LT Weekly: May 16, 2025

M&A has been gaining momentum in the TMT sector and the latest big deal came at the tail end of this week, with Charter Communications and Cox Communications announcing a $34.5bn merger transaction, which is one of the largest cable acquisitions in years. Charter is the second largest cable company in the US after Comcast, while Cox is also among the largest with 6mn subscribers. Coming together would widely expand the combined Co’s coverage, as Charter’s footprint includes New York City and Los Angeles, while Cox is a major player in cities like Boston, Phoenix and New Orleans (link).

See below for key aspects of the transaction. Click HERE for the press release and HERE for the presentation.

-> Charter shares closed Friday up +1.8% and is a top performer in the sector YTD, up +25%

Deal Val’n Overview

• Valuation is $34.5bn
• Multiple is 6.44x Cox’s 2025E adj EBITDA (same as Charter’s multiple at $353.64, the 60day VWAP as of 4/25)

Transaction Structure & Consideration 

• Structure
  • Charter to acquire Cox’s commercial fiber & managed IT and cloud businesses
  • Cox Enterprises will contribute Coxs’ residential cable business to Charter Holdings, an existing subsidiary partnership of Charter

• Cox Enterprises will receive –
  • $4bn cash
  • $6bn in convertible preferred units (6.875% coupon, convertible into Charter partnership units, exchangeable for Charter shares)
  • ~33.6mn common units in Charter’s existing partnership ($11.9bn implied value), which are exchangeable for Charter common shares

• Post the close of the transaction –
  • Cox Enterprises will own ~23% of the proforma Co
  • The combined entity will assume Cox’s ~$12bn in outstanding debt
    • Will have ~3.9x net leverage, including the impact of the Liberty Broadband and Cox transactions

Financial Strategy & Synergy Tragets 

• Charter plans to revise its long-term target leverage range to 3.5x–4.0x at closing, reflecting the larger balance sheet of the combined Co
  • Expects to reach this range within 2–3 years post-close
• Currently expects ~$500mn of annualized cost synergies within 3 yrs of close, stemming from typical procurement and overhead savings
• Combined biz is expected to produce higher cash flow per passing and investment returns over time by –
  • Creating and preserving more relationships on a fixed network
  • Selling more products to each customer
  • Reducing operating and capital costs per passing by lowering service transactions, churn and fixed cost leverage

Strategic Rationale & Competitive Positioning

• Better positioned to “aggressively” compete in an expanding and dynamic marketplace that includes –
  • Larger, national broadband Cos with wireline and wireless capabilities
  • Regional wireline and mobile competitors
  • Global video distribution providers and platforms, and satellite broadband Co

• Better positioned for continued and expanded investment and innovation –
  • In mobile, given the increased footprint
  • In video, where Big Tech currently leverages global scale in content and distribution
  • In advertising, where the transaction will expand oppties for advertisers of all geos and sizes and bring new competition in an area now dominated by Big Tech;
  • In the business sector, the combined Co will have addtl coverage, but still remain a regional player competing against larger, national competitors
  • Through greater product innovation in areas including AI tools and small cell deployment of licensed, shared licensed and unlicensed spectrum, bringing new and advanced services and capabilities to consumers and bizs

Customer & Product Integration

• Following the closing, Charter’s Spectrum products and svs will be made available across Cox’s ~12mn passings and 6mn existing customers
  • Products launching in Cox territories include Spectrum’s Advanced WiFi, Spectrum Mobile with Mobile Speed Boost, the Spectrum TV App, Seamless Entertainment, and Xumo
• Cox customers will gain access to Charter’s “simple and transparent” pricing and packaging structure, including no annual contracts
• Cox customers will also benefit from Charter’s “industry-first” Customer Service Commitments, including –
  • A 100% US-based customer service team available 24/7
  • Commitment to fixing service disruptions quickly, including same-day technician dispatch when requested before 5:00 pm; if not, the next day
  • Providing customers credits for outages that are 2+ hrs

• Putting “America first” by returning jobs from overseas and creating new jobs in the US –
  • Adopting Charter’s sales and svs workforce model and returning Cox’s customer svs function to the US
  • All employees will earn a starting wage of at least $20/hr and will gain access to Charter’s benefits

