Good evening, good morning, and welcome to Tencent Music Entertainment Group's second quarter 2025 earnings conference call. I'm Millicent Tu, 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 will hear from Mr. Cussion Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company strategies and business updates. Ms. Shirley Hu, our CFO, will address our financial results before we open the call for questions. Before we continue, I'll refer you to the safe harbor statements in our earnings release, which applies to this call as we'll make forward-looking 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 will 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 Cussion, Executive Chairman of TME. Cussion, please.
Thank you, Millicent. Hello everyone, and thank you for joining our call today. We delivered high-quality growth in the second quarter, with solid year-over-year increases in both revenue and profitability. On one hand, our music subscription business remains a core growth driver and continues to gain traction. On the other hand, we are also seeing impressive results from our expanding suite of music-related services. Key initiatives like advertising, concerts, and artist merchandise all achieved rapid growth in the second quarter, and that strong momentum is carrying into the third quarter. By constantly enhancing our content ecosystem, expanding our offerings, and fostering new ways for artist-fan engagement, we are shaping a vibrant all-in-one music service platform. Now, let me share some of the key highlights on the content business. First, we began cooperating with well-known Korean labels like The Black Label and H MUSIC for the first time.
Further strengthening and differentiating our K-pop offerings, we also extended collaboration with renowned Chinese artist Wang Feng, offering both his classics and latest work on our platform. Secondly, we continue to focus on co-creation and original content production to further enrich and diversify our content offerings. From concept, origination, creation, to production and promotion, we are actively involved in every stage to build a more dynamic and innovative music ecosystem. A prime example is our recent collaboration with SM Entertainment on NCT's [Foreign language] , Chinese special EP "Lucid"—"Tan". Our integrated promotions across music festivals, debut concerts, and variety shows attracted a large audience. 10,000 music lovers participated in a sing-along at the music festival and variety show. Clips generated over 1 million likes, highlighting the power of the end-to-end industry collaboration across borders and cultural exchange through music.
We also work closely with artists to develop original pieces, like the theme song for the acclaimed film The Lychee Road [Foreign language] —with Chen Chusheng. This song topped multiple music charts and garnered extensive praise from national media. Additionally, our strategic partnership with Zhejiang Satellite TV has further supplemented our music copyright portfolio of popular variety shows such as "The Treasure d Voice," [Foreign langugae], "Shining Summer," [Foreign language], and opened new opportunities for collaboration in content co-creation, musician promotion, and more. We have also shown strong capabilities in staging artists and connecting them with the users through other music-related service offerings. These efforts have further energized our ecosystem, boosted user loyalty, and cultivated content creation, all together reinforcing our platform's unique position in the evolving music industry.
A few examples: First, we successfully hosted leading Korean artist G-DRAGON's first major tour since 2017 in Macau, which attracted over 36,000 attendees to immerse in the captivating atmosphere, and the event's merchandise was quickly sold out. This marked our first large-scale international concert production, significantly pushing our industry reputation. Following a strong kickoff, we are scheduled to expand the tour into other regions this year. Additionally, we organized a series of stadium concerts for Fiona Sit, [Foreign language] , TIA RAY , [Foreign language] , and rapper GAI, helping them to reach a broader, younger audience. Due to the overwhelming demand, we quickly responded and worked with TIA RAY to schedule additional shows to accommodate fan interest. Second, we have become an important partner for staging and curating live performances for emerging talents.
In the first half of the year, we leveraged our proprietary IPs, CITY LIVE and BUFF LIVE, to host over 300 offline shows for nearly 100 Tencent musicians. Our cross-platform promotions also boosted a number of works into trending hits, connecting them with a broader audience of music lovers. For instance, after we promoted Xiang Sisi's first "Why Not Wait for the Wind"—[Foreign language]—on short video platforms, it quickly went viral, sparking a wave of user-generated content on social media and surprising 20 million streams on our platform. Third, we created more opportunities for music lovers to meet and interact with artists, both online and offline. For example, buyers of Jason Zhang [Foreign language] physical album "Not Bad" [Foreign language] could win opportunities to attend his offline signing events. Such privileges not only deepened fans' engagement but also helped drive the album's outstanding performance.
