Tencent Music Entertainment Group

NYSE:TME

Earnings Call Analysis

Tencent Music Entertainment shows strong growth with key milestnes in Q3 2024

In Q3 2024, Tencent Music Entertainment reported a 7% year-over-year revenue increase to RMB 7 billion, driven by a 20% rise in online music revenue. The company achieved a remarkable net profit growth of 35% to RMB 1.7 billion, with its SVIP membership surpassing 10 million. The average revenue per user (ARPU) also grew by 5% to RMB 10.8. Looking ahead, management expects steady growth driven by increased subscribers and a focus on operational efficiencies, projecting continued improvements in profit margins. Overall, the company maintains an optimistic outlook for 2025, emphasizing long-term growth potential.

Revenue Growth and Profitability

In the third quarter of 2024, Tencent Music Entertainment Group reported total revenues of RMB 7 billion, marking a year-over-year growth of 7%. A significant driver of this revenue surge was the 20% increase in online music service revenues, which reached RMB 5.5 billion. This expansion was largely attributed to strong subscription performance and advertising revenue growth, with music subscription revenues climbing to RMB 3.8 billion, a robust increase of 20% over the previous year. The company's IFRS net profit also demonstrated impressive growth, rising by 35% to RMB 1.7 billion, while non-IFRS net profit increased by 29% to RMB 1.9 billion.

Subscriber Milestones and Initiatives

Tencent Music achieved a notable milestone in the third quarter with its Super VIP (SVIP) membership program, surpassing 10 million members. This is a significant growth, driven by strategic enhancements in the user experience, including exclusive access to digital album releases, high-quality audio features, and immersive content offerings. The company's active subscriber base saw a net addition of 2 million paying users, reflecting a 16% year-over-year growth, contributing to an improved Average Revenue Per User (ARPU), which climbed to RMB 10.8 from RMB 10.3 last year.

Operational Efficiency and Cost Management

The company's gross margin for Q3 reached 42.6%, a 6.9 percentage-point increase compared to the same period last year. This improvement was achieved through a larger paying user base, increased ARPPU, and effective management of content royalty costs. Additionally, operating expenses were lowered to RMB 1.2 billion, constituting 17.4% of total revenues, down from 19.3% a year prior. This indicates a commitment to maintaining operational efficiency even amidst revenue growth.

Advertising and Social Entertainment Services

While Tencent Music's online advertising revenue experienced strong growth, social entertainment and other revenues fell by 24% year-over-year to RMB 1.5 billion. The management emphasized monitoring market conditions closely, aiming to innovate within this sector, particularly focusing on advertising strategies and user engagement programs to drive future revenue recovery.

Looking Ahead: Guidance and Strategic Focus

Looking forward into Q4 2024 and into 2025, the management expressed optimism for continued growth, anticipating a stable environment that should allow for an acceleration in revenue. Specific guidance for 2025 includes expectations for revenue growth to outpace operating expense growth, reinforcing that the adjusted net profits and margins will likely maintain a positive trajectory.

Long-term Vision and Commitment

Tencent Music's long-term growth strategy encompasses expanding its content offerings and maintaining a focus on enhancing user experiences. The company aims to innovate with new technologies and deepen user engagement, exemplified by their recent collaborations with prominent artists and content creators. Additionally, the commitment to sustainable practices was underscored by the release of their inaugural Environmental, Social, and Governance (ESG) report, highlighting dedication to industry contributions.

Earnings Call Transcript 2024-Q3

[Millicent T., executive]

Good evening, good morning, and welcome to Tencent Music Entertainment Group's Third Quarter 2024 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. Then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions.

Before we continue, I refer you to the safe harbor statement in our earnings release, which applies to this call as we make forward-looking statements. Please note that we 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. [Operator Instructions] And please be advised that today's call is being recorded.

With that, I will now turn over the call to Cussion, Executive Chairman of TME. Cussion, please.

[Kar Shun Pang, executive]

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. The solid third quarter performance once again showcases our ability to deliver high-quality growth. Our first approach continues to drive both subscriber base expansion and ARPD growth. Online music services revenue grew by 20% year-over-year, contributing significantly to a 29% year-over-year increase in adjusted net profit. During the quarter, we prioritized the deepening integration across different products is evident that the synergies between our dual engines on platform and [indiscernible] content ecosystem have become a [indiscernible] enabling us to unlock more value to users.

