Tencent Music Entertainment Group

Good evening, good morning, and welcome to Tencent Music Entertainment Group's first quarter 2025 earnings conference call. I'm Millicent Tu, head of IR. We announced our quarterly financial results earlier today before the US 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. Kashan 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, who I'll set forward, discuss our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statement in our earnest 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 in our earnings release and filings with the SEC. All participants are muted at this time. After management's remarks, there'll be a Q&A session. And please be advised that today's call is being recorded. With that, I'm very pleased to turn the call over to Kassian, Executive Chairman of TME. Kassian.

Thank you, Madison. Welcome. Hello, everyone. And thank you for joining our call today. We kicked off 2025 with a strong first quarter performance, demonstrating robust top-line growth and stronger profitability. This underscores the successful execution of our high-quality growth strategy with the solid foundation we have built, a thriving music ecosystem, and healthy financial position. we are well-equipped to navigate global uncertainties with confidence. As music becomes more accessible and personalized, we see user preferences becoming increasingly diverse. Our platform is uniquely positioned to inspire deeper and broader music consumption through enriching our ecosystem and expanding suites of services. Let me share some of the key highlights. First, we strengthened our partnerships with record labels to further enrich our classic music library. Notably, we renewed the multi-year contracts with Sony Music Entertainment, bringing 360 reality audio sound privileges to SVIP members. We also extended collaborations with Empire Entertainment Group and Rock Records, enhancing the listening experience with immersive Dolby Atmos sound. Also, we partnered with Dream Music Group, Zhongmeng Yingyue, to further broaden our selection of popular music rap, which has grown growing engagement and positive feedback from our users. Meanwhile, our self and co-producer proprietary content is gaining increasing traction among music fans, offering a differentiated user experience that sets us apart from other music platforms. As for some highlights, in the first quarter, we partnered with CCTV News to produce The Time, Jing Shi Guang, for Zhou Shen, which ranked number one on the Google Mainland Chart and number four on the QQ Music Mainland Chart. We also produced One Thought to Eternity, Yi Nian Feng Shen, the theme song for the popular Tencent game Crossfire, 穿越火箭, which quickly topped multiple charts and resonated with both music lovers and gamers. Second, through our insights on contents and user-evolving preferences, we deepened and reverberated content consumption across different genres. While Chinese songs remain the mainstream choice, we are seeing increasingly popularity of Korean, English, and Japanese tracks. In this regard, we renew the contract with top South Korean labels Starship Entertainment and YG Entertainment, maintaining our leadership in Korean content while also launching merchandise collaborations, such as collectible star cards, our extended partnership with Japan's top ACG label Kadokawa Corporation, added thousands of tracks, including popular anime theme songs, further expanding genre coverage for the fans. Third, it fulfilled the users' demand for collectibles and providing them new ways to express their passion and appreciation of artists. Recent highlights included the 10-day headstart pre-sale of Beyond Eupopia, San Chong Lou, by Teens in Time, Shi Lai Shao Lian Tuan, which rose to number one on the 2025 physical album bestseller chart and number two on the all-time chart during this period. Another example is a physical album produced for Silence Wang, Wang Sulong, 100,000 Volts, Shi Wan Fu Te, which quickly became a favorite among his dedicated fans. We also collaborated with K-pop icon G-Dragon to be sell official light sticks and other products in mainland China. For fans who purchased his digital albums, we offered the privilege to buy China limited special edition merchandise, which achieved an impressive sales performance. Fourth, we offer the user more engaging and interactive music experience, both online and offline. In the first quarter, we seated nearly 40 well-known artists and groups, including JCT, Tan Jianchi, World Rang, Wang Yuan, Science Rang, Wang Sulong, and Legends of Phoenix, Fenghuang Chuanqi. In our annual Music for Passion, QQ Music's Chaoqi Dianfeng Zhiyue event in Chengdu, attracting tens of thousands of passionate fans We debuted ASPR's first-ever exhibition and Babymonster's pop-up store in Mainland China, offering fans limited collectibles, interactive displays, and behind-the-scenes content to deepen fan connections with the artists. Online, we invited artists such as Xin Liu, Liu Yuxing, Sean Tang, and from to engage directly with fans in the common sections. Sparkling waves of enthusiasm among their fans communities. Before I conclude, I also want to briefly touch on our ESG progress. In April, we released our 2024 ESG report to offer stakeholders enhanced transparencies and insights into our operations. The report details our practices and achievements in key areas, including intellectual property protection, user privacy, and data security. product inclusion and accessibility, and the fostering of diverse music communities. As we continue to unlock the potential of music and technology, we remain committed to advancing sustainable growth and creating social value. In summary, our sort of start to the year is a testament to the strength of our comprehensive content ecosystem and our operational excellence. These core capabilities together with our strategic focus ensure that we remain well positioned for sustainable growth in 2025 and into the future. 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-Shen. Hello, everyone. Our consistent focus on high-quality content and innovative product offerings has enabled us to build a dynamic music ecosystem that meets a wide range of user preferences. As a result, we have seen system enhancement in user engagement, illustrated by year-over-year growth in both paying user base and ARPPU in the first quarter. This positive trend was further supported by continued strength in SVIP adoption, reflecting the increasing recognition and engagement of our valued members. Here are some highlights to share. First, our premium sound quality and audio effect offerings remain a key attraction for SVIP members, penetrating about 15% of our SVIP user base. To illustrate, Kugel Music introduced the industry-first Vapor External Amplification Enhancement Sound Effect, which intelligently optimizes sound depth and clarity when using external speakers. We also launched a dedicated audio effect for iPods. enabling users to enjoy the advanced audio performance of the new models without upgrading devices. Second, a range of unique perks have proven effective in driven SVIP conversions, including unique album discounts, special badges, early access to merchandise and live events. As an example, at our annual Music for Passion event, SVIP members enjoyed special privileges such as priority ticket purchase. Moreover, those who bought tickets through this channel were also provided with exclusive services such as reception and transportation. We also have Fiona State, Xue Haiqi, staged her first 10,000-state Concert Hall in Mainland China, offering SVIPs early ticket access and a fun meeting and great opportunities. Additionally, we interest our system, enabling SVIPs to unlock expanded rewards, deepening their sense of identity and the community. Third, long-form audio content, particularly top IPs, contributed to