China's Tencent Music revenue beats estimates on jump in paying users

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Adds comments on AI integration in paragraphs 2, 7-11

By Josh Ye and Samrhitha A

May 16 (Reuters) -China's Tencent Music Entertainment Group 1698.HK, TME.N topped quarterly revenue estimates on Tuesday as the Spotify-like music streaming platform benefited from growth in paying users, sending its U.S. shares 9% higher in premarket trading.

In a call with analysts in the evening, the company's chief strategy officer said Tencent was working on an array of artificial intelligence (AI) products ranging from a chatbot to a music generation tool, joining the race to tap the powerful technology to spice up product offerings.

The Tencent Holdings Ltd-controlled company said total revenue rose 5.4% to 7.00 billion yuan ($1.01 billion) in the first quarter, snapping five consecutive quarters of revenue declines and beating analysts' estimates of 6.86 billion yuan, according to Refinitiv data.

Growth in paying users remains the company's strategic focus. Paying users at its online music streaming service rose to 94.4 million from 88.5 million over the three-month period, with revenue from music subscriptions soaring 30.4% year-over-year.

"We are glad to achieve a record-high online music paying ratio and expand [average revenue per user] for the fourth consecutive quarter," said Tencent Music Executive Chairman Cussion Pang.

Net profit attributable to equity holders was 1.15 billion yuan, compared with 609 million yuan a year earlier.

On a call with analysts, Tony Yip, its chief strategy officer, said that the company was developing a chatbot with which users can communicate about "the kind of music they like to listen to and to discover new content“.

He added that Tencent Music was working closely with Tencent Holdings to develop applications based on the parent group's large language model.

Referencing Google's MusicLM, an AI software which can turn text description into music, Yip said Tencent Music was working on similar software.

"We will look to provide tools to help... with song creation as well as lyrics writing," he said.

($1 = 6.9121 Chinese yuan renminbi)

Reporting by Josh Ye in Hong Kong and Samrhitha Arunasalam in Bengaluru; Editing by Rashmi Aich and Emelia Sithole-Matarise


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