Let me give you some examples. First, our ongoing efforts to strengthen partnerships with domestic and international record labels have continued to bear fruit, enhancing our music offerings and diversifying our content. Recently, we renewed the contract with top Chinese labels like [indiscernible] including early access for new song releases from popular artists such as [indiscernible] additionally, we formed a strategic cooperation with Galaxy Corporation, home to the global music sensation [indiscernible] to bring new more international music content, digital alcom and merchandise to our platform. Our scale and unique value proposition have enabled us to become the multiyear proprietary partner for G Dragons, upcoming tool concerts in Asia and other regions.

As our influence in the industry growth and increasing number of record labels are working with us to launch innovative spend interaction events, focusing on new song releases such as voice-based interactions, song guessing games and music challenges. Second, we have been partnering with a listed arts and rising in the musicians to hold off-line music experiences and concepts, connecting them with their fans in creative ways. Two recent events demonstrated our success in this space. In September, we hosted [indiscernible] festival in [indiscernible] as well as [indiscernible] and other popular artists [indiscernible].

This demand has attracted an impacted 65,000 tons over 10 days. Earnings wilted acclaim and impact. We also organized an off-line concert for [indiscernible], marking its first ever take a show with over 10,000 attendees. Third, leveraging Tencent's powerful network and ecosystem. We continue to mature our music content community that inspires interactive engagement. In the third quarter, we collaborated with celebrities, [indiscernible] and choosing to produce [indiscernible] for popular games, League of Legends, Wildrift and [indiscernible]. These cross-promotions with Engen games, combined with distinct in-game item redemptions have leaked to impressive results. The popularity of these themesongs, which hit our top [indiscernible] has increased use engagement, effectively bridging the music and gaming communities across platforms.

We recognize that different users cohorts have sustained music consumption needs and preferences. To address this, we are actively expanding unique benefits to our premium members. For our Super VIP members introduced priority access to extensive economic digital albums from renowned artists such as [indiscernible] with new additions of multiple K-pop singers in the third quarter. We also enhanced SVIP [indiscernible] to include unique concepts and fan activities such as presales for tickets to show by [indiscernible]. These enhanced [indiscernible] have effectively driven growth in our SVIP memberships and we will continue to unlock new opportunities for both music labels and artists.

Last but not least, we published our inaugural ESG report in the third quarter providing a comprehensive overview of our ESG practices and achievements. This is just the beginning of our sustainability journey. I'm also delighted to share that the Tencent Musician platform was recently recognized as one of China's first model cases for the national Copyright Powerhouse strategy, honoring our contributions to [indiscernible] this recognition will further motivate and propel us to promote the music industry healthy and sustainable development.

In summary, our sustainable and long-term approach to achieving high-quality growth will carry us far and beyond what we have achieved so far. We remain dedicated to fostering a compassionate inclusive and filing music and ecosystem that benefits music labels, artists, users and the broader industry.

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.

[Liang Zhu, executive]

Thank you, Cussion. Hello, everyone. Alongside our content and user insights for years of operational expertise have been a key driver in strengthening our industry position and differentiating our value position in a dynamic environment. Our third quarter results much again demonstrated our ability to execute on strategies that return users, attract new paying subscribers and upgrade more members to premium services. This results brought down to our commitment to innovation and our increasing ability to meet users in moving builder consumption performance.

Let me start by sharing some progress on our product upgrades in the third quarter, which have been well received by our large use case. First, our deep understanding in users' needs enables us to further innovate our product features, bringing fresh experiences. For example, [indiscernible] launched the industry first air interface [indiscernible] screen as well as real-time interactive common feature, promoting a deeper sense of community belonging. We also upgraded the top trending [indiscernible] features, attracting millions of [indiscernible] increased the task influence.

Second, we continue to explore new technologies to enhance users' experiences. For example, we have leveraged large language models to streaming line content production, further improving both efficiency and quality. Notably, in the third quarter, we deployed AI in technology to create [indiscernible], which quickly went viral on short video platforms. Our tax 2-speed TTS technology also help us create tens of thousands of audio books on our platform.