boosting SVIP retention. In the first quarter, we created the audio drama, The Grave Robber's Chronicles, 盗墓笔记, and developed it with original author, Nanpai Sanshu, star voice actors, and the top 10 producers. Benefiting from interactive activities such as live streaming with the author and in character voice commentary by the leading voice actor, it quickly gained popularity, surpassing tens of millions of streams within just 14 days. On technology, We continued to use AI to elevate user engagement. One example was introducing an inductive commentary feature that transforms music charts into conversations, enhancing fun emotion. Users can also personalize music effects, switching between different vocals and instruments with one single click. In parallel, we adopted the DeepSeq LRM to help evaluate content quality and improve recommendation precision with user preferences. On the non-subscription side, advertising remains a key growth driver and continues to deliver solid year-over-year growth across the board, thanks to diversifying AD formats. In particular, our innovative AD supported mode grow from strength to strength in the past quarter. We have also introduced a variety of interactive tasks for both paid and unpaid users. We just saw upward trend in engagement and adoption. Such positive trends provided us further confidence to continue to grow our advertising business as a whole, unlocking more potential in the future. Looking ahead, we remain committed to enhance our competitiveness and pioneering new ways to inspire deeper and broader music engagement. 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. Let me now turn to our financial results. In Q1 of 2025, our effective monetization of online music services and operational efficiency management continued to drive robust financial results. With strong performance in our music subscription and advertising business, Revenues continued growth momentum and richer RMB 7.4 billion with a 9% year-over-year growth. Online music revenues increased by 16% year-over-year to RMB 5.8 billion. The increase was mainly driven by strong growth of our music subscription revenues and advertising revenues, supplemented by growth in revenues from artist-related merchandising and offline performances. Building subscription revenues in Q1 of 2025 reached RMB 4.2 billion, representing a 17% increase year-over-year and a 5% rise sequentially. Driven by a continued expansion of the SYP membership program and reduced promotional activity, monthly up increased to RMB 11.4 this quarter, compared with RMB 10.6 in Q1 2024. To meet the evolving needs of our users, we keep enriching the rights and privileges of our SOIP members, such as premium audio content, enhanced sound quality and effects, and early access to artist-related merchandise and live events. Advertising revenues also achieved strong year-over-year growth. primarily due to the growth in AD-supported model revenues. With more interactive features and enriched benefits, we boosted the chance rate for AD-supported model advertising, enhanced the ECPM, and attracted more advertisers. Meanwhile, sponsorship advertising remains attractive to brand advisors. The success of our flagship Music for Passion event was a great example to evidence this. Through offline event sponsorships, we've adjacent advertiser partnerships while driving ecosystem monetization. In addition to milk subscription and advertising, we have also made good progress on artist-related merchandise sales and offline performance. In Q1, we started shipping the physical album of Xiao Zhan released in Q4 2024, and the related revenues were recorded, resulting in a year-over-year revenue increase from artist-related merchandise sales. In addition, with the increased opportunities in offline performance market, We've strengthened the partnership within the music industry and a successful hosted concerts, filtering renowned artists, leading to revenue growth this quarter. Social entertainment services and other revenues declined 12% year over year of RMB 1.6 billion. Starting this quarter, we have ceased disclosing operating metrics for social entertainment business on a quarterly basis. As we have shifted our strategic focus to our core music business, which has accounted for a growing dominant portion of our revenue, operating metrics for social entertainment business are no longer consistently the key drivers to our growth and prospect. Our gross margin improved to 44.1% and increased 3.2 percentage points year-over-year, driven by the following key factors. First, the strong growth of our subscription revenue, driven by increased monthly ARPPU and advertising revenues, has contributed to the growth of gross margin. Revenues from raising membership and advertising in social entertainment services has also positively impacted our gross margin. Second, the scaling of our own content further improved our gross margin. Third, for social entertainment services, the decline in revenue sharing fees outpaced the decrease in revenues. Fourth, with years of dedicated efforts and investments, we have established win-win relationships with labels and artists. This has enabled us to explore more partnership opportunities and monetization models with them and further improve our cost efficiency. On the operating efficiency side, We have maintained a strict financial discipline and our eye-focused promotional spending management while directing investments toward long-term growth areas. Operating expenses as a percentage of revenue decreased of 15.5% in Q1 2025, compared with 16.8% in the same period of last year. Our effective tax rate for Q1 2025 was 9.2% compared to 19.9% in the same period of 2024. The lower ETR was primarily due to the impact from gain on deemed disposal. We accrued withholding tax of RMB 118 million in Q1 of 2025. In Q1, 2025, our net profit was RMB 4.4 billion, and the net profit attributable to equity holders of the company was RMB 4.3 billion. This quarter, we have received a 2% equity interest in UMZ through distribution income from an associate, which was designated as financial assets at a fair value through other comprehensive income. and have recognized again of RMB 2.37 billion on deemed disposal of the associates. Non-financed net profit increased by 23% to RMB 2.2 billion and the non-financed net profit attributable to equity holders of the company increased by 25% to RMB 2.1 billion respectively. Our diluted earnings per ADS this quarter was on the 2.77. And now our first diluted earnings per ADS was on the 1.37, up by 26 year-over-year. This results underscored our effective monetization, enhanced operating efficiency, and the benefit from our share repurchase program. As of March 31st, 2025, Our combined balance of cash, cash equivalents and the short term was RMB 37.7 billion as compared with RMB 37.6 billion as of December 31st of 2024. This combined balance was also in exchange rate of RMB to USD, different balance sheet dates. In March of 2025, we declared a cash dividend of U.S. dollar, 0.09 for ordinary share, for U.S. dollar, 0.18 per ADS, for the end of December 31st of 2024. And the cash payment for the dividend of U.S. dollar, 275 million was made in April 2025. Looking ahead, we will prioritize high-quality growth in our music business by expanding our VIP memberships, growing our advertising business, and diversifying our offerings across the music value chain. We will continue to invest in original content production, high-quality content, and innovative technologies globally to further improve user engagement, user experience, and strengthen our ecosystem. We remain confident in the health growth prospects of the medical industry that we are a part of and are committed to delivering high-quality maximum returns for our shareholders. This concludes our prepared remarks. Operator, we are ready to open the call for questions.