In late June, we partnered with Dear U, a global fan communication platform company, to launch the interactive community bubble on QQ Music. Bubble enables users to engage directly with hundreds of K-pop artists from labels such as SM , JYP, and CUBE Entertainment, providing artists an avenue to share members-only content. To cater to a wider audience, we also plan to invite some popular Chinese artists to the community, allowing them to foster deeper and more personal connections with their fans. Finally, reflecting on our commitment to serving the music industry and supporting its healthy growth, we hosted the third Wave Music Awards, which was designed to honor the most outstanding Chinese music works of 2024. Fifteen top-tier music creators, including Gu Jianfen, Li Haiying, and Xiao Ke, presented the awards. The chart's professionalism earned industry-wide acclaim and endorsements, amassing over 200 million social media views.
This quarter, we also cooperated with professional institutions, music labels, and artists, leveraging AI technology to unlock the social value and healing power of music. For example, we launched the "Hearing Guizhou" project, featuring natural soundscapes to enhance sleep quality. In summary, our dedication to diversifying music services and delivering well-rounded music entertainment has set the stage for long-term sustainability growth. With a strong foundation in place, we will continue to enhance our content and platform ecosystem, offer richer experiences, and unlock greater opportunities for both music lovers and stakeholders across the music value chain. 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, Cussion. Hello everyone. In the second quarter, our platform demonstrated robust growth, driven by our commitment to continuous product improvement and operational excellence. Online music recorded strong performance, supported by a sustained expansion in both our subscriber base and ARPPU. This positive trajectory was underpinned by our innovations across product features, artist merchandise, and artist-fan interactions, which has further strengthened our appeal among SVIP members. Overall, user average time spent reached a record high, and SVIP subscribers exceeded 15 million, a new milestone that reflects the deep trust and loyalty within our user community. To enhance the SVIP experience, we introduced a range of new and upgraded features during this quarter. Here are some key highlights. First, high-quality sound quality remains the most popular SVIP membership benefit. This is effective in fulfilling users' robust demand for more premium and immersive listening experiences.
In the second quarter, Kugou Music pioneered VIPER HiFi sound quality and One-Click Audio Enhancement 2.0. By delivering stereo audio fidelity and louder speaker volumes, we let users easily transform their smartphones into portable speakers. We also upgraded voice extraction technologies with the industry-first AI Chorus function. Users can now plug in a live concert, seeing a live experience anytime and anywhere without the user's path. Second, to further drive SVIP adoption, artist-centric privileges became increasingly effective. Such achievements are powered by our deeper collaborations with libraries and artists that unlock a wide range of compelling benefits for our users. Digital albums are a great example. Recently, we premiered JJ Lin [Foreign language] and A-Lin's new digital single "Hold Me Close" [Foreign language] . We also launched Jolin Cai's new album "Pleasure" by integrating these albums as SVIP sign-up privileges, which significantly boosted SVIP conversions.
Another example is priority access to concert tickets for in-demand events. This quarter, SVIP users had the opportunity to secure tickets for G-DRAGON and BLACKPINK's concert tours in advance on our platform, sparking significant buzz among music fans. We also cooperated with both domestic and international artists, including JC-T [Foreign language] , Silence Wang [Foreign language] , and aespa, to release multi-star car series. These initiatives successfully met users' growing demand for collectibles. Third, we elevated users' engagement by introducing new ways for artists and fans to connect. For example, beyond launching bubble in May, we partnered with TF Entertainment [Foreign language] to live-stream Teens In-Time [Foreign language] and TransfOrm Project's [Foreign language] two concerts. These events garnered over 33 million viewers, with S VIP members enjoying dedicated access to solo camera angles, bringing fans even closer to the artists.
