the company about the business prospects for Q4 and Q1 this year. Because we see that the progress of SuperVIP is quite good. I would like to hear more about the current PR and competition situation. Will SuperVIP be able to continue to bring about an improvement in the company's up? Especially in the situation of this year's 4Q and next year's whole year. Thank you.

Thank you very much. Thanks to the company for the presentation. I'd like to ask the first question. The first question is regarding the outlook for Q4 of this year and the Q1 next year. From the presentation, I clearly noticed that SuperVIP is progressing pretty well, especially based on the microeconomic condition and the competition. Do you believe SuperVIP is going to continue to boost our performance growth? especially what would be your outlook for Q4 of this year and the full year of next year? Thank you.

Okay, thanks for your questions. And I think this quarter's performance of PME, once again, testified the effectiveness of our high-quality growth strategy, which is owned by the balance of growth between our revenue and also the net profits, as well as the subscribers and the RPPU. So for the mid-term targets, I think our key priority is to continue to expand our paying user base. So at the same time, our commitment to grow the ARPPU is more than ever, which is proven by the strong initial results of our Super VIP plan that you have mentioned. We have already recorded over 10 million subscribers as of the end of September 2024. As you may recall, our business journey, I think our strategy evolution is basically transitioning from the paid downloads to streaming and also upgrading our basic membership to Green Diamond membership has given us a lot of insights and also accumulated experience. We are now pushing the boundaries to explore more diverse music scenarios and add more high-quality content, product features, and also user privileges to our new Super VIP membership, which we strongly believe that it will help us to broaden our user base and deepen our user loyalty as well. So it's going to be helping us to have a very healthy growth in the future. Last but not least, I think that I would like to point out that we are now back on track to resume a positive revenue growth in 2024. And looking into 2025, we are optimistic about our growth prospects. Assuming the external environment stays stable, we expect to see an acceleration in both the top line growth and mainly driven by the steady increase in the number of subscribers and the RPPU, and also along with the improved profits and profit margins.

Okay, thank you. And then this question comes to the line from Lincoln Kong from Goldman Sachs. Lincoln, please.

Well, thank you, management, for taking my question. Congrats on the pretty solid quarter. So my question will be on the member side. I think in the third quarter, we have a new add-on for 2 million new subscriber. That's actually better than we earlier expected or companies earlier target. Could management share a bit more in terms of the reason behind it? And when we're thinking into fourth quarter, As we just passed the single stay, so could we have a bit more color in terms of the single stay promotion intensity? How should we think about the fourth quarter new subscriber has, especially compared versus the third quarter? Any color in the user retention part would be great. Thank you.

Thank you, Director Zhang. I have a question. First of all, congratulations to the company for achieving a very stable growth in its business. My question is about our members. We can see that the growth of members in the third quarter is better than expected. Can you share with us some of the main reasons behind this? And also, we would like to know if the company will make any progress in marketing in the future to improve the future development and the process of members. Thank you.

Thank you very much. Thanks for your question. Yes, indeed, in Q3, the performance is better than expectation. I think it's mainly because of our strategies. We still would like to keep a very stable operational strategy starting from this year to now. We are also more concerned about the expansion of Baoyue's privileges. At the same time, we are also considering how we can use a relatively stable growth for our app. At the same time, we are also assisting some of those who appeared in Q3. Because in Q3, relatively speaking, there is a Mid-Autumn Festival, so there are some corresponding activity strategies that can help us to have a better growth on a certain scale.

And at the same time, we also pay much attention to the ever-expanding privilege for the monthly subscribers. And we are also, at the same time, continue to stabilize the growth of the ARUP. At the same time, in Q3, there are some festivals, especially the mid-autumn festival. We're also leveraging the campaign and the marketing strategies to make sure we grow our subscriber base in a very healthy way.

From a low price strategy, from the first month's low price, we should still be in the future Q4 and next year's Q1, we will continue to tighten. Because we still hope to pursue a more stable growth and a higher overall turnover. So we still hope to allow users to recognize the value of our entire turnover, especially the value of our content, so that it can continue to live on our platform.