• Expanding Charter’s local Spectrum News stations in the Cox footprint, “bringing hyper-local, unbiased news coverage to more communities”
  • The combined company will not own any national programming

Board Composition & Governance Changes

• 13 directors at closing (unchanged)
• The three current Liberty Broadband nominees on Charter’s board will resign at closing (as Liberty Bband will no longer be a direct shareholder at close)
• Advance/Newhouse will retain its 2 existing board seats, preserving its long-standing governance rights as a significant Charter shareholder
• Chris Winfrey will continue in his role as President & CEO
• Alex Taylor (Cox Enterprises CEO) will become Chairman of the Board
• Eric Zinterhofer (current Chairman of Charter) will become lead independent director
• Cox will have the right to nominate an addtl two board members to Charter’s 13-member board

Branding Updates & HQ Details

• Within a yr after the closing, the combined Co will change its name to Cox Communications
  • Spectrum will become the consumer-facing brand within the communities Cox serves

• The combined Co will remain headquartered in Stamford, CT, and will maintain a “significant presence” on Cox’s Atlanta, GA campus following the closing

Source

After a massive 85 companies in our LionTree Universe reported their earnings results last week, we took a big sigh of relief as the last few companies, 17 to be exact, posted their quarterly results this week. Similar to the last three weeks, earnings reactions were biased to the upside, as 9 companies (53%) traded up after their reports, and 8 companies (47%) traded down.

This week, it was China Tech that dominated the earnings circuit. Alibaba and JD.com went in opposite directions, trading down -7.6% and up +3.3%, respectively (see Theme #5), as did Tencent and Tencent Music Entertainment, though to a lesser degree, down -0.2% and up +2.5%, respectively (see Theme #6).

Fox finished out media earnings on a high note, trading up +4.2% post its print (see Theme #4), while Take-Two closed out the gaming reports, though on a slightly tougher note after falling -2.4% in reaction (see Theme #3).

After taking a big hit on the back of the announced delay of Grand Theft Auto VI just a couple of weeks ago, Take Two (TTWO) shares have worked their way back post the release of a second trailer last week which created even more excitement about the title’s prospects than the first one. Trailer 2 became “the biggest video launch of all time” w/ 475mn+ views in 24 hours, which compared to Trailer 1’s “record-breaking” debut of 93mn in 24 hrs on YouTube alone. So while delays are never a good thing, getting the game right is the most important element and all signs point in that direction for GTA VI.

However, with the new release pushed out to May 26, 2026 (Take-Two’s fiscal year 2027), what should investors expect in the meantime? Mgmt was quick to point out that fiscal 26 net bookings will still show positive growth y/y despite GTV VI not being included. The Co plans to release 13 titles in fiscal 26 and growth will be underpinned by strong performance in its existing portfolio of games, with the biggest contributors being NBA 2K, the Grand Theft Auto series, Toon Blast, Borderlands 4, Match Factory, Empires & Puzzles, Words With Friends, the Red Dead Redemption series, and Zynga Poker…to note though, fiscal 26 will include costs associated with GTA VI, pressuring margins.

Beyond all the GTA VI talk, a broad range of key franchises powered the most recent qtr’s performance, which saw net bookings beat estimates by +2.1% and more notably, recurrent consumer spending surge +14% y/y, significantly exceeding guidance of +3% y/y, as NBA 2K, GTA Online and Mobile “all greatly exceeded our expectations.” While mobile gaming has been broadly challenged, TTWO has been outperforming with recent launches like Match Factory! and Color Block Jam already profitable and the DTC biz posting “record performance” in the qtr. The Co’s strategic partnerships with entities like the NBA, Tencent (where NBA 2K Online remains China’s #1 PC sports game and NBA 2K All-Stars leads iOS sports charts) and Netflix, are also helping expand the Co’s reach.

Overall, investors will be patiently waiting for a block buster GTA VI, which will be a material inflection, and the Co more broadly will have a robust pipeline of 38 titles that will be released through FY 28.  While higher development costs are weighing on financials in the near term, strategies are being implemented to offset this pressure through operational efficiencies and cost reduction initiatives, with the aim of returning to historical margin levels as its pipeline matures.