Thank you, Shirley. If you're dialing in by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you're accessing the call from the Tencent meeting or Vogue 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 your questions in Chinese, please repeat them in English. And the first question comes to light from Goldman Sachs, Lincoln. Lincoln, the line is open.

Thank you, management, for taking my question. My question, while congrats on the very solid first quarter performance, so can management share a bit more comment around the outlook for our top line profit growth for the next quarter, as well as for the full year 2025? Thank you.

Thank you very much. Thank you, Manager Ceng. First of all, I would like to congratulate Manager Ceng for obtaining a very bright document record in the first quarter. My question is, in the next quarter, including the whole year of 2025, what is our outlook on revenue and profits? Thank you.

Thank you, Lincoln, for your questions. And actually, we did a good job and achieved a strong result in Q1, which gave us a confidence in the 2025 outlook. With our rich service offerings and also the compelling product experience, as well as our long-term commitment in participating in the value chain of the music industry, we expect full year, year-over-year growth rate to accelerate from last year. And we will continue to expand our margin as well. While the music subscription business remains our cornerstone with healthy growth, we continue to lead the way to encourage more music consumption, which has allowed users to engage with a wider range of music entertainment services. Our SVIP subscription program continues to inject new energy and its unique offerings such as the artist merchandise, non-form audio content and concert, etc. will further enhance our user engagement and ARPPU expansion. So all these achievements reinforce our confidence in the long-term potential of the music industry and also our commitment to ongoing investment. So in a conclusion, I think for the year 2025, for our subscription businesses, we will continue to deliver high-quality growth driven by both of the subscriber gains and the ARPPU expansion. And for the non-subscription businesses, improved advertising performance and product innovation will continue to drive the steady advertising revenue growth, while deeper partnerships with music labels and artists will boost the revenue for merchandise and concerts, etc. Thank you.