Regarding the marketing strategies, and I think in Q4 of this year or Q1 of next year, we're still going to keep a very tight control over the marketing because we want to seek for healthy and steady growth of our business and really retain the subscribers and the users within us. And more importantly, we really want our users to know the true value of the subscription business. especially the value of the content we provided to them. In that way, the user will stay with us and still be active on our platform.

From a privilege perspective, in addition to the conventional content perspective, we have mentioned a lot of content coverage. Q3 and Q4 are still focusing on sound quality and sound effect. For example, we have better cooperation with DTS. We have also made a significant upgrade to our real-time sound quality. At the same time, we are also focusing on sound quality We've tried a lot of things with the sound effects. We hope to give our users more special features to improve their efficiency. For example, recently, when we were listening to music, we got a good welcome from our users.

In terms of the user or the subscriber privilege, in addition to the traditional content, and we were also trying to further improve the content quality. And besides the content, we also did a lot of job in order to improve the sound quality and the sound effect. For example, we continued our good cooperation with DTS. And at the same time, we also adopted the audio 3D in order to provide more privilege to our users. We also piloted some attempts in the in-car and the mobile end. But at the same time, we do hope that we will provide the good service and functionalities and the privilege to better improve the service to the subscribers, and more importantly, to make them feel happy. Especially recently, we also provide when listening to the sound, and there are also some backing vocal privilege that have been provided to the user.

So in general, we want to clarify that in terms of the operation strategy of the package user, we are still using a combination strategy of standard rate plus SYP, which can further improve the edge efficiency of our platform.

So, overly speaking, regarding our operational strategy of the subscribers, we still would like to take the traditional standard measures plus SVIP as a combo therapy. In that way, we can continue to improve the monetization efficiency of our platform.

SPEAKER 1 As for SYP, we hope that the high-end users in the entire package will be able to upgrade to SYP to improve our ARP. But because the size of SYP itself is still at a relatively low level compared to the overall large-scale size, we also hope that it can make a stable growth to improve our future ARP and have a more important help.

Regarding the basic users, and what we're trying to do is still based upon the subscriber base, we're going to continue to improve the size of the subscriber along with a very steady growth of the ARUP, where at the same time, we also would like to emphasize on new user engagement and attention. And more importantly, for SAIP, we hope that we can continue to promote the primary user from the subscriber to SVIP in order to further drive up the ARRUP. Because generally speaking, our SVIP size is still at a relatively low stage. So we hope it can go through for healthy and stable growth in the near future. That would also contribute to the future ARRUP improvement.

Thank you. And the next question comes from Alicia Yap from City Group. Alicia, please.

Alicia, we can't hear you. Okay.

Sorry about the technical issue. I think, Alicia, we go back to you later. Can we go to Roger? Don from Barclays, please.

Roger, your line is open. Thank you, management, for taking my question.

So, thank you, management. So I have a follow up also on S VIP program. So now we're over 10 million as a third quarter. So just try to get a sense of how many of that was added during the quarter. And other than that, how many was converted from the regular VIP program? Or how many of that was from like new users? Thank you.

Thank you very much. Thank you, Manager Ceng. I have a follow-up question for SVIP. It's very interesting to see that in the third quarter, there are more than 10 million users. I would like to know how many of our SVIP users have been upgraded from the default base to the new ones. Thank you.

Just like what I just said, from the data point of view, most of our SIPs are upgraded from ordinary VIP users. Of course, we are still paying attention to the improvement of the new addition. In terms of proportion, most of them are upgraded from basic VIPs.

Thank you very much. Thanks for your question. According to the statistics, majority of our SVIP user are still be upgraded from the traditional or the basic SVIP. But we're also keeping an eye on the new customer engagement. But in that way, responding to your question, majority of the existing SVIP are still be promoted or upgraded from the basic VIP account.

We also found that in the SYP users, young users are actually a relatively large number of such a situation. So it reflects that our current service and privilege is able to attract the interest and demand of the new generation.