See below for more on what we thought was most important for TTWO’s earnings and conference call…

-> TTWO fell -2.4% the day post earnings but closed the week ~flat; YTD the stock is up +23.2%

While Net Bookings Beat, The Surge In Recurrent Consumer Spend Was The Highlight Of FQ4     

• FQ4 net bookings BEAT by +2.1%: Up +13.1% y/y (vs +2.6% y/y in FQ3) to $1.58bn
  • Reflected better-than-expected performance from NBA 2K25; Zynga, led by Toon Blast, their hyper-casual mobile portfolio, and Match Factory; the Red Dead Redemption series, and Grand Theft Auto Online

• Recurrent consumer spending growth was up +14% y/y (vs guidance of +3% y/y) and accounted for 77% of net bookings
  • NBA 2K grew +42%
  • GTA Online increased MSD
  • Mobile increased MSD
  • “These all greatly exceeded our expectations”
• Adj EPS of $1.08 was slightly below cons $1.10

Expect FY26 Top-Line Growth DESPITE Absence Of GTA VI Release / FY27 Is Expected To Be The Inflection Point

• FQ1 guidance was mixed (net bookings beat by +1.2%, but EPS missed by -24.2%): Net bookings range of $1.25-$1.3bn vs $1.2bn in the yr-ago qtr; Adj. EPS range of $0.20-$0.30
  • Largest contributors to Net Bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Color Block Jam, Match Factory, Empires & Puzzles, Words With Friends, the Red Dead Redemption series, and Zynga Poker
  • RCS +~7%, which assumes “strong” double-digit growth for NBA 2K; flat results for mobile; and a “modest” decline for Grand Theft Auto Online

• FY26 guidance was dramatically below the Street (net bookings and EPS missed by -24.6% and -61.5%, respectively, at the mid-pt), as most estimates were not updated post May 2^nd ann’cment about GTA VI delay: Net bookings range of $5.9-$6.0bn implies a +5% y/y growth at the mid-pt; Adj. EPS range of $2.45-$2.70
  • Largest contributors to Net Bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Borderlands 4, Match Factory, Empires & Puzzles, Words With Friends, the Red Dead Redemption series, and Zynga Poker
  • RCS ~flat y/y and represent 76% of Net Bookings
    • Assumes HSD growth for NBA 2K, and declines for mobile and Grand Theft Auto Online
  • Expect the Net Bookings breakdown from labels to be ~45% Zynga, ~39% 2K, and ~16% Rockstar Games
  • Also expect OpEx growth of ~3% y/y, largely due to marketing expenses for current yr and future titles, but expect to deliver OpEx leverage as net booking growth is expected to outpace OpEx expansion

• Any impact to FY26 guide from impact of tariffs on console prices? “I think [we have] enough insight that we wouldn’t be meaningfully affected by any changes”
  • Already have a “very substantial” install base for all their target platforms, expect for the yet to be launched Switch 2
  • “It’s very difficult to predict where tariffs will land given how things have bumped around so far”
  • “Feel reasonably confident that our guide wouldn’t be meaningfully affected unless tariffs ran off in a very different direction than we currently expect”

• Expect to return to historical margin levels (i.e., low-to-mid 20% op margins in the wake of the success of Red Dead 2) as the pipeline matures, despite rising development costs
  • While higher development costs are impacting gross margins, have been making structural changes within the biz to offset these costs
  • Working on cost reduction programs and operational efficiencies to support margin expansion as they build scale
  • Expect expenses to fall this yr and margins to follow

• Looking further ahead – Fiscal 2027 represents “a massive inflection point” in the biz, “one that we believe will significantly enhance our multi-year financial profile”
  • “We expect to achieve record levels of Net Bookings that will establish a new baseline for our business and set us on a path of enhanced profitability”

Coming Up In The Gaming Pipeline…~38 Titles Through Fiscal 2028

• Plan to release 13 titles in Fiscal 2026…  
  • Include 4 within the immersive core category
  • Mafia: The Old Country will be introduced on Aug 8^th; Preorders are off to a “strong start”
  • Borderlands 4 is coming September 12^th
  • As always, will release next iterations of their annual sports franchises, NBA 2K and WWE 2K
  • Also plan to bring to mkt 5 mobile titles, including WWE 2K for Netflix in the fall
  • 4 new iterations of prior releases, including the recent release of Civilization VII VR for Meta Quest 3 and 3S, as well as Civilization VII for Switch 2