We also upgraded our virtual fan community, Penguin Island, introducing special avatar outfits and gestures for S VIP members to make online meetups more personalized. During Lars Huang 's [Foreign language] birthday and song releases, we hosted fun team-building activities and live voice calls with him, attracting over 100,000 users to his Island page. Next, as our in-car music service gained recognition from S VIP members, we broadened our alliance with prominent automakers. For instance, this quarter, we formed a comprehensive partnership with Geely and collaborated with Xiaomi on its first SUV, the YU7 model. These partnerships integrated Dolby Atmos and the Premium series sound effects, elevating users' music listening experience. We also built an AI-powered music cabin for Great Wall Motor, offering personalized on-demand features like AI vocal extraction and a healing music playlist to facilitate a more enjoyable journey.
Alongside the success of our S VIP offerings, the power of our platform and innovative ad formats led to accelerated advertising growth, both quarter- over- quarter and year- over- year. In particular, we optimized interactive tasks and enriched redemption benefits, significantly boosting users' engagement and receiving positive feedback from advertisers. Lastly, our initial pilot on an ad-based membership gained positive momentum. It gave us more room to provide tailored solutions to advertisers and users with various needs. Looking ahead, we see great potential in the music entertainment space and are committed to investing in new initiatives that create lasting value and impact on music creation and consumption. Along this journey, we will continue to push boundaries, innovate, and enhance user experiences to deliver more premium and immersive experiences to all of our users.
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 Q2 2025. Our total revenues hit a record high of RMB 8.4 billion, up by 18% year-over-year, successfully overcoming the challenges from adjustments in social entertainment services in recent years. This was driven by continued strong growth in music subscription and advertising services, as well as robust growth from artist-related merchandise sales and offline performances. Online music revenues grew 26% year on year to RMB 6.9 billion. Music subscription revenues grew 17% year on year to RMB 4.4 billion in Q2 2025, driven by continued expansion in subscriber base and monthly ARPPU. Monthly ARPPU reached RMB 11.7 this year, compared to RMB 10.7 in the same period of last year, primarily driven by expansion in S VIP subscribers and ARPPU.
As discussed earlier, to enhance the SVIP members' experience, we continued to broaden and strengthen SVIP benefits, including enhanced sound quality and effects, artist-centric privileges such as free shipping for our merchandise, priority access to concert tickets, and artist-related merchandise. These efforts effectively have helped us enhance our SVIP membership base and achieve higher monthly ARPPU this quarter. Advertising revenue continued its strong growth trajectory on both year-on-year and quarter-on-quarter basis, primarily driven by the following: First, our innovative ad formats, such as ad-supported model, kept gaining traction and significantly contributed to our advertising revenue growth. Second, the 618 shopping festivals provided a great opportunity to showcase our recent product optimization results, leading to increased number of advertisers, higher entrance rates, and eCPM. Third, sponsorship advertising also had strong growth this quarter, which benefited from increased number of offline events and performances.
Additionally, artist-related merchandise sales and offline performance delivered robust results this quarter and further contributed to overall revenue growth in music services. The shipping for the physical album of Xiao Zhan this quarter, together with the offerings of artist-related merchandise such as Joker Xue 's physical albums and G-DRAGON's official light seats, significantly enhanced the revenues from artist-related merchandise sales in Q2. Meanwhile, we continued our strategic initiatives in the offline performance market. This quarter, leading Korean artist G-DRAGON started his first major tour since 2017, and we successfully hosted his concerts in Macau in Q2, with more locations to come in Q3. We also hosted other high-profile concerts for artists such as Will Pan this quarter. Social entertainment services and artist revenues were RMB 1.6 billion, down by 9% year on year.
The year-on-year decrease was mainly due to the adjustments to certain live streaming, interactive functions, and more stringent compliance procedures frameworks implemented. Our gross margin rose by 2.4 percentage points year on year to 44.4%, primarily driven by the following factors: First, strong growth in music subscription and advertising revenues, together with improved cost efficiency thanks to our longstanding win-win relationships with labels and artists, have benefited our gross margin. Second, as the market landscape evolves, we successfully lowered our revenue sharing ratio with social entertainment services, without materially impacting revenues. Meanwhile, the growth in revenues from artist merchandise and offline performances, which require higher investment, had offset gross margin increase. Moving on to operating expenses, sales and marketing expenses as a percentage of revenues were 2.6%, down from 2.9% in the same period of last year.
