Announcing a share repurchase and dividend payment plan, Tencent Music-SW (01698), which continues to grow steadily, may welcome a good allocation opportunity

With the announcement of the latest financial report, Tencent Music Entertainment Group (hereinafter referred to as “Tencent Music”), which has achieved steady development, quickly became the focus of investors' attention.

On March 18, Tencent Music announced unaudited financial results for the fourth quarter and full year of 2024. According to the data, Tencent Music's total revenue in 2024 was 28.4 billion yuan (RMB, same below), up 2.3% year on year; net profit under non-IFRS during the period was 8.14 billion yuan, up 30.7% year on year. The double increase in revenue and net profit shows the steady and resilient development of Tencent Music.

In the fourth quarter, Tencent's total revenue for the period was 7.46 billion yuan, up 8.2% year on year, adjusted net profit was 2.4 billion yuan, up 43% year on year; online music service revenue was 5.83 billion yuan, up 16.1% year on year, and this increase was mainly driven by continued growth in online music subscription revenue.

During the reporting period, due to an increase in users' willingness to pay, the number of online music paying users increased 13.4% year-on-year to 121 million, and the average monthly revenue (ARPPU) of a single paid user increased further to 11.1 yuan. Driven by both the growth in the number of paying subscribers and online music ARPPU in the fourth quarter, online music subscription revenue increased 17.9% year-on-year to 4.03 billion yuan during the reporting period.

From a full-year perspective, the growth of online music subscription revenue is more clear. The revenue for the four quarters of 2024 was 3.62 billion yuan, 3.74 billion yuan, 3.84 billion yuan, and 4.03 billion yuan, respectively, showing a steady upward trend from quarter to quarter, thus promoting the steady growth of the online music service business.

Further analysis of financial reports reveals that the key reason for Tencent Music's continued steady growth in the fourth quarter and throughout the year has unleashed high-quality growth momentum due to its continuous implementation of the “two wings in one” strategy for content and platforms. In particular, the content business's driving force for growth continues to increase.

The Zhitong Finance App learned that in 2021, Tencent Music officially established a “two wings in one” strategy for content and platforms, and established a new content business line to provide users with diverse high-quality content and personalized, high-quality music experiences from the two dimensions of content and platform.

In fact, the reason why the “two wings in one” strategy for content and platforms has been so successful is precisely because of the deep commercial logic behind it. At the content level, Tencent Music works with upstream, middle, and downstream partners in the industry chain to create high-quality content to meet the diverse needs of users with diverse content, thereby enhancing user stickiness. At the same time, at the platform level, on the one hand, Tencent Music expands access channels through various forms such as in-vehicle music cooperation, and on the other hand, innovates platform functions by enriching member benefits, optimizing recommendation algorithms, and enhancing AI technology to continuously enhance the user experience. After continuous efforts at both the content and platform levels, users' stickiness to Tencent Music's platforms has increased significantly, and users' willingness to pay for high-quality content and services has continued to increase.

In 2024, Tencent Music will further deepen its “two wings in one” strategy for content and platforms. On the one hand, Tencent Music continues to introduce high-quality content and continuously strengthen cooperation with record companies, such as renewing contracts with Lehua Entertainment Group and Elephant Music Group to provide launch rights for new songs; renew contracts with SM Entertainment and Kakao Entertainment, and reach strategic cooperation with Galaxy Corporation to further strengthen its content advantage in the K-pop field. In addition, it also collaborates with classic singers including Dao Lang and Lo Dayou to provide classic works and launch privileges.

On the other hand, Tencent Music continues to lead the production of high-quality music content, producing and promoting theme songs for popular games such as “League of Legends Mobile Game” and “Peace Elite”, and producing theme songs and original soundtracks for popular movies, TV, and cinema hits such as “Catch the Doll”, “Only Here Is Green” and “Path to Fire”, which have won recognition from music lovers and movie viewers.

In addition to online content, TME has also built a comprehensive offline music performance matrix, such as the TMEA Tencent Music Entertainment Festival, which focuses on global music entertainment, the Wave Music Awards, which select quality music, and the QQ Music Summit Festival for the younger generation, providing diverse choices for fans with different needs.

At the platform level, Tencent Music launched the “Premium Sound Quality” certification standard based on super member benefits, becoming the first comprehensive sound quality platform in China to integrate DTS sound effects and Dolby Atmos, and collaborated with popular IPs such as Disney, Crayon Shin-chan, and “Black Myth: Goku” to launch exclusive content such as dynamic skins and player skins to enhance the personalized user experience.

Meanwhile, in order to expand user reach channels, Tencent Music expanded cooperation with map services such as Gaode Map and Baidu Map during the fourth quarter, as well as in-depth cooperation with electric vehicle brands such as BYD and Xiaopeng, to further enhance in-car music. Furthermore, the Group continues to develop AI music, integrating DeepSeek's large-scale language model into song writing, artificial intelligence assistants, review areas, and recommendation pages to stimulate enthusiasm for music creation while bringing a more personalized music experience. In addition, Tencent Music has improved the algorithm and user interface. The music assets accumulated by individuals have increased users' song collections by 10% year over year, and have driven an increase in the share of personalized recommendations.

Many brokerage agencies are quite optimistic about the steady development of Tencent Music. Before Tencent Music released its 2024 results, several brokerage firms had given positive reviews of Tencent Music in research reports. Many brokerage firms, including Morgan Stanley, SPDB International, Bank of China International, 86 International Securities, and Huatai Securities, gave Tencent Music an “increase in holdings” or “buy” ratings.

Among them, Morgan Stanley upgraded its rating to “increase in holdings,” which indicates that it has seen new value from Tencent Music's flexible operating strategy, and that Tencent Music has strong resilience to risks in a complex market environment. SPDB International first gave it a “buy” rating. It indicates that Tencent Music has carefully laid out the upstream and downstream industrial chains around its core business, opened up a perfect music and entertainment ecosystem, and its performance is highly predictable, providing investors with more clear investment expectations and confidence.

From a valuation perspective, the intrinsic value of Tencent Music may not have been fully exploited by the market. Here, we can draw on Spotify, a US streaming music platform with a similar business model. Spotify's profit model mainly relies on subscription revenue and advertising business, but due to years of losses due to pressure on the cost side, it was only possible to turn a loss into a profit by reducing costs and increasing efficiency in 2024. On the other hand, Tencent Music has developed diversified business models through ecological collaboration based on the characteristics of the domestic market, thus achieving profits several years ago, and its current performance continues to grow steadily, and the future development prospects are promising. At the same time, based on the huge domestic market base, Tencent Music still has significant room for improvement in the penetration of paying users and increasing ARPPU. This means that Tencent Music enjoys a high degree of certainty in its future performance growth, which will bring a high valuation premium to Tencent Music.

Meanwhile, the announcement of the stock buyback and dividend payment plans further highlighted the investment value of Tencent Music. In this financial report, Tencent Music announced an annual cash dividend of approximately US$273 million and launched a new share repurchase plan, which can repurchase up to US$1 billion of Class A common shares within 24 months from March 2025.

The share repurchase and annual dividend payment plan fully demonstrated the advantages of Tencent Music's steady development, good financial situation, and abundant cash flow, and also conveyed the management's full confidence in the future development of the company. Furthermore, Tencent Music was officially included in the Hang Seng Technology Index on March 10. With the synergy of the company's high-quality fundamentals of steady growth and a positive shareholder return strategy, Tencent Music is expected to strengthen capital market recognition and accelerate the layout of long-term capital allocation, thereby injecting continuous momentum into the company's valuation restructuring, and is expected to bring excessive income opportunities to investors.