Thank you. And the next question comes to the line from Citigroup Alicia. Please proceed.

Hi, good evening, management. Thanks for taking my questions. Congrats on the solid results. Questions is on how do management think about the growth opportunity of podcasts in China? Can you also share a little bit detail, the current, your long form audio user metrics and also revenue contribution? Thank you.

Thank you very much. Good evening, everyone. Thank you very much for giving me the opportunity to ask this question. In the first quarter, we achieved a very solid and very stable development. My question is this. I want to know some opportunities for growth in China in the future. Can you briefly introduce some of the relevant indicators of our current long-term income users and their overall income contribution? Thank you.

Thank you very much.

Thanks for the question. At least in domestic China market, when talking about podcast, it could be interpreted in narrow sense and broader sense.

If we talk about narrow-mindedness, it's actually quite similar to what's happening in the American podcast. It's mainly in the form of live broadcasts or single-person conversations or multi-person conversations to spread personal opinions. This is actually very much related to many opinion leaders.

When interpreting the podcast from the narrow sense, actually, it's just like the normal podcast we mentioned. It can still be conducted in single-person live streaming or multi-people dialogue. It is a way to voice one's own opinion, so it has everything to do with the KOLs.

所以这个虽然在国外或者尤其在美国上发展比较迅速,但中国始终是一个相对范围不算太大,但是它仍然还是保持一定增速的一个领域。 那这个这部分我们仍然在持续的关注,那当然它的商业模,商业价值上实际上仍然会遇到一个挑战。

So we see that for podcast in the rest of the world, especially in US, it was developing very fast. But still in China, its coverage quite limited, but still maintain some growth. So we continue to keep an eye on podcast business. And for sure, regarding its commercial value, still there will be some challenge.

So for us, we have always emphasized that we are a business that focuses on long audio. This is actually similar to Spotify. We are actually more concerned about the field of audio for us.

Actually, for our company, we're going to emphasize we prioritize the long-form audio business. Just like what has been done by Sporty, we really would like to continue to advance the long-form audio business.

所以在长音频这样领域中,其实我们实际上是应该具备更大的一个用户规模,同时也能跟我们的音乐用户形成一个互补。 而我们重点主要还是在关注本身的书籍,网络文学以及跟儿童相关的内容。

Actually, regarding the long-form audio, and we believe we continue to grow the user base. At the same time, it can also play a complementary role with our existing subscriber base. And more importantly, regarding the long-form audio business, we are more focused on listening to the books, online literature, and children-related content.

So we think that the overall user size is still relatively good. In the case of our efforts here, we operate our own long audio users on our PMB. Whether it's the user size or its number of subscribed users, we have basically achieved relatively good results. At the same time, it has become a very core drive in the current SYP.

So with our concerted efforts regarding the long-form audio user, no matter for the user base or the subscriber base, we indeed registered a very nice performance. And it has also become a key driver to advance our SVIP business.

So we believe that our music content and Chang Yi-Ping's content can become a way to complement each other, and at the same time, we can strengthen the quality and quantity of our TME entire content library, and at the same time, we can provide a better service to our entire basic users.

So in one word, we do believe our musical content and the long-form audio are going to play a complementary role to each other. It's also going to help to further enhance the quantity and quality of our entire DME content library by providing our user a much better experience, even including the basic user.

Okay, then this question comes to the line from Macquarie. Ellie, your line is open.

Thank you, Melissa and management, for taking my question. I just have a question on SVIP progress. Can management share some kind of operating matrix or key KPIs for SVIP? What's the retention that we are seeing for the users that's being converted to the premium tier? And going forward, what would be kind of the ultimate kind of ceiling for the R pool expansion? Thank you.

Thank you very much. Thank you for answering my question. My question is related to SVIP. Can you please briefly share with us what the key KPIs of SVIP are? Including the current SVIP users, from the traditional SVIP to the primary users, what is their specific flow rate? What is the future outlook, especially the outlook of ARPVO? Thank you.

Thank you very much. Thanks for your question.