• Expect to deliver 25 titles throughout Fiscal 2027 and 2028 including –
  • 17 immersive core releases, including Grand Theft Auto VI and 5 sports simulation games
  • 4 mobile games
  • 4 new iterations of previously-released title

Although Delayed, Consumer Reaction & Buzz Around GTA 6 is Sky High & The Title Should Be Materially Impactful In FY27

• Grand Theft Auto VI is expected to be released on May 26, 2026 (which is TTWO’s Fiscal Year 2027)
  • Previously, the Co had said that the game was on track for a fall 2025 launch, though a specific release date was never set
  • “Ambition and complexity” of the game “is greater than any previous Rockstar title”

• Consumer anticipation is “unprecedented” – Trailer 2’s cross-platform debut last week become “the biggest video launch of all time”, w/ 475mn+ views in 24 hrs
  • That followed Trailer 1’s “record-breaking” debut of 93mn in 24 hrs on YouTube alone

Key Gaming Callouts In FQ4 – Maintaining Variable Pricing Strategy & Selectively Expanding Switch 2 Footprint / Continue To Execute On The Franchise Front

• Continue to employ a variable pricing strategy despite broader industry moves toward higher game prices
  • Mafia: The Old Country was priced below industry norms ($50 – $60) to maximize reach
  • “Our view is that if you create a huge hit and everyone wants it and everyone buys it, the revenue is going to take care of itself”

• Expanding support for Nintendo Switch 2, though title releases will remain selective and case-by-case
  • Launching four titles on Switch 2, its broadest slate yet for a new Nintendo platform
    • Historically, being a 3P in the Nintendo biz “has been challenging” but Nintendo has been “very forthcoming” in addressing that
    • “We’re stepping up to because we have great optimism for the platform”
  • But will continue to evaluate platform fit individually for every title
    • We obviously want to be where the consumers are. But we would not necessarily bring every title to every platform”

• NBA 2K25 posted “near-record” performance / Has sold nearly 10mn units to date (+7% vs NBA 2K24 during the same timeframe)
  • Engagement grew “significantly”: DAUs +30%, MyCAREER daily players +40%, and avg games/user +80%; Franchise extensions also performed strongly across Apple Arcade, China, and iOS Sports Charts

• WWE 2K25 achieved Metacritic score of 84 on Xbox Series X (an all-time high for the series on the platform)
  • RCS was up +20% y/y, boosted by WWE SuperCard and integration into WWE’s televised programming; Mobile and Switch 2 launches are planned for summer and fall, respectively

• PGA TOUR 2K25 launched “successfully” with a Metacritic score of 80 and is generating “significant” recurrent spending growth vs the prior iteration

• Civilization VII release is a “revolutionary new chapter in our esteemed strategy franchise” and “confident” that updates will deliver “outstanding results”
  • Expanding access with launch on Meta Quest 3 and 3S and upcoming release on Switch 2

• Grand Theft Auto V surpassed 215mn units sold-in
  • RCS was up +5% y/y, led by GTA Online’s new content and GTA+ memberships

• Red Dead Redemption 2 net bookings were up +23% y/y
  • Continue to support Red Dead Online w/ “a series of rewards that engage their community further”

Profitable New Mobile Launches & “Record” DTC Results Underscore TTWO’s Strength Amidst A Tougher Mobile Mkt Backdrop

• Despite broader challenges in the overall mobile gaming mkt, TTWO is outperforming
  • Driven by creative and publishing strength of teams at Peak, Rollic, and other Zynga studios
    • Recent launches like Match Factory! and Color Block Jam are already profitable
  • Also benefit from Zynga’s broader ecosystem, including shared best practices, data access, and cross-promotion capabilities
  • Looking ahead – while their top titles had “outstanding results” in FY25, some moderation is expected in FY26 due to the maturity of those games

• DTC biz delivered “record performance” in FQ4 / Highlighted “early” and “positive” signs from recent court rulings on DTC in mobile – “believe there is an even greater opportunity to expand this highly accretive channel given recent beneficial court rulings”
  • Entered DTC biz in mobile immediately after acquiring Zynga, and it has become a “significant” and “material” part of the biz
  • Reiterated expectations that the cost of 3P distribution will decline and mobile ecosystem will open up further over time, and “think the recent court rulings reflect movement in that direction”