General and administrative expenses as a percentage of revenues were 11.1%, down from 13.1% in the same period of last year. Reflecting our strong operating efficiency, the majority of our sales and marketing spending have been in the category of content promotion and channel spending. We will keep monitoring market conditions and increase spending as needed with financial discipline. Our effective tax rate for Q2 2025 was 17.3%, compared to 19.4% in the same period of 2024. We accrued withholding income tax of RMB 118 million in the second quarter of 2025. In Q2 2025, our net profit increased by 38% to RMB 2.5 billion, and the net profit attributable to active holders of the company increased by 43% to RMB 2.4 billion.
Non-IFRS net profit increased by 33% to RMB 2.6 billion, reaching a historical high, and the non-IFRS net profit attributable to active holders of the company increased by 37% to RMB 2.6 billion. Our diluted earnings per ADS this quarter was RMB 1.55, up by 45% year-over-year, and the non-IFRS diluted earnings per ADS was RMB 1.66, up by 39% year on year. These results underscore our effective monetization, enhanced operating efficiency, and the benefit from our shared purchase program. As of [audio distortion] 2025, our combined balance of cash, cash equivalents, term deposits, and short-term investment was RMB 34.9 billion, as compared to RMB 37.7 billion as of March 31st 2025. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance dates.
Going forward, we will keep focusing on expanding our SVIP membership, introducing more and enhanced SVIP privileges, such as high-quality content, artist-centric privileges, including early access to artist merchandise and concerts. Meanwhile, we will continue to invest in our products and innovative technologies globally. We remain optimistic in the healthy growth prospects of the music entertainment industry and are confident about the high-quality growth of our business. This concludes our prepared remarks. We are ready to open the call for questions.
Thank you, Shirley. If you are dialing in by phone, please press five to ask a question and then press six to unmute yourself. If you are accessing the call from the Tencent Meeting or VooV Meeting application, please click the resign button at the bottom left. For the benefit of all participants on today's call, please be reminded to limit yourself to one question. If you have more than one, please re-enter the queue. If you ask your questions in Chinese, please repeat in English. The first question comes to the line from Lincoln from Goldman Sachs. Lincoln, your line is open. Hello, Lincoln. Can you hear us? Yeah, we can hear you. Your line's open, Lincoln.
Okay. Sounds better. Yeah, thank you for taking my question. Congrats on the first quarter. My question is about the outlook. Given that the first half we have a very solid momentum, how should we think about the second half in terms of our revenue and as well as the profit outlook? Thank you.
[Foreign language].
Thank you so much, Lincoln, for your questions. We are really encouraged by this quarter's solid and well-rounded performance, with both our top line and also bottom line coming in strong. While our music subscription business remains robust, we will continue to focus on the high-quality growth. As mentioned before, our subscriber base right now has already reached over 124 million, and the pace for the net adds may fluctuate from quarter to quarter, but we do have the confidence that it will continue to have a high-quality growth in a healthy and dynamic manner. For the ARPPU, I think we are seeing a steady upward trend as we continue to enhance our offerings and the value we provide to users. We believe these efforts will further strengthen our value propositions and users' willingness to pay over time.
Besides a good performance in the subscription business, I think the traction that we are seeing in our non-subscription services is also very exciting. On one hand, the advertising continues to be an important growth driver. Innovative formats tailored to different user cohorts are particularly welcomed by the advertisers. On the other hand, as we keep innovating and collaborating with more artists and labels, the new revenue streams from concerts and artist merchandise are becoming more scalable. In the second quarter, revenue will more than double from a year-over-year basis, which really validates our strategy of building a comprehensive music entertainment platform. For the visibilities, as you can probably understand, the concerts, for example, we experienced some short-term quarter-over-quarter fluctuations as they're involving a lot of things like scheduling, venue selections, and other logistical coordinations. Overall, we are really optimistic and focused on driving a sustainable long-term growth.