Turning to our efforts to expand our subscriber base. First, we optimized our operational and marketing efforts to drive new subscriber acquisition across virus environment. For example, central other mid-autumn festival same event when rewarding new users with subscription benefits uniform interactive features. This has positively contributed to paying user [indiscernible]. Second, we continue to improve our recommendation algorithm. One example, is enhancing the novelty of tailored content suggestions, making it either for users to discover meal. This led to have recommendation streaming share sequentially in the third quarter, which in turn improve paying user commission efficiency.

Third, we collaborated with Chronic IPs like [indiscernible] and Disney allowing us to offer personalized interfaces that are attractive additional paying users. In terms of SVIP, our highly engaged subscribers, we are pleased to report that at the end of the third quarter, we reached an important milestone by surpassing 10 million. The unique benefits of our SVIP plans are gaining traction as shown by the higher ARPU and long time spent on our platform compared to other tales of paying users.

Let me provide more details on this achievement. First, our proprietary self-developed audio quality features have we enhanced the leasing experience for SVIP members. [indiscernible] examples from this quarter are [indiscernible] phone quality and [indiscernible], which brings clear more immersive audio to our users. Furthermore, we expanded our high-quality on experience to in-car scenarios with Viper serious audio quality design for our SVIP membership [indiscernible] and the new voices. Second, our enhanced long-form audio offerings have also had a positive impact on user revenues to review their subscriptions. We expanded our audio book content library with original content and popular IPs across [ virus genres ], including [indiscernible] and films, comics, suspense and [indiscernible].

Third, these are just a few examples of the initial steps that we are taking to grow our SVIP memberships. Coupled with the growing depth of our content ecosystem, as Cussion discussed, we have a solid foundation for delivering richer content benefits. Moving forward, we will continue to focus on both unit content and product offerings, meeting the informing need of our users and delivering the platform music experiences.

With that, I would like to turn the call over to Shirley, our CFO, for a deep down into our financials.

[Min Hu, executive]

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our effect monetization of online music service and operational efficiency management continued to drive strong financial results in the third quarter of 2024. With strong performance in our mill subscription and advertising business, we are pleased to see our revenue growth to resume its growth trajectory on a year-over-year basis. IFRS net profit increased by 35% year-over-year to RMB 1.7 billion, and non-IFRS net profit rose by 29% year-over-year to RMB 1.9 billion.

Total revenues in the third quarter of 2024 were RMB 7 billion, up by 7% year-over-year. Online [indiscernible] revenues increased by 20% year-over-year to RMB 5.5 billion. This increase was mainly driven by the strong expansion of our music subscription revenues supplemented by growth in advertising revenues as well as growth in revenues from offline performances. [indiscernible] subscription revenues in the third quarter of 2024 reached RMB 3.8 billion, representing a 20% increase year-over-year and 3% drive sequentially [indiscernible] ARPU was RMB 10.8 up 5% from RMB 10.3 in the same period last year. The number of online [indiscernible] paying users were RMB 119 million operating a 16% increase year-over-year with quarterly net adds of 2 million users with the goal of achieving growth in both subscribers [indiscernible].

We have strategically focused on SVIP membership program and instant membership benefits, such as priority access to digital airbands, resell for tickets to concerts and an activities and high-quality audio and some effects for mobile and in car users. These benefits and the futures have helped us a true an important milestone of passing 10 million SVIP members this quarter. Advertising revenues also had a strong year-over-year growth primarily due to the growth in AB supported made revenues, we continued to innovate and diversify our product offerings and advertising formats the attractive acting futures and in rate benefits were helped improve and trans rate for our ad-supported advertising and enhanced user engagement and attracted more advertisers this quarter.

Social entertainment services and other revenues were RMB 1.5 billion, down by 24% year-over-year. For social and [indiscernible] services, our top priority is [indiscernible] in operation, and we will keep monitoring marketing conditions and the competitive lenders. We continue to innovate and build new products and futures to drive quality growth in areas such as wasting membership and advertising using social containment. Our gross margin for Q3 reached 42.6%, representing an increase of 6.9 percentage points year-over-year due to a few factors.

First, the expansion of our pay user base, the enhanced most ARPPU for online music and the growth in advertising revenues have positively impacted our gross margin. Second, we have been focused on ROC as a key metric to manage our content royalty costs. Third, the ramping up of our own content continued to improve our gross margin. Lastly, the growth in racing memberships and advertising within social entailment also positively impact our gross margin. Going on to operating expenses. In the third quarter of 2024, they amounted to RMB 1.2 billion, representing 17.4% of our total revenues compared with [ 19.3% ] in the same period of last year.