• Peak’s Match Factory exceeding expectations through “first-class” live-ops execution and introduction of Mission Center, which drove “significant” player engagement
  • Net Bookings rose “meaningfully” q/q and the title is profitable

• Toon Blast Net Bookings grew +7% y/y, its best qtr since Zynga acquires Peak in 2020
  • Growth primarily driven by the introduction of the Cannon Fest event

• Rollic’s Color Block Jam scaled “rapidly” and is currently a top-10 download and among the top-grossing title on the US App Store
  • Profitable within four months and is making an “impressive” contribution to mobile Net Bookings

• Empires & Puzzles showed signs of stabilization, supported by in game- economy improvements to support faster player progression and new feature developments based on player feedback

Netflix Is A “Terrific Partner” And Exploring Addtl Oppties To Expand Relationship

• Netflix’s “marketing power” + TTWO’s “incredible content” = “a great recipe for success”
  • “They seem very serious about gaming and have shown that over and over”

• Have only partnered on “a few” title so far, but think there’s an oppty on a game-by-game basis to continue to bring titles to Netflix
  • But NOT announcing anything at this point

• Partnership also includes media adaptations (i.e., upcoming BioShock movie) but “wouldn’t say that’s driving the partnership”
  • Area that they’ve done some deals in the past, but “that’s sort of a nice-to-have, not necessarily a must-to-have for the partnership”

Fox set a positive tone Monday morning delivering an across the board better than expected set of FQ3 results. We thought the biggest standouts from results were 1) FOX News had one of the highest rated quarters in cable news history (helped drive cable ad revs up +26% y/y) and momentum continues w/ April total ratings up nearly 30%; 2)

Affiliate subscriber declines continue to improve…have gone from ~8.7% y/y decline in FQ4 fiscal 24 to -7.8% in FQ1 fiscal 25 to -7.2% in FQ2 fiscal 25 to -6.5% in FQ3 fiscal 25; 3) Tubi revenue growth accelerated from +31% y/y in FQ2 to +35% y/y in FQ3 even with last qtr benefitting from political but at the same time there was no update on profitability timing targets; and 4) Fox’s DTC services aimed at cord never will be called Fox One and it is slated to launch before the football season with more detail coming in the new few months, though the Co did say pricing will be inline w/ the wholesale pricing.

As we have heard from other media conglomerates, there has been no real impact on the business from the macro.

Overall, it seems steady as she goes as Fox executes on it Sports & News strategy and its balancing act of making pivots in the DTC world, while not alienating or negatively impacting the traditional cable bundle. With that said, the Co will be hitting its seasonally tougher comps in the back-half of this calendar year.

See below for our key highlights and takeaways from the call…

-> Fox shares rallied +4.3% post results and remains up +13.4% YTD

FQ3 = Another Big Beat Qtr For Fox

• Similar to last qtr, the Co beat Street expectations across the board w/ much higher margins the standout
  • Total revs – beat by +4.6%: Grew +27% y/y
  • Adj EBITDA – beat by +15.1%: Fell -4% y/y…had higher sports rights amortization & production costs due to the Super Bowl b-cast
  • Adj EPS – beat by +21%
• Cable Networks – rev beat by +6.2% and adj EBITDA by +11%
  • Rev grew +11% y/y
  • Adj EBITDA grew +7% y/y

• TV Stations – rev beat by +2.8% and adj EBITDA beat by +48%
  • Rev grew +40% y/y
  • Adj EBITDA $60mn vs $145mn in last yr ago qtr…expenses incr’d +47%, driven by Super Bowl broadcast and cont’d investment at Tubi, both of which reverse in H2 of the fiscal year

• Bought back $800mn in the qtr (have bought back $6.4bn, or ~30% of total shares outstanding since the launch of the buyback program in 2019); Committed to the full $7bn authorization

Macro Is Not Impacting Fox’s Ad Business…

• FQ3 ad revs grew +65% y/y – led by the combination of a record-breaking Super Bowl, accelerating growth at Tubi and strong engagement and pricing at News
  • Super Bowl brought in $800mn+ of gross ad revs
  • Cable ad revs grew +26% y/y due to strength in FOX News linear ratings and digital engagement, and “supported by” healthy national and direct response pricing
  • TV ad revs rose +77% y/y, primarily due to the impact of Super Bowl and Tubi

