Earnings Call: Q1 2021

May 18, 2021

Earnings release

Ladies and gentlemen, good evening and good morning and thank you for standing by. Welcome to the Tencent Music Entertainment Group 20 21 First Quarter Earnings Conference Call. Today, you will hear a discussion from the management team on Tencent Music Entertainment Group followed by a question and answer session. And if you have additional questions, you can reenter the queue. Please be advised that the conference is being recorded today. Now, I will turn the conference over to your speaker host today, Ms. Millicent Teah. Please go ahead, ma'am. 20. Thank you, Amanda. Hello, everyone, and thank you all for joining us on today's call. Tencent News announced its quarterly financial results today after the market close. 2. An earnings release is now available on our IR website atir.tencentmusic.com as well as via newswire services. 2. Today, you'll hear from Mr. Ka Chun Palm, our Executive Chairman, who will start the call with an overview of our recent achievements. 20. It will be followed by Mr. Ross Liang, our CEO and Mr. Tung Min Yi, our CFO, who will offer more thoughts on our product strategy, $1,000,000,000 Operations and Business Development. Lastly, Ms. Shirley Hu, our CFO, will address our financial results 18 months before we open the call for questions. Please note that this call may contain forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations or observations 18 months that involve known and unknown risks, uncertainties and other factors not under management's control, which may cause actual results, 2019 performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward looking statements. 2019. All forward looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. 2. The company does not assume any obligation to rely on or update any forward looking statements as a result of new information, future events, 2019. Please also note that the company will discuss non IFRS measures today, 2, which I'm sorry, explain and reconcile to the most comparable measures reported under the International Financial Reporting Standards 2019 in the company's earnings release and filings with the SEC. You are reminded that such non IFRS measures should not be given in isolation 18. C. Wei:] As an alternative to the equivalent IFRS measures and other non IFRS measures are not uniformly defined by all companies, 18. With that, I'm very pleased to turn over the call to Ke Shen, Executive Chairman of Tencent Music. Ke Shen? Thank you, Madison, and hello, everyone, and thank you for joining our call today. Echoing 2.3% of the Tencent digital content ecosystem and expectivating TME towards the next phase of development, 2. We recently announced a change of leadership. As the Executive Chairman of TME, I will be responsible for setting our long term strategy and TME's overall coordination and management of the Board and also the company. I will also focus 2.8% more on building the most comprehensive music and audio content ecosystem in China. Also joining us on today's call is Mr. Ross Liang, 2. GMV's new CEO, who will oversee QQ Music, Hu Go, Huo, Weixin and the long form audio business. 2. Having worked closely with Ross for a number of years in the past, Ross and myself share the same vision in TME's strategic goal. 2. As a GM of QQ Music from 2014 to 2016 and one of the key members of Weixin's founding team, 2. Ross has a deep understanding of the nature of our businesses. A warm welcome of Ross back to the TMB family, 2, and I look forward to working with him again as we continue to execute our strategy and grow the business. 2. Since TME's establishment in 2016, we have stayed true to our original aspiration 2 of creating more value for users, musicians, the industry and society as a whole. 2. We pioneered and it finds a model benefiting for the long term development of China's music and entertainment industry. 2. Our established and comprehensive services now include online music, online audio and social entertainment, 2. We are not only great believers in upholding digital music copyright, but also strong advocates for effectively rising income levels 2 for China's Indie Musicians and Cultivating China's original music ecosystem. We have been pushing the boundaries of the music entertainment ecosystem, committing to explore innovative ways to promote upstream content production. 2. This has resulted in numerous chart topping songs originating from our platform alongside our growing capabilities 2 in artist incubation and additional channels for distribution and promotion. We also pioneered TME Live, 2, which has earned a solid standing in the industry. Although the impact of the COVID-nineteen pandemic 2. With a steadfast focus to create a one stop shop online music and audio ecosystem, we will unite our efforts 2019 to drive the next phase of development for TME. Moving to the quarterly discussions, in the Q1 of 2021, 2. We achieved a robust performance with 24% year over year growth in total revenues, while hitting multiple milestones 2 across the spectrum of our business. Net addition of music paying users reached a record high of 4,900,000 2019 in the Q1, demonstrating our strong momentum and further inspiring us to unlock 2. For our long form audio business, we have also made significant breakthroughs, With MAUs surprising 100,000,000 at the end of 2020 and MAU penetration crossing the 20% milestone in the Q1 of this year, making us one of the leading players in China's online audio industry. 2. Our content ecosystem is becoming increasingly robust, dynamic and powerful. 2. In the past quarter, we were very excited to see increasing user engagement from young users, thanks to our broader offering of genres such as hip hop, Chinese Asian style and music for a wide range of entertainment, including popular television programs, variety shows and online games through both licensing or self production. Also, in the hip hop category, 2Q Music launches the rappers alliance in January, attracting participation from both Uprising and Top Tier established rappers. 