In a nutshell, for the full year of 2025, I think backed up by the solid performance year to date, we now see the revenue expected to come in higher than our previous expectations. With our focus on the operational efficiencies, we see more room for bottom-line improvement as well. Thank you for your questions.
Thank you, Cussion. The next question comes from Alicia Yap from Citi. Alicia, please.
Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results. I have a question on bubble. Can management share with us the traction of your recently launched bubble? What is the user feedback and user experience so far for this new product? Can bubble become a meaningful product in the coming future with potentially decent revenue contribution? Thank you.
[Foreign language].
[Foreign language].
Thank you very much. Thanks for your question. First of all, the company has been very happy that we worked with Dear U in this quarter to release a product named bubble.
[Foreign language].
Talking about the reason why we launched these services, the reason is because we have the feedback from the entire user group. There are some of the fan groups right before bubble. It would be very challenging for them to communicate with the artists they follow.
[Foreign language].
Within QQ Music, we still would like to continue to enhance the user experience. That's the reason we continue to strengthen our cooperation with Dear U of launching such a service in this quarter.
[Foreign language].
Once the bubble community is being launched, we continue to optimize its basic experience to the user, especially the translation and the language proficiencies within the South Korean language and Chinese. This is a feature that we do see very wide recognition from the user feedback.
[Foreign language].
As Cussion stated in his statement, besides the South Korean artists from the three labels we're working now, in the near future, we're also going to introduce the Chinese artists to the bubble community.
[Foreign language].
In that way, we will be able in the Greater China region of providing the user experience that is within the human touch and the broad coverage that bubble used to have. This is also the expectation from our partner.
[Foreign language].
At the same time, we also have the bundled service for bubble and subscription and SVIP business, and we do hope such a bundled service would become a key growth driver for the future SVIP growth.
[Foreign language].
According to the existing user profile, we can see many of the pay-to-grow users are still the young users. In the near future, they also demonstrate very high activity, and this trend also allows us to build more confidence for future user growth and commercialization.
[Foreign language].
As many of you may notice, indeed, bubble is a well-established social product in the overseas market, and we surely believe having bubble on board will help us to continue to consolidate our QQ Music and help TME to continue to launch socialized apps and the service in our existing music business.
[Foreign language].
I surely believe as we continue to introduce Chinese artists into the bubble community, we're also going to add additional features, for example, like live streaming. In that way, we will be able to provide a richer commercialization opportunity to our entire subscription business in the near future.
[Foreign language].
I also would like to emphasize for bubble to TME, a very important step for us to embrace the social entertainment, because we do notice the customer needs such a service, and we do believe it has a great potential for its future commercialization.
Thank you. The next question comes from Thomas Chong from Jefferies. Thomas, please.
Hi, good evening. Thanks to management for taking my questions and congratulations on a very strong set of results. My question is about our recent deal with Ximalaya. Can management comment about the synergies with Ximalaya, such as cost optimization, enhancement in product offerings, and any areas that we can benefit the SVIP offerings as well? Thank you.
[Foreign language].
[Foreign language].
Regarding our deal with Ximalaya, according to the regulation in China, we're still waiting for further approval from the regulatory authorities. It would be very difficult for us to make any corresponding comment.
[Foreign language].
The reason why we go for the Ximalaya deal is because for the management team and for the whole company, we always believe in the value of long-form audio content.
[Foreign language].
Long-form audio content is a very important content form. To us, it already plays a complementary role to our existing music business.
[Foreign language].
At least from our own perspective, for the book listening, the individual members, as well as the advertising services, and also the long-form audio content in different music apps, we do see that nice progress being made on the subscriber base as well as commercialization.
[Foreign language].
We also see that consumption of the long-form audio and its penetration ratio with SVIP continues to go up.