• National advertising scatter pricing is outpacing last year’s upfront rate
• FOX News Channel had one of the highest rated quarters in cable news history and momentum continues: In FQ3, the Co grew total day audience 48% in total viewers and 58% in the demo & reaching the highest quarterly share of cable news audience ever
  • April trends are positive as well: April total ratings are up nearly 30%, prime time ratings up over 30% and prime time cable news audience share was in the 60% range

Slowing Subscriber Erosion Is Helping Affiliate Rev Growth & Optimistic On More Improvement From New Skinny Bundles

• Total affiliate revs grew +3% due to higher rates and improved subscriber declines for the 3^rd consec qtr
  • Cable affiliate fee revs rose +3% y/y…pricing gains from renewal outpaced the impact from net subscriber declines, which continued to improve (see below)
  • TV affiliate fee revs rose +4% y/y…healthy growth in fees across both Fox-owned and affiliated stations, more than offset the impact from industry subscriber declines

• Subscriber declines continue to improve…have gone from ~8.7% y/y decline in FQ4 fiscal 24 to -7.8% in FQ1 fiscal 25 to -7.2% in FQ2 fiscal 25 to -6.5% in FQ3 fiscal 25
• “It’s too early yet to see the impact of the skinny bundles, but we are very optimistic about them”

Tubi Delivered Another “Outstanding” Qtr W/ +35% Revenue Growth

• Revenue growth accelerated from +31% y/y in FQ2 to +35% y/y in FQ3, even with last qtr benefiting from political
• Tubi engagement and viewership remains strong even post the Super Bowl
  • FQ3 total viewing time (TVT) rose +18% y/y and accelerated to +24% y/y in April…retention & consumption trends at Tubi post the Super Bowl were “very encouraging”

• Have much higher % of cord nevers than other services: “65% of the Tubi audience is cord nevers – that’s higher than Roku. It’s higher than Pluto, It’s higher than Freebie, Max, Paramount+, or Peacock”
• Mgmt doesn’t think they are getting credit from the Street for this business: “The only frustrating part about the business is that we don’t get the appropriate valuation within our stock”
• No update or detail on when Tubi is targeted to turn profitable

Fox’ DTC Fox One Is Slated For Launch Before The Football Season

• Timing: Before the football season this fall…will share details in the coming months

• Pricing will be inline w/ their wholesale pricing

• Emphatically targeting the cord cutting community
  • Losing a traditional cable subscribers to Fox One would be considered a “failure”
  • Fox One will not engage in activities that undermine traditional distribution models.

• Fox One will also be available to every traditional subscriber of their services
  • “We don’t want to compete with our distributors, that’s not our intent”

• Fox One will work with partners to achieve broad distribution, again focusing on cordless viewers

The Puts & Take In Fiscal 26 vs Fiscal 25

• In fiscal ’26 compared to fiscal ’25
  • They won’t have the same benefit of political this year
  • In fiscal ‘25, the Super Bowl was a deficit from an ad revenue vs rights cost perspective…this won’t be an issue in fiscal ’26
  • FIFA will come through at the very end of the fiscal ’26 and into fiscal ’27
  • “It’s too early to call” the extent to which they moderate the investment in Tubi versus the DTC investment, particularly that launch cost investment going into the early part of next fiscal year

• “We’ve got really, really nice tailwinds with our advertising business, particularly both at Fox News and Tubi, and then we’re also continuing to see solid tailwinds with our affiliate revenue growth”

It was Chinese Tech Palooza this week with Alibaba, JD.com, Tencent, and Tencent Music Entertainment (TME) all reporting and giving us a glimpse into key trends across ecommerce, cloud, gaming, and music in the country. At a high level, both JD.com and TME surpassed analyst expectations and their stocks responded positively. On the other hand, Alibaba missed consolidated revenue and adj EPADs projections and traded down, while Tencent shares were relatively flat in reaction to its consolidated quarterly financials.

First diving into ecommerce, Alibaba and JD.com both delivered better than expected trends in their respective businesses. Alibaba’s Taobao and Tmall Group (TTG) posted accelerating revenue growth to +8.7% y/y in FQ4 (vs +5.4% y/y in FQ3), beating cons by +3.5%, and adj EBITA in the unit grew +8.4% y/y, topping expectations by +6.7%. JD.com’s revenue also showed accelerating growth to +15.8% y/y (vs +13.4% y/y in Q4), beating cons by +3.8%, and adj EBITDA also surpassed cons by +8.8%.