2. By providing a stage to perform and shine, we helped record Lambert, Lin Jie, be enlisted by the Treasure 2, a well recognized music broadcaster in China. These efforts have brought 2.5%. The penetration of young users among hip hop listeners is more than 15% points higher than their overall platform presence. As another example, in the Q1, 2. We worked with Tencent Games to create the highly praised theme song Battle for Glory for PUBG MOBILE, 21, one of the most popular mobile games in the world. In 2021, as an essential component of Tencent's platform and content group, 2. We plan to strengthen and develop additional ways to collaboration with the broader Tencent Ecosystem. 2. In the Q1, 2. The scale of the Tencent Musicians Program, as indicated by the original songs uploaded, 2. Continued with industry leading growth. On a year over year basis, the number of artists on our Tencent Musicians platform and increasing share in our platform on a sequential and year over year basis. This demonstrates musician's trust 2 in our promotional capabilities, platform support, incentive plans and other comprehensive services, 2, as well as our ability to drive influence in the industry by successfully incubating and promoting his original songs. Tencent Musicians platform also serve public welfare with its social influence. For example, 2. We cooperated with a leading logistic company using music to promote the revitalization in the Southwest of China, Also, we further expanded our content ecosystem to live concerts. 10th, TME Live celebrated its 1st anniversary in March this year. In just a year's time, 2. It hosted 60 live concerts for over 100 artists with 18,000,000,000 social buzz, 20. In 2021, we will innovate more interactive features 2, a holistic and more immersive user experience that will get us one step closer to unlocking the massive value nineteen and market potential for online live performances. Apart from music content, 2.5 years of business. Long form audio forms a core building block for us as we evolve into a leading all in one music and audio entertainment platform in China. 2. We emerged as the key players in China's fast growing long form audio market. Firstly, we provide a 20.5% growth spectrum of audio categories, expanding into diversified audio genres such as drama, comics, Chinese comedy, 2,000,000 history, parenting, relationship and education among others. The consolidation of Lazy Audio in March 2,000,000,000,000 of users, further allowed us to gain access to an extensive library of high quality audiobooks. 2. In the Q1, licensed titles more than quadrupled year over year. We are also accelerating the addition of PUGC and UGC Long Form Audio Content, bringing both professional and long tail podcasting content to users. 2. Our initial efforts have included QQ Music's in-depth collaboration with Xiaoyuzhou, a leading podcasting app in China. 2. In February, QQ Music initiated the ground zero podcast program, under which we aim to continue 2, introducing various speeches and widening support to facilitate podcast creation. Secondly, 2. Our adoption of a valuable to product strategies evolves to unlock significant value 2, our music and standalone long form audio applications. This approach allow us to leverage our massive music user base and nearly quadrupled our long form audio MAU penetration to 20% in the Q1, compared to 5.5% for the same period last year. 2 long form audio content also contributes positively to time spent per user. It inspires 2nd incremental listening of audio content in addition to music. A newly converted audio user stream even more music content than before. 2. Our standalone application launched in April, Lanen Changting, pioneers a well rounded 2 and aim to address the needs of heavy audio users. Lastly, we commenced the ad based monetization, 2, which gives us our users ease access to a vast amount of high quality audio content. Users are able to gain membership privileges or title rights by watching advertisement or completing certain tasks. 2. We believe that such a model will not only be effective in scaling our user base quickly, but also unlocking additional monetization networks. China's long form audio market remains extremely underserved as compared to the online music and Video Market, and we are eager to continue cultivating users' listening habits to ultimately 2.8% to accelerate the penetration of online audio in China. Now I would like to pass the call to Ross, who will share more about the strategy of our 2 Business Lines. Ross, please go ahead. Thank you, Kanshian. Hello, everyone. 2. I want to start off by saying how excited and honored I am to join TME as CEO. I see tremendous trends 2 and the future outside potential in TME, particularly with its leadership in driving industry growth, 2. It's innovative business models and the last but not least is a remarkable team consisting of a talented group of people in the industry. 2. I firmly believe the pandemic has changed and continues to change. The content distribution and the user interaction raising online music industry in China 20. And TME from a position of strength is at the forefront of this paradigm shift. Merriving the growth 2nd. Momentum of the realization and the socialization of music platforms. We plan to launch the TME video account 2 to further strengthen the interactions between artists and fans. This is the least and upside 2. As Hikani's cutting edge technologies and innovate 2. Portfolio put us in a strong position to offer differentiated services for the 20 brand and the Google Music, showing a diverse use base by offering multi version of customized 2. Core music will focus more on tapping to users' intrinsic demand of music streaming, We are also established a tighter and more seamless collaboration with Tencent's stronger product portfolio 2 to enhance music content promotion. By working more closely with broader Tencent Ecosystem, 2. Media is following our interactions between music and social platforms, COVID content production 2 and artist incubation with digital content platforms. I