Savings and marketing expenses were RMB 220 million and remained relatively stable comparing with the same period of last year. Our focused approach for promotion expenses, together with productive [indiscernible] improvement have contributed to the growth in online milk MAUs. We will continue to invest in areas with long-term growth perspective, such as online music content promotions. General and administrative expenses were RMB 998 million, down by 5% year-over-year, primarily driven by lower employee-related expenses.

Our effective tax rate for Q3 was 17.7% compared to 12.2% in the same period of 2023. This increase was primarily attributed to the accrual recording tax of RMB [indiscernible] related to earnings to be remitted by our PIC subsidiaries to offshore entities. For Q3 2024, our net profit and net profit attributable to equity holders of the company were RMB 1.7 billion and RMB 1.6 billion, respectively on offers net profit and the [indiscernible] net profit attributable to equity holders of the company were RMB 1.9 billion and RMB 1.8 billion, respectively. The financial results for Q3 2024 have reflected an unrealized loss from foreign exchange due to the fluctuation of exchange rate between RMB and USD as of Jones end September 30, 2024.

Our diluted owners per ADS this quarter was RMB 1.01, up 36% year-over-year. Non-diluted earnings for ADS increased to RMB 1.16, up 30% year-over-year. These results underscore our robust financial performance enhanced operating efficient and the benefit from our share repurchase program. Under the share repurchase program announced in March 2023. As of September 30, 2024, we have repurchased 2.1 million ADS from the open market for a total cash consideration of USD 335 million of which approximately USD 100 million were repurchased in the third quarter of 2024.

As of September 30, 2024, our combined balance of cash, cash equivalents, term deposits and short-term event for RMB 36 billion as compared with RMB 35 billion as of June 30, 2024. This combined balance was also affected by changes in the exchange rate of RMB to USD equivalent balance should state. Looking forward, we will continue to drive high-quality growth in our [indiscernible] such as expanding as SVIP memberships and the advertising business as well as operational events improvement. We will also continue to invest in high-quality content production as well as innovating technologies to further improve user engagement and enhance user experience. We remain confident in the long-term healthy growth in music industry and our business and are dedicated to provide high-quality returns for our shareholders. This concludes our prepared remarks. We are now ready to take your questions.

[Millicent T., executive]

Thank you, Shirley. [Operator Instructions] The first question comes from the line [indiscernible] from Morgan Stanley.

[Unknown Analyst]

[Interpreted] I'd like to ask the first question. First question is regarding the outlook for Q4 of this year and Q1 next year was from the presentation at [indiscernible] progress in pretty well, especially based on the macroeconomic condition and the competition. We believe CBIP is going to contribute our performance growth. especially what would be your outlook for Q4 of this year and the full year of next year?

[Kar Shun Pang, executive]

Okay. Thanks for your questions. And I think this quarter's performance of PME once again testifies the effectiveness of our high-quality growth strategy which is shown by the balance of growth between our revenue and also the net profits as well as the subscribers and ARPPU. So for the midterm targets, I think our key priority is to continue to expand our paying user base. So at the same time, our commitment to grow the ARPPU is more than ever and which proven by the strong initial results of our Super VIP pant that you have mentioned. We have already recorded over 10 million subscribers as of the end of September 2024. .

As you may recall, our business, I think our strategy evolution is basically transitioning from the pay downloads to streaming and also upgrading our basic membership to Green Diamond membership has given us a lot of insights and also accumulated experience. We are now pushing the boundaries to explore more diverse music scenarios and add more high-quality content, product features and also user privileges to our new Super VIP membership, which we strongly believe that it will help us to broaden our user base and deepen our user loyalty as well. So it's going to be helping us to have a very healthy future.

Last but not least, I think that I would like to point out that we are now back on track to resume a positive revenue growth in 2024. And looking into 2025, we are optimistic about our growth prospects. Assuming the external environment stays stable, we expect to see an acceleration in both the top line growth and mainly driven by the steady increase in the number of subscribers in ARPPU and also along with the improved profits and top margins.

[Millicent T., executive]

Okay. And then this question comes from the line from Lincoln Kong from Goldman Sachs.