Alibaba has been focused on improving monetization in many areas and particularly benefited from a higher take rate in the qtr. Also of note were the benefits that the Co realized from its investments into user growth. Initiatives have included price-competitive products, customer service, membership program benefits, and AI technology applications to enhance the user experience. The Co’s new Taobao Instant Commerce trial has also gone better than expected and is also an important path to expand the business looking ahead. Also of note was that despite the macro uncertainty, mgmt reiterated their guidance for quarterly profitability in the Co’s International ecomm business this fiscal year, which is a plus.

For JD.com, the top line was driven by strong domestic consumption, the govt’s trade in policies, tech innovation, supply chain efficiencies, and a continuous rollout of new products. The Co is also seeing strong growth in its supermkt category (also helped by the Chinese Lunar New Year) and is pushing hard on its on-demand retail and food delivery business, which is a natural extension, leveraging its existing infrastructure.

Outside of e-commerce, Alibaba’s Cloud segment is still seeing strong demand, with an acceleration in public cloud revenue growth and revenue from AI related products has maintained triple digit y/y growth for the seventh consecutive quarter. AI is “an opportunity that will define the next 10 to 20 years and will not be derailed by short term supply chain fluctuations.”  However. the Co’s stepped-up investments in AI will pressure margins in the near term, which investors honed in on.

Lastly, Alibaba is also further optimizing their business portfolio by exiting non-core assets and are focused on shareholder returns. It expects to generate $2.6bn in max cash proceeds from divesting Sun Art and Intime and is distributing $2 per ADS in cash dividends this yr (amounting to $4.6bn). That combined with the $11.9bn in share repurchases, means a total of $16.5bn to shareholders this fiscal year.

See below for 2 sections for our takeaways and key points on 1) Alibaba and 2) JD.com and see Theme #6 for a deep dive into Tencent’s and TME’s results and what we thought were the most incremental takeaways as it relates to video gaming and music in China.

-> Alibaba traded down -7.6% after its report and ended the week down -1.5%; On the other hand, JD.com traded up +3.3%, but ended the week down -1.0%; YTD, Alibaba is still up +45.6%, while JD.com is down -3.2%

1) ALIBABA – see below for our thoughts on key themes, updates, and takeaways

Alibaba – After A Broad Beat Last Qtr, Delivered A More Mixed Set Of Q1 Results

• Alibaba’s results were broadly mixed –
  • FQ4 rev rose +6.6% y/y (vs +7.6% y/y in FQ3) and missed cons by -1.3%
  • Adj EBITDA was up +35.6% y/y (vs +4.2% y/y in FQ3), topping cons by +2.1%
  • Adj EBITA also finished +2.4% ahead of cons
  • Adj EPADS of CNY12.52 missed cons by -0.3%

• By segment –
  • Core Commerce (~73% of total rev) – MIXED:
    • Rev incr’d +8.0% y/y in FQ4 (vs +8.9% y/y in FQ3) and missed cons by -0.7%
    • Adj EBITA grew +18.0% y/y (vs +0.2% y/y in FQ3) and beat cons by +0.4%
  • Cloud Intelligence (~13% of total rev) – MIXED:
• FQ4 rev was up +17.7% y/y (vs +13.1% y/y in FQ3) and topped cons by +0.8%; Adj EBITA rose +69.0% y/y (vs +32.7% y/y in FQ3) and missed cons by -11.7%
  • Digital Media & Entertainment (~2% of total rev) – BEAT:
• Rev grew +12.3% y/y in FQ4 (vs +7.9% y/y in FQ3) and beat cons by +6.2%
• Adj EBITA of +CNY36mn (vs -CNY884mn the prior yr qtr and -CNY309mn in FQ3) beat cons by +118.6%
  • All Others (~23% of total rev) – MIXED:
• FQ4 rev incr’d +4.9% y/y (vs +12.9% y/y in FQ3) and topped cons by +6.6%
• Adj EBITA of -CNY2,535mn (vs -CNY2,818mn the prior yr qtr and -CNY3,156mn in FQ3) fell short of cons by -26.6%
  • Consolidation adjustments (~-11% of total rev) – MIXED:
• FQ4 rev missed by -11.5%, while adj EBITA beat cons by +18.3%