promote the development of long form audio, 2, leveraging our partnership with online literature platforms. We are dedicated to harnessing the power of music. We are opening up more monetization opportunities. We will also be setting up our efforts on international expansion, and I have appointed 2,000,000,000, the Group Vice President, Dennis Ho, to lead this effort. Dennis was previously in charge of the operations and the management 2 of QQ Music. Under his leadership, QQ Music successfully launched a tutu community to enhance social interaction between Music Funds and Their Idols, developed industry leading music discovery prediction technology With a support of Dennis and a deep bunch of senior managers and leveraging my 2.5 experience with QQ Music and WeSing. I will personally take a more active role in driving the growth of QQ Music 20. I look forward to working in close partnership with Kanshien and side by side with other TME management members, 20. Now I would like to turn the call over to Tony, who will discuss the business highlights and the important areas of focus. Tony, 20. Thank you, Ross. Hello, everyone. I'll first talk about the key operational and financial performance during 2Q and Q1. Online music services growth rate continued to accelerate for 2 consecutive quarters. 2. We delivered another strong quarter for subscription business with a record high net adds of 4,900,000 online music paying users. The strong subscriber growth was primarily driven by better content offering, effective marketing campaign 2 and improving retention rate. We also made notable progress in advertising within Online Music Services. Advertising revenues more than doubled year over year in the Q1 for the first time in a row, as we benefited percent from an increasing number of advertisers from various industries attracted to our platform, as well as triple digit year over year growth 2 in ad inventory and double digit year over year eCPM growth. We also continue to innovate with advertising products 21. To further tap into the growth potential for advertising, in 2021, we are focusing on developing creative advertising solutions 2 and enhancing in house capabilities to further boost our advertising revenues and complement subscription models. Online music mobile MAU were $615,000,000 in the 1st quarter. While there was some churn of casual users resulting in a year over year MAU decline, our total music user time spent was up year over year, demonstrating the increasing engagement of our core users. 2. In terms of expanding our services beyond the mobile phone, we continue to broaden our services to Internet of Things IoT space 2 and find more and better ways to interact with our users. Opportunities arising from the IoT market are exciting, 2, and we are actively expanding use cases for users to enjoy all our services. We will continue to solidify our leading position 2 through extensive cooperation with mainstream automakers, smart speakers, television and other connected device manufacturers. 2. In the Q1, our IoT MAU was 69,000,000, representing an increase of 50% 2 year over year. The IoT market will serve as a new distribution and promotion channel as well as serving 2 as a potential additional driver for future subscription growth. Moving to visualization and socialization. 2. Our concerted efforts to enrich both music and audio content offering as well as enhanced innovative features and services 2, such as music community and video content have helped us gained higher mind share among our users, 2, illustrated by a 10% year over year increase in average daily time spent per mobile users in the Q1. For Putong community, we introduced more social scenes such as synchronized music and podcast listening, 2nd video and concert watching, as well as improved private messaging, catering to our users' needs for interactive social connections. 2. As a result, DAU penetration and retention rate of Pusan community both increased steadily. Kugo Fans Club, another community on our platform has also drawn many leading artists, labels and content IPs. Highly rated and domestically produced animation series, Scissor 7, is a recent example. Fans Club is becoming a well loved destination for young generation, evidenced by an increasing proportion of young users And its time spent per user increased sequentially in the Q1. Now let's turn to our social entertainment services. 2. In the Q1, we delivered solid performance. Both online karaoke and live streaming delivered steady year over year growth. 2Q music live streaming gathered further momentum during the quarter, and we are on track to scale it up over the course of 2021. Social entertainment MAU improved quarter over quarter to 224,000,000 as user base of QQ Music live streaming ramped up 2 and our efforts to invigorate content ecosystem and enhance social attributes for WeSing took place. Paying users of social entertainment services also sequentially recovered to $11,300,000 in the Q1 by 4.6%. Our online karaoke services strengthened its core singing and entertainment functions with material improvement 2 in monetization through advertising. Our concerted efforts to make the experience more immersive and fun through video enrichment, 2. Personalization and community resulted in sequential improvement in users' willingness to sing and record 2 and further content distribution, driving an increase in average daily time spent within WeSing 2 and also daily active users bottoming from the last quarter. With a new approach in splash screen ads and news feed ads, 2. Advertising revenue for WeSing more than doubled year over year in the Q1, making it a more meaningful revenue stream of WeSing. 20. For the remainder of 2021, we expect strong advertising revenue growth to continue and become an important top line driver for social entertainment services. 2. For music centric live streaming services through efforts such as full screen live streaming and category expansion 2. Our content in ACG, gaming, Chinese ancient style and dancing, we maintain a healthy interactive ecosystem 2, as evidenced by steady quarter over quarter improvement of retention rates for performers and our users. 