Actually, for the management team, we are quite satisfied with SVIP business progress now. At the same time, we are pleased to see, at least from the content perspective, more labels and more artists and even the live streaming platform, including those ones from overseas market, started to embrace the trend of SVIP. SVIP as a high-end membership package not only provide user with diversified music and entertainment experience, it also allowed artists to access to their fans in multi-channels. It also increased opportunity for commercial value monetization.

Currently, the penetration rate of SYP on the platform and ARP have both shown a very positive attitude of growth. So as we continue to improve our member system, we will continue to launch more attractive exclusive rights and individualized services. At the same time, we will also combine our more effective operation strategy. We believe that the number of subcontractors of SYP and ARP is at the same level. That is, we are now saying that the number of subcontractors of SYP and ARP have actually achieved a steady growth in this quarter.

So nowadays you can see for SVIP penetration ratio and ARPPU all demonstrate very strong growth momentum. We will continue to improve and polish our membership system where at the same time, we were also going to launch more attractive privilege and tailor-made service to our user. Along with our very effective operational strategy, we believe our SVIP paying user and ARPPU will continue to grow. At least for this quarter, our paying user and ARPPU all demonstrate very good sequential growth.

Yes, this is actually related to our strategic direction. In fact, our core goal in pushing SYP is to increase the up value of our big plate. So from an actual point of view, it has already begun to show its pull on our up, and it is slightly faster than our previous expectations.

Actually, rolling out SVIP business is strategically aligned with our overall strategy. When we launched SVIP, a key reason is because we really want to leverage SVIP to continue to improve the ARPPU of our overall business. So from this perspective, SVIP started to play a driver role in demonstrating great resilience, and the growth is even faster than what we expected.

So in the next two or five years, we will actually maintain a relatively good and optimistic attitude towards the growth of our SIP business. At the same time, we will continue to increase our investment in high-value member service and maintain deeper cooperation with brands and artists. So in the future, our SIP will attract the satisfaction of users.

So look into 2025, and we believe for SVIP business, we still maintain a positive attitude for its future growth. Where at the same time, we were also going to increase investment for the high value membership service, continue to forge in-depth cooperation with labels and artists, and continue to improve our product opinion and customer satisfaction.

Thank you. The next question comes from Morgan Stanley Liu Yang. Yang, your line is open.

Thanks for the opportunity. I would like to ask about the ARPPU growth. The 7.5% young year growth looks pretty good. Could management comment on the contribution from SuperVIP and also the contribution from the less promotion activities to the overall ARPPU young year growth? Thank you.

Thank you very much. Thank you to the management for giving me the opportunity to ask a question. My question here is related to the growth of ARPPO. The annual growth rate of 4.5% looks very bright. Can you please briefly explain to the management how much of this growth comes from a growth contribution of SBIP and how much comes from some of our sales activities? Thank you.

Actually, it's not convenient for us to talk about the specific data, but in fact, we are also very clear that for us, because QE is also our holiday period, we actually carried out a better operation for the holiday period. So basically, we also tried to shrink our part of the discount strength. So it really led to, from our actual results, it also led to an improvement in our overall up.

Thank you very much. Thanks for the question. Actually, it's not appropriate for us to provide you the breakdowns. But let me just tell you, we are very clear. Q1 of every year would be a season with festivals and holidays. And we indeed continue to optimize our operations in Dubai. But at the same time, we also downsize the discount we provided to the market. And from the actual result, it indeed helped to further improve the ARPPU.

So from the actual result, we are still as I said, we are actually more looking forward to the growth of SYP itself, to be able to play a more active role in our future ARP, because the marketing strategy model itself, in fact, we are now very slowly, in fact, we will slowly reduce it, and continue to push our own basic members to improve ARP value.

So from the actual result, you can see, as I have already mentioned, we are still expecting the indigenous growth of SVIP business that can play an even bigger driver role to our overall ARPPU. Where for the marketing strategy itself, and we have already started to further reduce it and continue to improve the ARPPU for our basic members.

So for us, we will still pay close attention to the feedback of users and the changes in the market environment. So in the end, we can ensure that while improving ARP, we can also adhere to our own user experience and a healthy growth in member size.

So in one word, we are still going to keep an eye on the feedback from the user and the dynamics of the market. Because ultimately, what we hope to achieve is to continue to grow the ARPPU, where at the same time, guarantee the user experience and the subscriber size healthy growth.

Okay, thank you. The next question comes from Alex Yao from J.P. Morgan. Alex, please.