By the way, interestingly speaking, according to the user profile as SVIP, we notice that many of them are young users. This can also tell our service and the privilege we provided to the users are quite fit into their interests and needs.

So based on this, we will also look at more, for example, users in electric vehicles. Because we also know that many of the electric vehicle users are also young users. How can we better dig into the features of the cross-devices in our SYP? At the same time, we are currently trying to combine the SIP with the fan economy. These past two days, we have been trying to open SIPs to get a certain amount of rewards for new cards, and we have basically achieved a better result.

But at the same time, we also keep an eye on the user of the EV because we know that many of the EV users are indeed the young users. So we do want to further extend the cross-device privilege to our SVIP. But at the same time, recently, we were also discussing of combining SVIP with VANS economy. And we were just wondering whether we can provide best VIP with a starlight card in order to make sure they get the rewards and incentives from us.

That's a reason we truly believe in the next few years, our SVIP sites still have empty room for further improvement, which will also contribute to the ever-increasing output. Thank you.

Thank you. And the next question from Changlei from Bank of America. Changlei, your line is open.

Good evening, thank you for accepting my question. I would like to continue to follow up on the issue of SUIP and ARPU. First of all, we see that the SUIP 10 million and the subnetnet is better than expected. However, ARPU does not seem to reflect in Q3. Can you help us understand the balance of ARPU and the members? Thank you.

Thank you very much. Thanks for the management, Keith. I also have a follow-up question regarding SVIP and ARAP. First of all, we do see that SVIP size continues to grow, reaching 10 million within this quarter, which is better than what expected. But it seems that ARAP is not performing that well, especially being reflected in a single month of Q3. Would you mind to kindly walk us through the reason and how you're going to balance the user size growth along with the ARAP growth? And to the management team, how are you going to expect that ARAP grows in the near future? When it's going to see a very good response from the ARAP?

Actually, from the whole performance point of view, because our SIP did not rise to 10 million from this month. So basically, it's hard to say. We actually talked about it before. We actually did it for almost a year, almost a year. And then from zero to today, it is a gradual growth result. And now we can say we have reached 10 million. So the up itself is the result of our overall up value performance.

Thank you very much. Thanks for the question. I have to say that our SVIP size is not coming to 10 million over just one night. We were deep dive there for close to one year. We start everything from scratch. So it is indeed a result of the stop-off efforts. Where nowadays we already reach 10 million SVIP user, but regarding the ARAP, the ARAP has been accumulated and been performed in a continuous approach.

So you mentioned a lot of things just now. Because from the model perspective, we are still in a very large scale in terms of the coverage of user-based coverage. So if you asked me about my question, I believe if we predict, from a model perspective, we might be at around 2,000 to 3,000. If you look at the up itself, it already has a relatively high penetration rate. So its up performance should be a little bit more obvious compared to that. But at this stage, you can still relatively focus on the overall growth of our app. You can see that it basically has an improvement for us. But for now, we can't mention it as a completely independent app.

Well, just now in my response to the previous questions I have already mentioned, in our existing model, the majority of the SVIP customers are still the traditional subscribers. So to respond to your question, at least from the model perspective, we believe when SVIP size reaches 20 to 30 million, then you're going to see more response from ARAP. In other words, it's going to be in light with the ever-increasing SVIP size graphs. And that means that when the SVIP penetration continue to improve, it also going to contribute more to ARAP. But till now, I think what you need to say is how the ARAP growth is going to continue. But we can't take ARAP as an independent factor and assess it on the quarterly basis.

Let's start from the last point. In fact, we can see that in this 10 million, the SVIP is much higher than our base coverage.

But just one more comment, and especially within our 10 million SVIP, I have to say is ARUP is higher than our basic subscriber account.

Thank you.

And the next question from .

Thank you for taking my question. Just want to double click on the 10 million super VIP milestone. By the way, congrats on the 10 million milestone. Can you help share any color on the super VIP kind of profile? You mentioned they tend to be more young users, right? What about by app? Like what you're saying, like QQ versus other Google apps, right? And you also highlighted some of the key drivers, for example, the premium audio quality, right? The long form audio. Just curious if there is a way to rank them by effectiveness in this quarter, and then which area do you plan to focus on going forward to continue to drive the conversion? Thank you.