2. The closed loop ecosystem between online music and music centric live streaming have been demonstrated by higher streams 2 of Chinese Ancient Style during the quarter. Inspired by the increasing trend of this genre on our online music services, This show in turn led to a 17% higher streams of music by the participated singers 2 during the days of this event. In conclusion, we kicked off 2021 with a firm step 2nd, forward in our evolution into an all in one online music and audio entertainment destination in China for users and artists. With that, I would like to turn it over to our CFO, Shirley, for a closer review of our financials. 2. Thank you for me. Hello, everyone. Next, I'll discuss our results from financial perspective. Overall, 2. We achieved outstanding growth in online music services, particularly in music subscription and advertising revenues this quarter and the continuing health growth in social entertainment business. Total revenues for Q1 2021 were RMB7 RMB7.8 billion, up 24% year over year. Our online music revenues reached RMB2.7 billion this quarter, up 25% year over year. Our music subscription business continued to grow rapidly in the Q1 of 2021 With revenues of RMB 1,700,000,000 and a year over year growth of 40%. We had a record high net adds $4,900,000 in Q1 2021 and paying users grew 43% year over year, 2 remained relatively stable year over year. This will result from our continuous improvement in products and content, extended sales channels and efficient promotions. And we are very pleased to see that our efforts started expanding food 2. And the value of quality music is increasingly disguised by our users. In addition, on a year over year basis, 2. Our advertising revenue will more than doubled again for the 3rd consecutive quarter due to increased ad 2 and the best of our customers. Over the past year, we have made various efforts in expanding and educating our customers and average spending per customer and spending year over year. Social entertainment services and ad revenue were RMB 5,200,000,000, up 19% year over year, driven by growth in revenues from live streaming and advertising services 2. Social entertainment marketing AR TPU increased 36%, while paying users dropped 0.4 percent on a year over year basis. Live stream revenues had a relatively higher growth year over year 20. As we had a lower basis in Q1 2020 due to the impact from COVID-nineteen and adjustments to the acting futures. 20. Additionally, our improved ad business model on social entertainment to provide more and better ad products on our platform, 2. Gross margin was 31.5 percent in Q1 2021, up 2% year over year and down 8 percent sequentially. Year over year increase was due to rapid growth in subscription revenue and other pricing revenues. Sequential decrease in gross margin was because social entertainment revenues and advertising revenues were significantly lower in the Q4 of 2021. Now moving on to operating expenses. Total operating expenses for Q1 2021 were RMB1.6 billion and was 20% as a percentage of total revenue as compared to 18% in the same period last year. Selling and marketing expenses were RMB672 1,000,000, up 40% year over year. 2. As we reduced spending on news operations during pandemic, data and administrative expenses were RMB 8 $83,000,000 up 30% year over year, driven by higher number of employees in R&D. 2. As we invest in product enhancement and the top notch innovation such as long form audio, we've seen international version, content library technology. Our effective tax rate for Q1 2021 was 11.5%. Our net profit was RMB979 1,000,000 and the net profit attributable to equity holders of the company was RMB $926,000,000 Non IFRS net profit of RMB 1,250,000,000 and the non IFRS net profit to Blue Book to ex stakeholders of the company was RMB 1 point 18,000,000,000. Non unmetrocess net profit margin was 15.8%. As of March 31, 2021, percent. Our combined balances of cash, cash equivalents, term deposits and short term investments were RMB27 1,000,000,000, 20, representing a decrease of RMB 2,000,000,000 from Q4 2020. The decrease in balances was primarily 2.2% due to acquisition of Lazy Audio Investments in the Coutu Consortium to purchase additional 2, the increase in Universal Music Group as well as repurchase of ordinary shares. Country generated from operating activities percent. Looking forward, we'll continue to invest in core content investments 2 to further increase recognition of the value of quality music by our users and we will keep focusing on new products and the future such as Longfeng Audio. We are optimistic about the future of the broad music and audio industry 2 and are confident the overall system and the product pipeline that we are building in the long run. 20. Your first question comes from Alex Yao from JPMorgan. Please go ahead. Good morning, management, and thank you for taking the question. My question 2. Can you guys comment on the recent news flow that And then in addition to this news piece, can you guys talk about 18. In recent months, we have received percent increased regulatory scrutiny from relevant authorities and have been actively cooperating and communicating with the relevant regulators. At this point, we are not in a position to comment or predict potential outcomes of such dialogue with the regulators. We wish to say that we are committed to complying with all relevant laws and regulations, including those related to antitrust. 2. And as you know, the online entertainment industry is highly competitive and dynamic. Our goal is to deliver valuable products and services that can 2. Provide more and more value add to our users, to musicians, to the industry and to the society as a whole, And that will remain to be the case. And we wish to establish ourselves as a healthy force for the industry 2. So I think that's all we could say and comment on with regards to the regulatory Development at this stage. 