Thank you, Manjuan, for taking my question and congrats on a solid quarter. So my question is on the non-paying subscribers. So basically, as we shifted towards this high-quality growth strategy, will be... I think at least increasingly de-emphasizing the price of sensitive consumers who often come just for deep discounts. And once we cut the discount, these price sensitive users tend to be just turned out of the membership user base. So the question is, now we probably need to de-emphasize more of those price-sensitive consumers. What is the monetization strategy on these non-paying users? In the past, a couple of years, we talked about advertising. So any updates on monetization of these non-paying members on advertising? And then other than advertising, do we have any other strategy or thoughts to monetize these non-paying members? Thank you.

Thank you very much. Thank you. How should we consider them in the future? Especially for customers with price sensitivity, what is the specific strategy for the future transformation? Especially in the past few years, I heard that the company also mentioned advertising. So for these non-payment users, what kind of transformation level have they achieved in terms of profit in advertising? In addition to advertising, do we have any other ideas or methods to improve the transformation of these relatively sensitive non-payment users? Thank you.

Thank you very much.

Thanks for your question. This question is indeed very complex because we do have some measures to those so-called free users or the non-paying users.

Then we simply say that in fact, our focus just now, all of our operation focus still is to turn free users into our, our, our, this is our biggest value. This is our, in fact, our first priority to consider, and at the same time, it does bring us itself, our more loyal user group, as well as a continuous growth of our own revenue.

So from our operational perspective, our operational focus still hope to convert those non-paying users into the subscribers. This might demonstrate the great value of the company, and it is also the priority of the company, because indeed, by so doing, we will be able to build the loyal user group and continue to grow our revenue in a sustainable way.

Yes, for those users who are not willing to pay the monthly fee for music, our most important solution is through our own incentive advertising method. One is our free mode, and the other is our website. Currently, through these two methods, we can help users. In fact, we can still get a relatively good advertising revenue growth under the premise of obtaining users' storage.

So for those non-paying users, what we're doing now is to leverage incentive-based advertisements. First of all, we may have some free-to-listen music model, but at the same time, we also have the online learning measures. By the two measures, we will be able to make sure we still retain the non-paying user, but be able to have a good advertising revenue from them.

. . . . . .

Where at the same time, we also see other source of the revenue related to the Fence economy, for example, like digital album or the Fence merchandise or the single sign download and purchase. These are also ways to help us to monetize over those non-paying users.

OK.

So generally speaking, for those non-paying users, we do leverage the offline performance, for example, like concept, like merchandise, like the play of the fancy economy, including the advertisement, to continue to generate good business opportunities from those non-paying users.

Okay. The next question comes from UBS Weishuang. Please proceed.

Hi, good evening, management. Thank you for taking my question and congrats on the solid results. My question is about margins. So our gross margin continued to expand sequentially this quarter, and management shared different drivers behind that in the prepared remarks. So just wondering, out of these drivers, which ones do we see have higher potential for future to further drive up the upside of gross margin going forward? And do we have a medium term target for that? And also related to that, considering our efforts in cost discipline, could you please also talk about the plans for OPEX this year? And how should we think about the net margin trend as well?

Thank you. to achieve net profit growth. In the previous talk, Guan Licheng also talked about the various driving factors behind it. I would like to know which of these driving factors or which of these driving factors can further improve our net profit growth in the future, and what is the ultimate goal of net profit growth? Another question is that I would like to ask Guan Licheng about some of the mistakes and efforts taken by the company in terms of cost control. What is the overall OPEX plan like this year? What will be the trend in the future? Thank you.

We just talked about the driving factors of毛利. Of course, the most important driving factor is the growth of our revenue, especially the growth of membership revenue and advertising revenue. In the growth of membership revenue, the growth of SIP will also have a better driving factor for our毛利 in the future.

Thank you very much. Thanks for your question. Just now in the prepared remarks, we have already mentioned a few drivers for the ever-improving JP margin. And I think the most important driver is still the growth of the revenue, where at the same time, we also see the revenue growth from the subscribers and the advertising. And especially in the growth of the subscribers, the SBIP growth would likely to be a key driver for our future business improvement.

那其中另外一个也很重要的因素就是说我们在成本端这一块,我们对成本的这个管控的方式和方法其实也是比较关键的。 那么我们一直在用这个ROC的方式去管理我们的这个内容成本,那么也使得我们整体的这个成本的增长是远低于我们这个收入增长的幅度的。

Well, at the same time, another very important factor we have to consider is a cost initiative. We continue to well control the cost and the cost management methodology is also the key. We continue to adopt ROC in managing our content cost. At the same time, we make sure the cost growth is always lower than the revenue growth.

On the other hand, we have been investing heavily in the music industry for many years. We have also established a win-win relationship with the copyright parties. We will gradually see that these investments will produce better results. Not only in terms of cost, but also in terms of cooperation with music companies, there will be more ways to make changes, so that our overall cost efficiency can be improved.