[Lincoln Kong, analyst]

Congrats on the pretty solid quarter. So my question will be on the member side. I think in the third quarter, we have a new add of 2 million new subscriber, that's actually better than we earlier expected -- companies earlier sort of target. Could management share a bit more in terms of the reason behind it? And will we thinking into fourth quarter as we just passed [indiscernible]? So could we have a bit more color in terms of the [ single-state ] promotion intensity? How should we think about the fourth quarter your subscriber has, especially compared versus the third quarter? And any color on the user retention part would be great.

[Unknown Executive]

[Interpreted] Thank you very much. Thanks for your question. Yes, indeed, in Q3, the performance is better than expectation. I think it's mainly because of our strategies, we still would like to keep a very stable operational strategy starting from this year to now.

And at the same time, we also pay much attention to the ever-expanding privilege for the monthly subscribers. And we are also, at the same time, continue to stabilize rents of the [indiscernible]. At the same time, in Q3, there are some festivals, especially the mid-autumn festival. We're also leveraging the campaign and the marketing strategies to make sure we grow our subscriber base in a very healthy way.

So regarding the marketing strategies. And I think in Q4 of this year or Q1 of next year, we're still going to keep a very tight control over the marketing because we work to seek for healthy and steady growth of our business and really retain the subscribers and the users within us. And more importantly, we really want our users to know the true value of the subscription business, especially the value of the content we provided to them. In that way, the user will stay with us and still be active on our platform.

In terms of the user or the subscriber privilege in addition to the transitional content, and we were also trying to further improve the content quality. And besides the content, we also did a lot of job in order to improve the third quality and [indiscernible] effect. For example, we continued our good cooperation with [ DTS ] and at the same time, we also adopted the audio 3D in order to provide more privilege to our users. We also piloted some attempts in the car and the mobile end. But at the same time, we do hope that we will provide the good service and functionalities and privilege to better improve the service to the subscribers. And more importantly, to make them feel happy, especially recently, we also provide when listening to the sub and there are also some letting vocal privilege that has been provided to the user.

So overly speaking, regarding our operational strategy of the subscribers, we still would like to take the transitional standard measures plus SVIP as a combo therapy. In that way, we can continue to improve the monetization efficiency of our platform.

Regarding the basic users, and the one we are trying to do is -- still based upon the subscriber base, we are going to continue to improve the size of the subscriber along with a very steady growth of the [indiscernible] while at the same time, we also would like to emphasize for new user engagement and attention and more importantly for SCIP, we hope that we can continue to promote the primary user from the subscriber to SVIP in order to further drive up the [indiscernible] because generally speaking, our SVIP size is still at a relatively low stage. So we hope we can go through for healthy and single reps in the near future. That would also contribute to the future ARB improvement.

[Millicent T., executive]

And the next question comes from Alicia Yap from Citi.

[Alicis a Yap, analyst]

I have a follow-up question on [indiscernible]

[Millicent T., executive]

Alicia, we can't hear you. Okay. Sorry about the technical issue. I think, Alicia, we go back to you later. Can we go to Roger [indiscernible] from Barclays.

[Unknown Analyst]

So I have a follow-up also on SGIP program. So now we are over $10 million as of third quarter. So just trying to get a sense of how many of that was added during the quarter. And out of that, how many was converted from the regular VIP program? Or how many of that was from like new users? .

[Unknown Executive]

[Interpreted] Thanks for your question. According to the statistics, majority of our SVIP users are still be upgraded from the transitional or basic as SVIP, but we're also keeping an eye on the new customer engagement. But in that way, responding to a question, majority of the existing SVIP are still be promoted or upgraded from the basic VIP account.

Interestingly speaking, according to the user profile of SVIP, we noticed that many of them are young users. Please can also tell our service and the privilege we provided to the users are quite fitting to their interest and need.

But at the same time, we also keep an eye on the user of the EV because we know that many of the EV users are indeed the young users. So we do want to further extend the cross-device privilege to our SVIP. At the same time recently, we were also discussing combining SVIP with fence economy. And we were just wondering whether we can provide best VIP with the Starlight card in order to make sure the guide of rewards and incentives from us.

So that reason with true belief in the next few years, our SVIP sites still have [indiscernible] for fed improvement, which will also contribute to the ever-increasing outlook.

[Millicent T., executive]

And the next question from Zhang Lei from Bank of America.

