Tencent Music shares rise amid hopes for regulatory easing

Company said revenue dropped to $979m in the first quarter partly due to lower ad sales after a fresh bout of Covid-19 cases in China

China's Tencent Music Entertainment Group said sales fell because of rising Covid cases and lockdowns. Reuters

China's Tencent Music Entertainment posted a 15 per cent slump in first-quarter revenue, matching expectations, but its shares joined a sector-wide surge on Tuesday as hopes grew for a loosening of regulatory curbs on the country's tech giants.

As part of a broad clampdown on China's internet companies that began last year, regulators stripped Tencent Music of its exclusive contracts with big music labels, spurring competition from rivals like Cloud Music and Bytedance-owned short video sharing platform Douyin.

Analysts said the revenue drop had been well flagged by Tencent Music, and shares gained 3.4 per cent in after-hours New York trading as Chinese state media reported the country's top political consultative body was hosting a meeting on Tuesday with some companies on how to promote the digital economy. The Hang Seng TECH Index in Hong Kong climbed 4.24 per cent.

Tencent Music said revenue dropped to 6.64 billion yuan ($979 million) in the first quarter ended March 31, partly because of lower advertisement sales after a fresh bout of Covid-19 cases in China. Net income attributable to equity holders of the company fell by a third to 609 million yuan.

The company, 49 per cent-owned by tech conglomerate Tencent Holdings, reported its biggest revenue driver, social entertainment services, had a 21 per cent fall in quarterly sales. Paying users in the segment fell to 8.3 million from 9 million in the previous quarter.

Investors and analysts shrugged off the weakness in the first-quarter performance.

"The company has given analysts ahead of time a very low expectation. And the decline seen in the social entertainment segment is also widely expected considering pressure from macroeconomics and regulation," said Ivan Su, senior equity analyst at Morningstar.

The company also confirmed its plan to seek a secondary listing in Hong Kong is "in an active execution phase", without providing further details.

"We will strive to move things forward in an expedited manner and obtain the necessary regulatory approvals in due course," Cheuk Tung Yip, Tencent Music's chief strategy officer, said in a call with analysts.

The company reported that online music paying users increased by four million from the prior quarter, when it added about five million paying users. However, the average revenue per paying user slipped in the first quarter, falling to 8.3 yuan from 9.3 yuan in the same period last year.

Yip said the company has deepened co-operation with Tencent Holdings in an effort to boost revenue. A focus for the coming quarters will be on promoting live-streaming and live concerts on WeChat, Tencent's flagship messaging platform with a billion-plus user base.