Another factor I have to mention is that we were deeply rooted in the music industry with huge investments being made. So at the same time, we forged a very strong win-win partnership with the IP holder or the copyright owner. So this investment has already generated very good yield. not only helping us to well control the cost, we will be able to forge a deep bond with labels and artists. And therefore, it can help us to leverage multiple ways of monetization, which will also help to further improve our cost efficiency.

In the long term, we believe that the elements we just talked about will continue to play a role. We also believe that our efficiency has room for further improvement.

So look into 2025 for the whole year or even the year beyond 2025. I believe the factors being mentioned in our prepared remarks will continue to play their due roles. In other words, we believe our GDP margin will still have room to further grow.

In terms of operating costs, we will continue to invest in the promotion of new users and content.

Well, for your second question regarding the operating expenses, for the year of 2025, to our plant sales expense, majority of them will still be made for the acquisition of the news users and promotion of the content.

所以我们预计我们的这个销售费用会有小幅的提升,但是它的整个的增长的幅度应该是会低于我们整个收热增长幅度的。

So we foresee there will be a slight increase in our sales expenses, but its overall growth should be lower than the growth of our entire revenue. 管理费用基本上也会保持一个持平的状态吧。 Well, for the management expense, it was going to maintain a flat growth.

所以我们的净利润和净利润率都应该相对于去年的一样有一定的提升空间。

So compared with last year, our net profit and the net profit rate will have room for further improvement.

Thank you. The next question comes from Barclays Roger. Roger, your line is open.

Can you hear? Yes. Sorry. Go ahead, please. Thank you so much for taking my question and congrats on a very solid quarter. My question is on international opportunities, especially in Southeast Asia. We have a very small footprint there, the music and also we're going to host G-Dragon's Southeast Asia tour this year. So could management talk about your thoughts on the opportunities in the region and would that be an area of investment you take a look at this or maybe next year? Thank you.

Thank you, Director. Thank you for giving me the opportunity to ask such a question. I also congratulate the Director for achieving very stable results in the first quarter. My question is about the development of international business and the opportunity of the international market, especially the development opportunity in Southeast Asia. Currently, in Southeast Asia, our total amount of business operations is relatively small. Thank you very much. Thanks for your question. International market is always a very important part of our overall strategy.

As of now, our group does have a very strong overall strategy, and the strategy includes the content as well as the platform development.

We are going to adopt the same strategy for our international business.

一方面我们在平台的层面,我们会继续推动我们Jookson那个平台的发展,这个在当前的东南亚的地区还是做得还是蛮不错的。 除了在产品跟服务上面的那个情绪提升以外呢,我们也会通过内容生态的那个构建,更多的参与在海外地区的内容的创建,以及当地的一些演出的业务。

Well, from the platform perspective, we will continue to advance the construction of our platform. And especially here now, we did a good performance in Southeast Asia market. But besides the product and the service improvement, we're also going to build the content ecosystem and continue to engage in the content creation in the overseas market, along with the AirFly performance opportunities being captured.

所以一方面我们是希望通过对内容生态的持续的投入能给我们海外的平台带来更多的优质的内容以外,我们也希望可以更多参与到总体的音乐内容的还有音乐艺人的管理等等的一些业务里面去。

So on one side, we continue to invest in our content ecosystem, and which will help to deliver high-quality content to our overseas platform, where at the same time, we also hope that we can engage in the music content and even artist management.

随着我们过去几年在JOOX整体的平台里面的运营的持续的提升, 以及我们在内容的那个投入, 我们会持续加大我们在整体的海外市场里面的参与跟投入。

For the past few years, we continue to improve our operational capacity of the platform and also make huge investment on content. We will continue to engage the international market and make continued investment. Thank you.

Thank you. And the next question comes from Ms. Zouhou Fangwei. Fangwei, your line is open.

Okay, thank you. Thanks for taking my question and congrats on the good points. I got one on advertising. So if I look at the non-stop music segment, I recall last quarter, there was some timing impact from offline events. And now this quarter, we see a good acceleration. Of course, the macro condition has changed a lot. I was wondering if management can share any thoughts on the outlook for your advertising and also the pipeline for offline events business for the rest of the year. It would be great if you could also comment on some of your initiatives in terms of expanding to, for example, newer advertising verticals and also optimizing your ad bidding system. Thank you very much.

Thank you very much, Manager Ceng, for giving me such a question. Congratulations to Manager Ceng for achieving a very good result in the first quarter. My question is related to advertising. If I take a look at our previous developments, I remember that in the previous quarter, our main development was actually some offline acting activities and time windows. And now we see that the development of the entire industry is accelerating. Of course, the current PR situation may be compared to the previous quarter, which is a more obvious change. Thank you.