2. Your next question comes from Eddie Leung from Bank of America. Please go ahead. Good morning, guys. Just I would like to get a sense on your plan 2. To have a better integration among free music applications as we get from Some of the media news and any more color on the potential cooperation with Sure. I think with regards to better cooperation within TME, as Ross mentioned In the early remarks, we plan to build a shared middleware and architecture That is shared across the 3 music platforms to improve R and D efficiency, improve radio efficiency, While at the same time, refining the positioning of each of the music platform for different target audience. 2. I think along the lines of Mikoku Music will continue to cement its position 2, as the young and trendy brand and establish strong endorsement among young users. And then Kugo Music, we serve as a diverse user base By offering multiple versions of customized for different verticals or target audience, such as children or senior population. And then Cool Wall will focus on a more intrinsic, more streamlined, Easy to use music streaming service. And then in terms of cooperation with the broader Tencent Group, 2. As Ross also briefly mentioned, TME will strengthen the collaboration with the wider Tencent ecosystem. 2. Examples could include, we have Tencent using Tencent social platform as a channel for better music content distribution and promotion, working more closely with Tencent Maps for in car use cases And joining forces with Tencent's digital content platforms, such as Tencent Video In areas such as music variety shows, fan base, community operations, long form and short form video promotions and commercial membership partnerships, as well as a better search and discovery experience 2 for music within Q2 Browser. And last but not least, of course, the deepening of the partnership with China Literature, which we started Last year. Thank you. Your next question comes from Alex Koon from Morgan Stanley. Please go ahead. Thank you, management for taking my question. I have a question regarding long form audio. Can you talk a little bit more about the time and investment needed To build the content library and to become similar or even better than the existing industry leaders. And in the following revenue ramp up, the trajectory and the impact on margin of the overall company. Thank you very much. 2. Okay. I thank you for your questions and I try to answer it from a more business strategy point of view. And then Tony and Sherry may add a little bit on the financial side as well. Regarding the long form audio, definitely, there's a lot of Last year, and this is also the 1st anniversary after we soft launched our new on form audio platform. We are actually taking the 2 pronged approach, So wishing is that we are not just promoting the long form audios from our music applications, but also after the acquisition of the Lazy Audio, We merged with our pool, Changping, and we formed another stand alone long form audio app that will help to facilitate the needs of our core audio users. In terms of the content side, as we mentioned, we have a strong partnership with not just Chinese Literature, Also most of the core leading long form audios, IP rights providers in the industry right now. 2. Besides this, we also rolled out some platform and also there's program to acquire the podcasting providers to go to our platform and started providing the services. So all of this, we will be doing simultaneously, and we are in a really 2. One of the latest news that I would like to given to share with you is we're also in the alliances with Xiaoyuzhou, who is a leading Podcasting application in China nowadays. They are very energetic and young team. And after having in-depth discussion with them, I think that we 2. Share the same vision, and we have already rolled out Zhiyuan partnership with Xiaoyuzhou on the QQ Music platform regarding podcast. So I think that we have a lot of exciting projects going on, and we will continue to pull in more resources, not just from financial point of view. We are also formed the company and structural organization. We have already formed a long form audios business group, And we have a dedicated team, not just from a technical point of view to lay out a good foundation, but we're also working on the product and operations side as well. So and I see whether my team have any additional comments regarding the resources of our financials. Shirley can address the margin impact on the long form audio investments. 2. Okay. No problem. I will follow you on. So I think overall, we do expect to see some margin 2 on the investment. However, we want to bear in mind of the long term opportunity that is ahead of us, which to us is very exciting. We do think that while it is short term margin dilutive, we do expect the long form audio business to be long term margin accretive Given the business models that we are planning to monetize on. 2. And we are going to monetize it through not just the paying model, but we also have the advertising model as well. So a lot of people can Started to enjoy some of the paid content by after completing some tasks or reading some of the or listening to some of the advertisement. So actually, I think that from a business model point of view is more healthy and the correct approach for us. Okay. 2. Okay. Let's carry on to the next question. Thank you. Your next question comes from Tian Hou from TH Capital. Please go ahead. Good morning, management. Congratulations on a good quarter. So I have one question related to socialization. So it looks like Tencent Music has a set of the content like a web. So I really want to know among all the products with the interconnection 2. And also how do we develop socialization of the out of each product and among the product? I think for music platform, our focus is going to be on 2 fold, the relationship between Friends and also building relationship with wider circle beyond friends. 