[Foreign language].
If the deal goes smoothly in the near future, I surely believe no matter for the subscription revenues or the ad revenue, we will have every opportunity to continue to grow our user base.
[Foreign language].
If there's any further progress regarding this deal, we will also disclose the information to the market in due time.
Thank you. The next question comes from Morgan Stanley Yang Liu. Yang, your line is open.
Thank you. Congratulations for the very strong results. I have a question on the other music revenue. Does management believe that in the long run, this part of the business will account for a bigger part of the total revenue? What will be the impact to the gross margin? We understand that advertising is a very high-margin business, but how about offline performance, concert, and merchandise, the overall impact to gross margin? Thank you.
[Foreign language].
[Foreign language].
Thank you very much. The company is adopting the strategy of having content and a platform at the same time. It is an all-in-one development. Regarding the air flight concept, as well as the fans economy, I think it's going to be a very important direction for us to go in the near future. It is also part of our strategic business. In the long run, the arts of music is going to be a key for our future development.
[Foreign language].
Let's talk about the fans economy. As you may see, it is actually subjected to the schedulings of the artists as well as the merchandise shipment. From the revenue perspective, fans economy, the revenue continues to ramp up, but it will have some fluctuation. I mean the seasonal fluctuation, the same as the air flight concept and events. Due to the artist scheduling as well as the venue selection, there might be some seasonal fluctuations.
[Foreign language].
Regarding the gross margin, I have to admit for fans economy and the air flight concept, indeed, both gross margins are relatively low. It will have some impact on the overall gross margin of the company.
[Foreign language].
Generally speaking, on one side, we will continue still to ramp up the gross margin. For example, we have ever-increased subscriber base, and we also have more revenue from the advertising business, and we embrace the social entertainment. At the same time, all those factors are indeed blessing our gross margin.
[Foreign language].
Generally speaking, according to our existing observation of the fans economy and the air flight concept, I have to say that compared with our existing online music, no matter for the subscription business or advertisement business, the revenue contribution from the fans economy and the air flight concept is relatively small.
[Foreign language].
As its revenue contribution is relatively small, its impact over the gross margin is also small.
[Foreign language].
I also mentioned about the revenue seasonalities for the fans economy and the air flight concept. In certain reasons, when the revenue from both services is relatively high, it will surely fluctuate the overall GP margin. Overall speaking, we're still very confident on the uprising trend of our GP margin.
[Foreign language].
I also would like to make a comment on Cussion. Besides what has been mentioned by Shirley, I have to say that we never take the offline concerts concept or even the fans economy and the artist merchandise as a separate business. We take it as a business that can be complementary to our existing online business.
[Foreign language].
We actually leverage the privileges generated from the air flight business to continue to support the healthy growth of our online music business. To TME , as we have already mentioned, we have the content and the platform, the two in one body strategy, and we hope that in the near future, such strategy will help us to explore more possibilities and a competitive edge.
[Foreign language].
I also like to make a comment on Ross, and I think in this quarter we plan to launch the SVIP annual membership card for the shopping malls, especially for the artist merchandise product. In other words, provide a discounted offering of the artist merchandise we have in our shopping malls. Fundamentally speaking, it is within the same nature as the e-commerce membership card. We hope by initiating such a great strategy to continue to improve the profitability of the artist merchandise.
Thank you. The next question comes from Alex Yao from JP Morgan. Alex, please.
Thank you, management, for taking my question and congrats on a solid quarter. Just want to follow up with this fans economy development. As you guys expand from online music distribution into the broader fans economy, including artist merchandise, offline performance, connectivity between artists and fans, etc., etc., where do you see as the biggest opportunity and what do you see as the biggest challenge, let's say, on a one to two years view? Thank you.
[Foreign language].
[Foreign language].
Talking about the biggest opportunity, as Cussion has already mentioned, fundamentally speaking, the company is still committed to building a comprehensive service platform, including the copyright content, the artist merchandise, as well as the privilege. We believe that fans economy is not something separate, it's already within our system.