[Lei Zhang, analyst]

[Interpreted] I also have a follow-up question regarding SVIP and first of all, we do see that SBI size continue to grow between 10 million within this quarter, which is better than what we expected. But it seems that ARAB is not performing that well, especially being reflected in a single month. You might currently work us through the reason and how you're going to finance the user size gross along with [indiscernible]. And to the management team, how are you going to expect the growth in the near future when it's going to see a very good response from the [indiscernible]?

[Unknown Executive]

[Interpreted] I have to say that our SVIP size is not coming to 10 million over just one night. We were deep dive there for close to 1 year. We start everything from scratch. So it is indeed a result of the staff of profits. Nowadays, we already reached 10 million SVIP user. But regarding [indiscernible] being accumulated and be performed in a continuous approach. But just now in my response to the previous questions I have already mentioned in our existing model and majority of the SAP customers are still the traditional subscribers. To respond to your question, at least from the model perspective, we believe when SVIP sites reached 20 to 30 million, then you're going to see more response from RP. In other ways, it's going to be in line with the average increase in SVIP size reps. And that means that when the SVIP penetration continues to improve, it's also going to contribute more to RAB.

But here now, I think what you need to say is how the [indiscernible] continue but we can't take as an independent factor and assess it on the quarterly basis. Just one more comment and especially within our 10 million SVIP, I have to say is [ RAB ] higher than our basic subscriber accounts.

[Millicent T., executive]

And the next question from Mizuho [indiscernible].

[Unknown Analyst]

Just one double click on the 10 million [indiscernible], congrats on the $10 million milestone. Can you help share any color on the super VIP kind of profile? You mentioned there tend to be more young users, right? What about by app like we're saying like a 2Q versus the Google apps, right? And you also highlighted some of the key drivers, for example, the premium audio quality, right, the long-form audio offering. Just curious if there is a way to rank them by effectiveness in this quarter? And then which area do you plan to focus on going forward to continue to drive the conversion?

[Unknown Executive]

[Interpreted] Responding to the first part of the question. At least from our operations, around that 10 million SVIP. [indiscernible] coming from Q2 music and half from Google, it is still in line with our high-value user operation strategy. As I mentioned in my presentation, and actually, we do provide the full privilege to SVIP user, including the long-form audio and the high-quality sales and sound quality and the first enjoyment of the digital album as well as the user experience for cross devices based on experience.

Well, regarding additional privilege, as I have already mentioned, we do provide the back in local where at the same time, we also provide the [indiscernible] at Google app. But at the same time, we are also considering providing some physical material privilege. For example, if your SVIP results we can surely provide you some per fab, for example, like the calendars of the sums and we're also planning the SVIP funding package for the family membership package because family membership package proved to be successful on the Video website. So we are also considering referring these good practices to our SVIP business.

[Millicent T., executive]

And next question comes from Wei Xiong from UBS.

[Wei Xiong, analyst]

[Interpreted] I have a question regarding social and entertainment business. For social and entertainment business in Q3 of this year, the revenue actually is still better than what expected. The revenue decrease also being narrowed down. Is it possible for the management team to elaborate on the raises? Is there any specific measures you take in order to continue to improve the business? Especially how we're going to take onto the Q4 and the next year of social and entertainment business, how the growth rate might be and what would be its contribution to the total revenue?

[Unknown Executive]

[Interpreted] Thanks for your question. Regarding social entertainment business, there are 2 platforms. I think a good growth that has been identified are coming from [indiscernible] besides live stream investments, and we also provide other business, for example, advertisement business on [indiscernible] and especially its subscription business and the VIP business are all performing down better than what we expected. So generally speaking, the better-than-expected leasing performance continued to contribute to the revenue of social entertainment business compared with last year.

The second one is on Google. And on Google, especially on Google live and live streaming. We did a very good design over the intercede games. It is more like a card collection mechanism and play and which can help us further implant the innovative play into the live streaming comments so that's the reason we believe this revenue was better than what we expected. And I also believe that, that is also the reason. It's a total contribution to the revenue growth is better than what we expected.

As we continue to solidify our middle desk for the live streaming service and also registered a very stable performance in order to make sure more functionalities could be started from one platform to another. But in that way, I believe in the near future, the social and entertainment business is still going to have a very stable drops.