Thank you very much, Guan Licheng. I have a question about SVIP. Congratulations, Guan Licheng. In the third quarter, we reached a milestone of tens of millions of users. You just mentioned SVIP users. Most of them are young users. I want to know if these users are usually QQ Music users or Google users. This is my first question.

As you mentioned earlier, in the process of continuously promoting the development of S-VIP, we provide better sound effects and sound quality, and also provide some long-range audio modes.

Can you help us explain how we will use different experts to promote the growth of S-VIP business in the future? And in the future, in which areas will we specifically cancel to further promote the growth of these businesses? Thank you.

From a practical and operational point of view, out of the current 10 million users, we can say that we are close to half of Qt Music and Google, so there are not too many deviations. The two platforms are still operating according to the operating principles of high-value users.

Thank you very much. Responding to the first part of your question, at least from our operations, around that 10 million SVIP, half are coming from QQ Music and half from Google, it is still in line with our high value user operation strategy.

So as I've mentioned many times before, the core privileges of the current SYP are mainly four, which are the long audio privilege, and the sound quality, and the multi-faceted use of digital albums, and multi-faceted use.

As I mentioned in my presentation, and actually we do provide the full privilege to SVIP user, including the long form audio and the high quality sound effect and sound quality. And the first enjoyment of the digital album, as well as the user experience for cross devices, listening experience.

In addition to these four, I also want to share with you that in recent times, for example, we just mentioned that we made a half-song special, and Kugou made a voice editing special, and we are currently making a food special for SYP. That is to say, if you open SYP, I can regularly send you some food, such as a song's calendar, and we are currently planning a family member meal for SYP. This has actually been successfully verified on Spotify and the video website. We are preparing to use the family meal plan in our SYP. We also believe that the continuous addition of these new special powers can also be of great help to the development of our SYP in Beijing.

Well, regarding additional privilege, as I have already mentioned, we do provide the backing vocals, where at the same time, we also provide the ring tune editing at the Google app. But at the same time, we're also considering providing some physical material privilege. For example, if you're SVIP with us, we can surely provide you some paraphernalia, for example, like the calendars of the sons. And we're also planning the SVIP family package or the family membership package, because family membership package proved to be successful on the video website. So we're also considering referring this good practice to our SVIP business.

Okay. And this question comes from Weisheng from UBS.

Thank you. Good evening, Manager Ceng. Thank you for accepting my question. I would like to ask about our social entertainment business. In this quarter, it seems that the income of social entertainment is better than expected, and it has also been declining. I would like to ask Manager Ceng to share the reasons behind this. And then, for example, what have we done recently to further improve and optimize this business? In the fourth quarter and next year, how should we look at the trend of increasing this business line and the contribution to income? Thank you.

Thank you very much. Thanks for the management team. I have a question regarding social and entertainment business. For social and entertainment business, in Q3 of this year, the revenue actually stood better than what expected. The revenue decrease also been narrowed down. Is it possible for the management team to elaborate on the reasons? Are there any specific measure you take in order to continue to improve the business? Especially how we're going to take a look at the Q4 and the next year of social and entertainment business. how the growth rate might be and what would be its contribution to the total revenue. Thank you.

In addition to the live broadcast business, in addition to the live broadcast business, in addition to the live broadcast business, in addition to the live broadcast business, in addition to the live broadcast business, in addition to the live broadcast business, in addition to the live broadcast business,

Thank you very much. Thanks for your question. Regarding social entertainment business, there are two platforms. I think a good growth that has been identified are coming from WeSing. On WeSing, besides live streaming business, and we also provide other business, for example, advertisement business on WeSing. and especially it's a subscription business and the VIP business are all performing better than what we expected. So generally speaking, the better than expected we've seen performance continue to contribute to the revenue for social entertainment business compared with last year.

In terms of Kugoo Live, we have made some better interactive game plans. It's a card game, including some other standard interactive games that are innovative in the live stream. We believe that it has made a good contribution to our overall basic income. Therefore, Kugoo Live's income growth is better than we expected.