[Foreign language].
At least for the company, what we truly care about is leveraging the artist merchandise as well as the offline concert concept to continue to forge a deep bond between the offline concert and online platform. In that way, we will be able to continue to grow our subscriber base. This is something the company is really confident on.
[Foreign language].
We do enjoy a great advantage on copyright, but what we do is trying to further expand our advantage in copyright in both China and internationally. We hope what we could be is a comprehensive music entertainment service to our users.
[Foreign language].
Regarding the challenge, I think to some extent, we really need to make sure the size and development of the platform can help us to make sure we have integrated development for both content and the privileges.
[Foreign language].
Another opportunity I do note is that for this quarter, we organized the concert for G-DRAGON. It was staged in overseas countries and very likely to have extra stations in Southeast Asia markets. At the same time, besides providing the air flight concert, we also have the merchandise as a comprehensive service. This will help us to continue our international expansion.
Thank you. The next question comes from Macquarie, Ellie Jiang, Ellie please.
Good evening, management. Thank you for taking my question and congrats on a strong result. We are very encouraged to see all of these exciting developments and initiatives. My question is really on our long-term positioning. Could management share how we foresee our longer-term revenue mix and how this could further evolve, especially it seems like we are expanding into more diversified kind of music offerings and also taking a much longer-term view? How do you see TME positioned on the entire entertainment value chain? Thank you.
[Foreign language].
[Foreign language].
Regarding the overall positioning of the company as Office, we are still going to leverage our one body two wing strategies. That is the platform plus the content ecosystem to continue to advance our strategy.
[Foreign language].
As we have a very steady development for the live streaming music platform business, I do believe in the near future, the key source of the revenue and profit are coming from our online music business.
[Foreign language].
Regarding the advertising business, it is also another highlight of our overall business. In the longer run, I believe the advertising revenue growth is even going to be kind of faster than the online music revenue growth. Indeed, both are all very important growth drivers with our online music revenue.
[Foreign language].
Regarding the social entertainment, our revenue has already been stabilized, but in the near future, we will have new growth drivers, as Shirley and Ross has already introduced to you. Besides the content, we also have the performance, air flight concept, fans economy, including the artist merchandise. Those will also continue to contribute revenue to the company with nice growth.
[Foreign language].
Generally speaking, for TME, we're still going to take a development or retention in the near future. Our key focus is to continue to develop the company based upon our existing model. At the same time, we will also going to keep an eye on the new business, for example, long-form audio, as well as our international business expansion. I surely believe they will also provide extra acceleration for our existing business.
Thank you. The next question comes from Wei Xiong from UBS. Please, your line is open.
Sure. Good evening, management. Thank you for taking my question and congrats on a solid quarter. Earlier, management mentioned the strong advertising revenue growth this year, which was partly helped by a newly launched ad-based membership. Could management share more detail about the revenue and subscriber contribution from this new membership? Was the operational strategy to scale it up and maximize the revenue opportunity here without affecting the conversion to the standardized subscription plan? Thank you.
[Foreign language].
[Foreign language].
Actually, I think the fast growth of the advertising business is coming from the online advertising rather than the ad-based membership growth.
[Foreign language].
Therefore, in the near future, I think at least for the advertising business, incentive-based advertising is still going to be the key in the next few years.
[Foreign language].
Different from the standardized free advertising, the incentive-based advertisement is for all the users. It is a common and general incentives model to all users. We are still confident in the future growth from the incentive-based advertisement business.
[Foreign language].
Actually, with the existing user base of the incentivized ad business, about two months ago, we started to pilot on the advertisement membership format.
[Foreign language].
Just now, I have already mentioned for ad-based membership, the [ARPPU] is relatively low, but it can provide a differentiated solution to different user groups.
[Foreign language].
I think in the near future, for ad-based membership plus our standard member as well as SVIP, it's a three-tier membership system. It can help us to continue to broaden the size of our subscribers and the user.
[Foreign language].