2. Okay. I mean for the area of social connection among friends, Given within Tencent, the major social platforms such as WeSing and QQ are very strong in that area. We will strive to provide easy to use tools, especially, as an example, content creation tools That make it easy for our users to create content and also provide use cases for other users to share Yes. And we also aim to provide easy to use tools for content creation to facilitate sharing 2 and interaction among friends and families. These tools could allow quick sing alongs. It could provide a virtual room that is tailored for friends to enjoy and sing songs and also provide an easy And in the area of social connection beyond friends to just users in general on the platform, 2. We'll be very focused on the interaction between idols and fans. We think that's a very important community, 2. And it would be an important effort for us to focus on to broaden the idol and fan Yes, there are many ways for us to enhance the interactions between fans and idols. TME Video account, something Ross mentioned earlier in the prepared remarks as an example. Putsong Community is another example 2 as well as online concert with interactive features. We believe as we invest in these more social elements 2. 2. In particular, Putong community and video account are of great importance to us. 2. In particular, within Putong Community, we've launched a virtual room and we'll be further 2. Enhancing that product feature, one that allows the fans together amongst within the virtual room to chat 2. And to enjoy music together. We will also aim to provide better communication tools to facilitate communication and interaction between idols and 2. It is important for us to We believe in by providing these tools, musicians can develop their private domain traffic Within these TME video account and Weixin video account and thereby allow us to capture 2. Okay, great. Thank you, Rob. Next question please. Thank you. Your next question comes from Alicia Yat from Citi. Please go ahead. Hi, good morning management. Thanks for taking my questions. I have a question related to the advertising. So can management provide updates and in terms of the colors percent on the traction from the advertiser. For example, who are the major advertiser category? 2. And how is your ad load and eCPM compared to the peers? Any pressure on the pricing and ad inventories issues among the peers. Thank you. Sure. 4. As you know, we recorded another strong quarter of advertising revenue growth over 100% on a year over year basis. 2. And that's driven by growth basically across the board in terms of inventory, in terms of sell through Ad Unit as well as in terms of unit pricing in the form of ECPM. And so we don't at the moment see Any bottlenecks in terms of inventory. For 2021, we do expect advertising to continue to achieve a very solid 2 year over year growth. We'll gradually be ramping up various additional advertising format. As Katherine mentioned, we have introduced ad monetization for long form audio business, 2, which is an innovative way that allow users who watch a video ad or complete certain task 2 to gain access to what would otherwise be premium content that requires a pay subscription or pay per title. 2. We think that's a highly differentiated strategy that will allow us to both grow the advertising business 2 as well as surface of differentiation for our long form audio business. In terms of music, We mentioned in the past that we will continue to invest in new advertising format, which will serve as 2. Additional future growth drivers for music monetization beyond subscription. And then in terms of the advertise exposure, we are seeing increasing number of advertisers being attracted to our platform 20. Pretty much across the board, but you could expect the usual suspects in the form of Automakers, FMC, CG advertisers, major brands, etcetera. 2. Thank you. Your next question comes from John Egberge from Stifel. Please go ahead. 2. Thanks for taking my question. The IoT disclosures were very enlightening, really strong MAU count and growth there. I I was wondering if you could elaborate on the monetization strategy for IoT. For instance, on the subscription side, is the paywall strategy expected to be the major driver of conversion Among IoT users or do you have plans to maybe offer some paid features that uniquely provide value to IoT listeners that could encourage conversion Among that group, I believe you had said in the past that the IoT users don't always overlap with your mobile MAU base. So I was just wondering if A different set of subscription features might make sense there. Yes, that's right. We're very excited with the growth of 2. The IoT user base. As you could see, I think if you look at our numbers and compare to Industry sizing in terms of smart speakers or in class systems or smart TV, It would be quite clear that we continue to be an early mover in that space and have established a strong position 2 within each of these verticals. In the form of monetization, 2. We'll be looking at trying different approaches with the overall principle of increasing 2. The interactiveness between the mobile user and the IoT users, precisely because some of them are quite different. So we do want to leverage the IoT channels as a promotion and distribution channel, 2. But also act as an effective channel to convert into subscription over time. And that can also be done in a number of different ways. There could be stand alone IoT subscription plans. There could also be Of the IoT user base serving as a future growth driver for our mobile music subscription going forward. Yes. And definitely, we will also have the advertising model as well, especially for the in class scenario. A lot of people when you're driving, I think this is a perfect environment for you to listening to the music or other long form audio content and advertising is also going to be a really good monetization rate for us as well. So leveraging our technology platform and also the very targeted and personalized engine, I think it will thank you. Your next question comes from Thomas Chong from Jefferies. Please go ahead. 