The second one is on Google. And on Google, especially on Google Live and live streaming, we did a very good design over the interactive games. It is more like a card collection mechanism and play, and which can help us to further implant the innovative play into the live streaming performance. So that's the reason we believe its revenue was better than what we expected. And I also believe that is also the reason its total contribution to the revenue growth is better than what we expected.

As we have a more stable construction of the live broadcast platform, we can have a better transition between the two platforms. We think that next year's social entertainment will be relatively stable. Compared to this year's Q3, the whole income is a stable trend. From what we expect for next year.

As we continue to solidify our middle desk for the live streaming service and also register a very stable performance, in order to make sure more functionalities could be swapped from one platform to another. So in that way, I believe in the near future, the social and entertainment business is still going to have very stable traps.

Okay, and the next question comes from CLSA. Maggie, your line is open.

Thank you for taking my question. Our MAU seems to have stabilized around 517 million in the past four quarters, and they actually added 5 million in 3Q. So could management share with us the priority in your latest MAU strategy? Shall we actually expect MAU to return to any growth at some point? And how shall we think about future opportunities from deeper integration into wishing ecosystem? Thank you.

Thank you, Manager Chen. I can see that our MAU has been stable in the past four seasons, but in the previous few seasons, it has also had an increase of about 5 million. I would like to know what our Manager Chen's strategy is for the MAU in recent times. What areas do we emphasize the most? In the future, what do you think MAUs will do to improve their growth?

How should we look at the opportunity for the entire K-geo ecosystem to develop in the future? Is it K-geo?

SPEAKER 1

Thank you very much. Thanks for the question. Regarding our MAU strategy and growth, I think the key still rests with the content, especially our self-commissioned content and the unique content continue to drive up the MAU. And especially today, I mentioned while working with celebrities and artists of launching the album, but at the same time, the content is displayed on different terminals. And in that way, we also have the self-made hits. Most importantly, those high-quality content continue to drive up MAU. That is the strategy for us to continue to improve MAU growth.

From a product function point of view, in this year, we have continued to improve our users' storage and the growth of our entire RMO. Of course, in this, we say that RMO mainly refers to the growth of the mobile end, which provides a certain help.

From the product of functionality perspective for the past one year, we continue to optimize the play experience and provide more innovative actions of the interactive with the users. That can help us to further retain the users and continue to grow the MAU. And especially I was mentioning that MAU on the terminal end, the growth being pretty helpful.

In addition, based on the entire marketing promotion of our ROC, we have been proven to have a very good help for the future of our MAU. I will also promote this through marketing, as if we can use these experiences on the Google platform.

But at the same time, on QQ Music, on this platform, and we find out the promotion and marketing over ROC ready works, and it proved to be feasible. So that's a reason it can also help to drive out the MAU. And that's a reason we also would like to copy the successful story to Google.

So from the future, we believe that the growth of the DAO and IoT on the vehicle side is still a big opportunity, especially for the vehicle side. At the same time, we also hope to invest more in the new app on the KUO concept version and the wave point side, so that our new app can make a better contribution to our future MAU.

But at the same time, I also would like to say that in-car DAU and IoT is still going to be a great growth driver in the near future, especially for the in-car business. And I think a great opportunity was there. And besides Google and the concept version and Polkadot app, we hope that we're going to keep an eye on new apps in order to further contribute to the growing MAU.

This is the last part of the question. I would like to hear more about your cooperation with WeChat.

We still maintain a relatively good relationship with WeChat. Basically, we still consider it to be a relatively fast-growing platform. So strategically, we still hope to be able to help WeChat listen to a relatively good growth. In fact, the scale should be pretty good. We still hope that it can become a active platform first, and at the same time, in the future, we can build a relatively good foundation for our self-knowledge content promotion.

Regarding the second part of the question on how we're going to keep an eye on Listen to WeChat, we do believe Listen to WeChat is a great platform with very good growth. But strategically speaking, we're also going to help Listen to WeChat to gain a better growth. I think its business size looks okay and hope in the near future it could also be an active platform and continue to lay a solid foundation for our self-commissioned content in the near future.