This is indeed a very important strategic operational direction for us to go. That's the reason for the past two months, we actually attach great importance to the content of the platform. I have to say it's still in the infancy stage. If there's any nice progress being made in the near future, we will surely share it with all of you.
We still have some questions, and we'll take the last two. Roger from Barclays, your line is open. Roger, please? Hello, Roger, can you hear us?
Thank you, management, for taking my question, and congrats on a very solid quarter. My question is on operating expenses. For the last couple of quarters, our bottom line continued to outpace our top line growth, thanks to very successful cost reduction in terms of the marketing expenses and G&A expenses. Should we see this trend continue for the rest of 2025 and 2026, given that we have identified so many growth opportunities? Management has to talk about how should we think about our operating leverage from this point on. Thank you.
[Foreign language].
[Foreign language].
Thank you very much. Thanks for your question. Our monthly expenses, especially the sales expense, are actually being used for the promotion of the content as well as traffic gain for the channel.
[Foreign language].
For both, we were going to make an adjustment according to the market competition. As of now, what we do is to continue our investment for the musical content promotion investment as well as the music channel promotion.
[Foreign language].
Regarding the R&D expenses, we will always keep an eye on the new technological empowerment to see how the new technology will bring the industrial innovation and new opportunities.
[Foreign language].
We do foresee that compared with 2024, the absolute value of the operational expenses will grow compared with the baseline of 2024.
[Foreign language].
The way we'll make sure we control the expenses growth would always be slower than the revenue growth. In other words, we still leave enough growth for the net profit rate and the net profit.
Okay, in the interest of time, we'll take the last question from Maggie from CLSA. Maggie, please.
Thanks for taking my question and congrats on the very impressive set of results. My question goes back to online music subscription business. Can you share a bit more on the Super VIP penetration, its uptrend, and the overall retention rate in this quarter and overall? We noticed that many of the drivers behind Super VIP penetration are time-based or event-driven type of activities. Just wondering, how shall we think about the sustainability of such growth? What would be management's top priority in driving a sustainable revenue growth in the superfan economy? Thank you.
[Foreign language].
[Foreign language].
Thank you very much. First of all, I think there will be some misunderstanding here I need to clear. First of all, the key growth driver of SVIP penetration ratio is not on time or not on any single event. It just happened to be when there's a new sound or new albums being released. There might be some marginal growth from this release.
[Foreign language].
Whereas already been stated in our prepared remarks, we now have 15 million SVIP members and 124 million subscribers, and you can then calculate the SVIP penetration ratio, where we also need to see the penetration ratio will continue to go up, including the ARPPU and retention. They are all ramping up, and we're very likely and happy to see the growth trajectory is in line with our expectation.
[Foreign language].
Where actually the key growth driver are still coming from the premier sound quality, as well as the long-form audio content, as well as the digital album. To some extent, we also have the regular members who have been converted into the SVIP. The fundamental logic of SVIP growth are still coming from our well-consolidated business growth.
[Foreign language].
For example, let me just share a case with you. For example, the Eason Chan 's new album, and the sales of this album with our SVIP is already hitting our expectation. We no longer record it as a single album sales.
[Foreign language].
That's the reason I think our SVIP will continue to grow in a very robust manner. To the second part of your question regarding whether the fan economy business is going to be sustainable, as I have already mentioned, we did many preparations at least six months to twelve months before the event happened for the scheduling. In that way, we will be able to make sure we will be able to run the artist-related business in a more robust and sustainable manner.
[Foreign language].
One more additional comment to our team is if there's no major offline concert event happens, we're planning to maintain a rapid growth of the merchandise sales. As you may see, we already have a steady growth on fashion. What we're committed to do is to make sure our fan economy revenue will continue to grow as we expect it.
Thank you, and thank you everyone for joining us today. If you have any further questions, please feel free to reach out to the team. This concludes today's call, and thank you once again. We look forward to speaking to you next quarter. This concludes today's call.
Thank you so much.
Thank you.
Bye bye.
Bye bye.
Bye bye.