[Millicent T., executive]

And the next question comes from [indiscernible]

[Unknown Analyst]

Our MAU seems to have stabilized around 570 million in the past 4 quarters, and it actually added 5 million in 3Q. So could management share with us the priority in your latest MAU strategy? Shall we actually expect MAU to return to any growth at some point and how shall we think about future opportunities from deeper integration into Weixin ecosystem?

[Unknown Executive]

[Interpreted] Thanks for the question. And regarding our strategy and growth, I think the key still rests with the content, especially our self-commissioned context and the unique content continue to drive up the MAU. And especially today, I mentioned we are working with celebrities and audit of launching the album. But at the same time, the content displayed on different terminals. And in that way, we also have the self-made hits. Most importantly, those high-quality content continue to drive up at. That is the strategy for us to continue to improve MAU growth.

So from the product functionality perspective for the past 1 year, we continue to optimize the play experience and provide more innovative actions of the enacted with the users, that can help us to further retain the users and continue to grow the MAU. And especially, I was mentioning that MAU on the terminal and the growth been pretty helpful. But at the same time, on QQ Music on this platform, and we find out the promotion and marketing over ROC ready and it proved to be feasible. So that's the way that it can also help to drive up the MAU and that's the reason we also would like to copy the successful store rate to Google

But at the same time, I also has to say that in Car DAAU and IoT still going to be a great growth driver in the near future, especially for the in-car business and I think a great opportunity was there. And besides Google and the concept version and [ Hoka ] app, we hope that we were going to keep in light new apps in order to further contribute to the growing MAU.

And regarding the second part of the question on how we're going to keep an eye, [indiscernible] WeChat. We do believe WeChat is a great platform with very good growth. But strategically speaking, we are also going to help listen to WeChat to gain a better growth. I think its business size looks okay and hope in the near future, it could also be an active platform and continue to lay a solid foundation for our self-commissioned content in the near future.

[Millicent T., executive]

Thank you. In the interest of time, we did the last question from Thomas Chong from Jefferies.

[Thomas Chong, analyst]

Any question is about operating expenses as well as a margin trend. Given that we already exceed in terms of our GP margin. Just wanted to get some more color regarding our 2025 and our long-term profit trend and margin trend. What are the key areas that we can get further leverage in our cost side. And on the OpEx side, how should we think about S&M expenses going forward and our [indiscernible] earnings going forward.

[Unknown Executive]

[Interpreted] Thank you very much. Let me talk about the GP margin first. In Q3, our GP margin stood at 42.6%. We registered continued growth for a few quarters. I'm talking about the drivers. The first driver is ever increase in revenue from the music business and also the [indiscernible] of our user base, [indiscernible] the user and also the rapid growth from the advertisement business will positively contribute to the GP margin.

The second reason is because we adopt ROC in managing the cost. So that's raised the cost on the copyrighted content and especially the content cost growth is actually lower than our music revenue growth. The third driver is because that we have more contribution from the self-commission content and the co-creating content, that's also going to positively contribute to the GP margin. Regarding the social business, and you can see we also took some better strategies and we continue to reduce the percentage of the live product streaming share. At the same time, the VIP revenue growth and advertisement grants also contributed a lot to our social revenue margin improvement.

So look into Q4 of this year and 2025. And I do believe some factors mentioned about still going to play very important role. But regarding the GP margin, Besides a good improvement, I think in 2025, the growth rate might lower than what we saw in 2024. We're talking about the operating expenses. We foresee that in 2025, S&M expenses and the G&A expense is going to grow slightly, but its growth rate would be much lower than our revenue growth rate. So I do believe that in 2025, the adjusted net profit and adjusted net profit rate does [indiscernible] have a good growth momentum. You also asked about effective tax rate. And at least from the operational perspective, we do believe the effective tax rate is going to remain unchanged.

For this year and because we have many of the dividend that has been sent from the commercial companies to the offshore. So that's reason is generated when withholding tax, which makes our effective tax rate looks higher. Or into next year, we may still have a similar dividend programs, and we are also going to have the measures in place. But regarding the total size of the dividend, that has not been confirmed.

[Millicent T., executive]

Okay. Thank you. Thank you, everyone, for joining us today. If you have any further questions, please feel free to contact our IR team. And this concludes today's call, and thank you again and look forward to speaking to you next quarter.

[Unknown Executive]

Thank you very much.