2. Hello. Thank you. Hi, good morning. Thanks management for taking my questions and congratulations 2. My question is about the 2021 2022 outlook. Given that, I think last conference call, we have talked about the top line business trend and the quarterly net adds. Given the Q1 results, do we have any changes to our full year outlook? And on the investment cycle side, 2. Should we expect 2022, we should see our DCF comp and expect our margin expansion? Thank you. I'll address the outlook with respect to top line and then Shirley can address the outlook with respect to margin. Well, I think we're very pleased with the Q1 results. As you could see, the music paying users 2 surpassed the $60,000,000 milestone, reaching $60,900,000 representing a 43% year over year growth. The net adds last quarter was also a record high at 4,900,000 And our local audio business also achieved a number of milestone exceeding over 100,000,000 MAU percent by the end of the year and 20% penetration by Q1, which represent An MAU of $120,000,000 growing at 200 over 200% on a year over year basis. So with that as a solid foundation, we expect the strength to continue with regards to music and long form audio. 20. With respect to the total revenue, we do expect to achieve a year on full year growth rate of mid- to high teens for Q2. 20. In terms of online music revenue, we expect that to maintain year over year growth rate of around mid-30s, And that's driven by continued strong subscription, which I've outlined and also strong continued strong advertising growth. While social entertainment revenue, we expect that to grow at a reasonably healthy pace, driven by Increasing contribution from 2Q Music Live Streaming. And then with respect to the subscriber and Main music paying user numbers in particular, we said in the last quarter that we expect a quarterly net adds of between $4,000,000 to $5,000,000 on average per quarter for 2021. We expect that to continue to be the case, So no change. Specifically for the Q2, we'll work towards achieving the high end of that range. 2. Okay. About the gross margin, we expect our gross margin for full year 2021 2 to be slightly lower as a result of the following. 1st, we continue to have an investor in non form audio to build our solid Content library. So that will be a negative impact on our gross margin. 2. Our revenue sharing fees of social entertainment will be increased. There are two reasons. 1, that the habit revenue increase in live streaming is 2 because there is audio live streaming remaining. And second, the revenue stream ratio of Weixin will be gradually increased to in line with the industry level. So The revenue sharing will be impact our gross margin. And the good news is that our gross margin of 2 online music business. We it has generally improved and we expect it to keep improving over time in this year. And because our music subscription revenue and the advertising revenue grows rapidly. 20. And in all, in 2021, we think the gross margin is under pressure. And we hope in 2022, 22 and any other new monetization that can be increase our revenue in 2022 that our gross margin will be come back. Thank you. Your next question comes from Rob Sanderson from Loop Capital Markets. Please go ahead. Yes. Thank you. A lot of 2. My questions have been asked and answered, but I wanted to maybe go backwards and sort of revisiting the thoughts and expectations coming off the IPO. I know we're A few years back, but let's just at the time, I think the thought was there was opportunity for the business to grow at 30% levels for a number of years Going forward and we just came off of a 15% growth year. We're looking at around a 20% maybe growth year for this year ahead. And things have definitely changed. So obviously lots of room for runway and growth in music subscriptions and Longford Audio and advertising and whatnot. But Social entertainment side definitely seems fundamentally different. So is there still opportunity for a 30% level type of growth down the road Or changes on whether the opportunity set is fundamentally different or the competitive environment is fundamentally different on the social entertainment side. Just 2. How should we be thinking about sort of the long term opportunity to grow the business compared to what we may have thought just 2.5 years ago in the IPO? Thank you. Sure. Look, I think we should look at that question separately for online music and social entertainment. 20. For online music, I think it's fair to say that by and large, the business performance has somewhat exceeded expectation With the subscription growth faster than most people have expected, and we continue to Expect continued strong growth for online music, as I mentioned, for the rest of the year. And that's driven by very healthy uptake in net adds on a quarterly basis, which is driven by a combination of attractive content offering, Driven by effective marketing campaigns for the subscription plan, advertising, which is increasingly an element And also IoT, which could act as a future growth driver, like I mentioned. And then 2. Advertising is another growth driver for online music that has been very strong, which we've talked about and we won't repeat. 2. In terms of social entertainment, we have seen, obviously, greater competition amongst Pan Entertainment platform 2. That impacted the user base, in particular, WeSing. And we had to, over the past several quarters, percent. Embark on a number of product strategy shift and product upgrades, 2, in particular relating to enhancing the singing tools and the publishing tools 2 to make it easier for our users to generate content and share it amongst their peers. And that has 2. We've seen some positive results and development on the back of those product strategy shift 2 as witnessed by the stabilizing MAU on a quarter over quarter basis And which also applies to the WeSing and Social Entertainment, MAU and DAU as well. And live streaming is a is continues to be a highly competitive sector. 