Thank you. In the interest of time, we'll take the last question from Thomas Cheung from Jefferies. Thomas, your line is open.

Hi, good evening. Thanks, management, for taking my question. My question is about operating expenses as well as a margin trend. Given that we already exceed 40% in terms of our GP margin, I just want to get some more color regarding our 2025 and our long-term profit trend and margin trend. What are the key areas that we can get a further leverage in our cost side. And on OPEX side, how should we think about S&M expenses going forward and our non-IFRS earnings growth going forward? Thank you.

Thank you very much, Manager Chen. Thank you, Manager Chen, for letting me answer this question. My question is about our operating expenses and the trend of profit. You can see that our current interest rate is actually over 40%. I would like to know about our profit trend in 2025 and in the long term, as well as some basic knowledge.

How are we doing in terms of cost control? As well as the effective tax rate, future expenses, and the situation of income growth. Can you please introduce us, Manager Chen?

Thank you very much. Let me talk about the GP margin first. In Q3, our GP margin stood at 42.6%. We registered continued growth for a few quarters. The growth of毛利率主要是以下的几个因素。第一就是说是我们的音乐的收入,包括我们的会员的数量的增长和会员up的增长,以及我们广告收入的快速增长,都使得我们对毛利率有一个比较好的影响。

I'm talking about a few drivers. The first driver is the ever-increasing revenue from the music business and also the growing of our user base. Our rep of the user and also the rapid growth from the advertisement business all positively contribute to the GDP margin.

The second point is that we have adopted an RLC management method for our main cost. But we can also see that the growth of our main copyright cost, the growth of the content cost of music, is actually lower than the growth rate of our entire music income.

The second reason is because we adopt ROC in managing the cost. So that's the reason the cost on the copyrighted content, and especially the content cost growth, is actually lower than our music revenue growth.

The third reason is that as the content of our self-produced and co-created music becomes more and more popular on our streaming platforms, this actually has a good effect on our overall productivity.

The third priority is because that we have a more contribution from the self-commissioned content and the co-created content that also going to positively contribute to the GDP margin.

Regarding the social business, and you can see we also took some better strategies and we continue to reduce the percentage of the live streaming share. At the same time, we see as VIP revenue growth and advertisement growth also contribute a lot to our social revenue margin improvement. Then looking forward to Q4 and 2025, we also believe that these factors will still play a very important role. We think that our growth margin will also have a better improvement. Of course, the speed of growth in 2025 will be lower than the speed of growth in 2024.

So look into Q4 of this year and 2025, and I do believe the factors mentioned above still going to play very important roles. But regarding the GDP margin, besides a good improvement, I think maybe in 2025, the growth rate might lower than what we saw in 2024.

We're talking about operating expenses. We foresee that in 2025, S&M expenses and the G&A expenses are going to grow slightly, but its growth rate would be much lower than our revenue growth rate. So we expect that in 2025, our net profit and net profit rate will have a better growth space.

So I do believe that in 2025, the adjusted net profit and the adjusted net profit rate still going to have a good growth momentum. You also asked about effective tax rate, and at least from the operational perspective, we do believe effective tax rate is going to remain unchanged.

Yes, this year, there are more tax rates from domestic companies to foreign companies. So there are more waste-holding taxes, which makes our effective tax rate higher.

For this year, because we have many of the dividends that has been sent from the onshore companies to the offshore, so that's the reason it generates many withholding tax, which makes our effective tax rate look higher.

We believe that next year we will have similar dividend plans, and we may make some corresponding arrangements. But the amount may not be finalized.

We're looking to next year, we may still have a similar dividend programs, and we are also going to have the measures in place, but regarding the total size of the dividend, that has not yet been confirmed.

Okay, thank you. Thank you everyone for joining us today. If you have any further questions, please feel free to contact our IIT. And this concludes today's call. I thank you again and look forward to speaking to you next quarter.

Thank you very much. Thank you.