Thank you very much.

Thanks for your question. And let me first talk about advertisement, especially online advertising. As I have already mentioned, we do cover a wide range of advertising formats, For example, we do have the splash screen advertisement as well as the incentive-based advertisement.

所以从我们这几年,应该说这一两年的整个的探索来看,同时从我们的数据来看,我们本身的广告收入也是取得了年比年很好的增长。 那这个主要是来自于我们基于,就是我们自己比较创新的,基于基地的这样的一个广告形态。

In the past one to two years, our advertising revenue does register a very strong worldwide growth. It's mainly attributed to our innovative, incentive-based advertising business.

We believe that the free listening method has achieved a good result over the past two or three years. We believe that the free listening method has achieved a good result over the past two or three years. We believe that the free listening method has achieved a good result over the past two or three years. We believe that the free listening method has achieved a good result over the past two or three years.

Well, for the past two to three years, we continue to roll out free to listen to the music business, which registered a very nice achievement. Starting from this year, we also started to launch the online earning business model. And the online earning business model can help us to access to the larger user base with very strong motivations from the users. So we find out the online earning model actually be able to continue to advance, which will help us to make sure advertising revenue continue to go beyond our expectation.

从广告系统来看, 因为我们使用的仍然是腾讯大集团的广告系统。 那这个广告系统从竞价的能力上来看, 从广告主的扩展上来看, 包括在AI的使用上来看, 其实都是处于业界领先的一个水平。 那我们也看到说, 本身这个系统的提升, 对于我们本身广告收入也有很好的一个增长。

Regarding the advertising system, while still adopting the advertising system from a Tencent group, no matter from its bidding capacity or from the advertiser expansion or the AI enabling, we do see the Tencent advertising system is making the industrial leading performance. And this can also help us to further grow our advertising-related revenue.

So I actually observed that with our macroeconomic relative, actually we think it's not bad. So our current online advertising system, whether from this QE or from the current operating situation, we are all maintaining an optimistic attitude. For us this year, the growth of advertising revenue, we are still holding a very optimistic attitude.

So actually, we also observed that micro-economy picture is looking right. So for the online advertising business, no matter in Q1 of this year or the full year, at least from the operational perspective, we still maintain a very positive attitude on the advertising revenue for the whole year.

演唱会呢? 至于演唱会的部分的话, 过去的两三年我们能看到整体还是一个非常蓬勃的发展。

Answer your second part of the question regarding the Earthlight performance, especially the concert. For the past two to three years, we do see the Earthlight performance continue to thrive.

在这个非常发展很好的一个势头的里面,我们TME当前最关键的事情是希望我们能把我们所有的演出的业务能往更高脊梁的那个方向来发展,能做得更好。

We are with a very strong growth momentum for the offline performance. I think the priority for TME Group is continue to improve the quality of our performance business.

经过过去两三年的积累,我们也非常的欣喜看到我们很多的合作伙伴, 不管是我们战略合作的头部艺人, 以及不同的唱片公司,以及合作伙伴都给我们很大的一种支持, 我们也特别的感谢他们。

For the past two to three years, we are also very pleased to see many of our partners, including the strategic artists we're working with, as well as labels and partners. They supported us a lot. We also would like to say thank you to all of them.

So at the moment, the most important thing for us is to do well in every aspect. The first is the tour of the top artists we just mentioned. Especially the tour of G-Dragon that we just mentioned, as well as other artists in the strategic cooperation. We hope to have a better cooperation with them in all aspects. At the same time, we can give our fans and users a very good, high-end concert of music.

So at this moment, I think we have a few things that we need to do right and good. The first one is the tour of our artists. Especially you mentioned in your question, the G-Dragon tours, as well as some of the artists we have strategic partnership with. We hope that we will be able to provide them good support, while at the same time offering the audience or the fans a good opportunity to appreciate high quality of live performance.

At the same time, for our indigenous IP event, for example, like QQ Music for Passion, we do hope that we will be able to improve its performance for this year. We hope by organizing or help to sponsoring those earth-like performance, we will be able to provide a comprehensive musical experience to all of our users.

while at the same time to play the trump card of the SVIP privilege. In that way, we will be able to help to grow the SVIP subscriber base. So ultimately, we hope that the TME overarching strategy with one body, two wings will be fully demonstrated. In that way, we will create a greater value to the market and the society as a whole.

Thank you, Kashim, and thank you everyone for joining us today. In the interest of time, this concludes today's call, and if you have any further questions, please feel free to contact the IR team. Thanks again, and look forward to speaking to you next quarter. Okay, bye.

Thank you. Bye.