2. I think the industry is somewhat more mature now compared to 2 years ago with a large number of players Entering live streaming, whether it is short video platforms or others. And we continue and we also saw a Still gradually recovering from. So I think the key changes mainly relate We're seeing in terms of competition as well as live streaming. 2. Yes. I would like to add a little bit more color on the long term development of our entire business. As Rob, as you mentioned during the IPO, we mentioned about 2. I think that you're absolutely right that we are facing some of the challenging time in the social entertainment, Especially for the live streaming side. But as again, we are growing extremely good, especially for the online music side. 2. So in terms of the ratio of our total revenue, I think that the online music side is picking up and also is going to be a long term sustainable business for us. 2. Besides the long the online music and social entertainment, I think that after 5 years of 2 run operation for TME. I think that right now we are also expanding our footprint through the upstream and also the downstream, 2, which will make us to be with the focus on to becoming to building the ecosystem for the entire music industry in China. This is very important. So we have been putting in a lot of efforts in working together with music labels, content providers and we started to participate in content creation, Which we may not be at this moment, we will have a very good refresh on our revenue. But in a more medium or long term point of view. It will definitely drive more additional content type avenue for us in the future. The second point what I mentioned before, which is TME Live, which we did a year ago and 2 this year in March, which is the 1st anniversary of us. I think we are so proud that the TMB Live has helped us to really extend our footprint 2 into the show business, which is not just a traditional offline concert event, but we have also opened the door 2 for the online music concerts as well and we will also help us have a lot of collaboration for the online and offline event in the future. So I think that this is also another new business initiation incentive that can help us to drive additional revenue stream for us in the future. So for TME as a whole, we were seeing that after we have established 5 years ago, when we are entering the next 5 years plan, I definitely think that the world is even I think the future is brighter because we are not just having platforms only, We have the upstream and downstream business and together with the strong business team and also technical team that we have, I definitely have the confidence in that TME is going to have the advantage when compared to our competitors when we are moving forward. So 2. Your next question comes from Sijin Liu from UBS. Please go ahead. Thank you, management for taking my question. I have one question. Aside of long form audio percent penetration of music MAU at 20%. Any further numbers on the daily time spent on this category? Thank you. 2. Yes. We're not in a position to disclose further details at the moment, but we are seeing healthy growth in the time spent metric. And what's encouraging is that if we look at our stand alone application within low form audio, And traditionally, what we see is that the core users and the more heavy high frequency users tend to over time Migrate to the standalone apps. We see very, very high time spent per DAU, Which is actually higher than the time spent per DAU for even our music apps. 2. And that's the nature of the content types because at the moment, China Literature 2. Through our partnership with China Leadership, we have a lot of online audiobooks. Obviously, with audiobooks, the time spent tends to be long. 20. And as Tasha mentioned, we do plan to significantly broaden our content coverage within long audio 2 to include not just audiobooks, but to multiple genres, Chinese comedy, comics, drama, 2 education as well as more PUGC and UGC podcast. And as we do that, I think the Tencent naturally would come down a bit, but it will still be at a very healthy level Across our standalone apps and as well as in our music apps. Yes. And also, we are seeing that after we roll out the long form audio content, More and more of our music users started to enjoy the long form audio content and it will definitely drive Their times total time spent. And we are also seeing a good news is it do not affect the time that they spend on listening to music or watching other music related Video content as well. So we are seeing that actually the long form audio you see in complement with the music side. So 2. Once the user started to enjoy some of the long form audio, we definitely will not just driving additional time spend on long form audio, but also music as well. So this is a very good indication and proven that our direction is a correct one. And we are also this is also our competitive advantage We have a lot of music users and right now the penetration is on the software module is just 20%. So I think that we will 2. Let us have a lot of room to grow in the future. Thank you. In the interest of time, operator, we'll take the last question, please. 2. Thank you. Your last question comes from Vincent Yu from Needham and Company. Please go ahead. 2. Thank you, management. Thank you for taking my questions. Can management help us break down the gross margin for the online music 2 segments. What is the stand alone margin for the business and how much of drag is the long form audio course? Thank you. About the gross margin of online music, we have 21. The gross margin of online music will be increased year over year. We think that the library, the content is the heavy factor to Impacts gross margin because we cannot get the meaningful revenue at this stage because the long form monetization long form audio monetization It's at the very early stage, and we believe in 2022, the meaningful revenue can 2. Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Millicent Teah for closing remarks. Thank you, everyone, for joining us today. If you have any further questions, 18. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye. Thank