Alibaba – Domestic Commerce Showed Better Than Expected Strength In FQ4

• Taobao and Tmall Group (TTG) outperformed expectations: Rev grew +8.7% y/y in FQ4 (vs +5.4% y/y in FQ3) and beat cons by +3.5%; Adj EBITA was up +8.4% y/y (vs +1.9% y/y in FQ3) and topped cons by +6.7%, primarily due to the increase in revenue from customer management svs (+12% y/y due to higher take rate), partly offset by the increase in investments in user experience and technology
• Alibaba’s main business focus is to stabilize its market share “in the mid to long term”
• The Co is making progress in its monetization strategy
  • Quanzhantui (QZT) has allowed Alibaba to enhance the monetization of traditional advertising products that were previously less effective, particularly among certain merchants
  • The Co implemented a 0.6% software service fee on Taobao, where previously it had charged nothing
  • The Co identified a segment of merchants as white-label sellers, who had historically contributed less to monetization, but have now seen significant improvement in their rev
    • Expects similar trend in next few qtrs
  • Introduced commissions on payments, further bolstering rev
  • The take rate benefited from the impact of a software service fee & increasing penetration of QZT and improvement of marketing efficiency
• Alibaba is utilizing AI to revolutionize the customer experience in search, deliver more accurate recommendations, and improve advertising efficiency
  • Alibaba is working on “innovation-based forms of interaction and engagement for the future”: They believe they can create new forms of interaction and engagement; They are piloting products along these lines now
  • Additionally, the Co is working on AI to benefit merchants
• Investment in the user experience is paying off…the Co saw “stronger momentum” in user growth in FQ4
  • 88VIP members cont’d to increase by double-digits y/y, surpassing 50mn: The Co continues to focus on retention rate with growing profitability and increasing ARPU on a cohort basis
  • Other user oriented strategic initiatives include price-competitive products, customer service, membership program benefits and AI technology applications to enhance user experience
• The Co is seeing a lot of momentum with its Taobao Instant Commerce trial
  • Results have “vastly exceeded” mgmt expectations
  • Co expects instant commerce to drive higher levels of user engagement with the Taobao app
  • The Co will be investing “aggressively” in this business in the near term

Alibaba – Expects Its Intl EComm Business To Be Profitable On A Qtrly Basis This Coming Fiscal Year Despite The Macro Trade Uncertainty

• Results in Alibaba International Digital Commerce (AIDC) was weaker than expected
  • FQ4 rev rose +22% y/y (vs +32% y/y in FQ3) and missed cons by -3.5%…the y/y growth was driven by “strong momentum” in its cross-border business
  • Adj EBITA losses of -CNY3,574mn (vs -CNY4,085 the prior yr qtr and -CNY4,952mn in FQ3) missed cons by -0.7%
• Alibaba reiterated expectations to reach qtrly profitability in the international e-commerce biz in the coming fiscal yr despite the potential uncertainties in global trade regulations

Alibaba – AI-Related Product Rev Helped Accelerate Overall Y/Y Cloud Revenue Growth But Higher Spending Will Impact Margins Short Term

• The Co posted accelerating growth in Cloud rev to +18% y/y in FQ4 from +13% y/y in FQ3 due to faster public cloud revenue growth, including the increasing adoption of AI-related products
• AI-related product rev grew at a triple-digit rate for the sixth straight qtr
  • Lingma, their AI coding assistant launched last year, has seen “strong adoption” among enterprise customers and delivered “robust” revenue growth

• There are 2 key AI usage trends w/customers –
  • For large and mid-sized enterprises, AI applications are expanding from internal systems to more customer facing use cases
  • Also, adoption of AI products is rapidly extending from large enterprises to SMBs

• “While uncertainties persist in the global AI supply chain, customer demand remains strong and unwavering”
  • AI is “an opportunity that will define the next 10 to 20 years and will not be derailed by short term supply chain fluctuations”
• The Co will continue to invest & margins are under pressure: “We’re seizing the historic opportunity presented by AI and stepping up our investments in AI infrastructure and advanced technologies to further strengthen Alibaba’s global leadership in technology”
  • FQ4 margins were slightly impacted by 1.9ppt vs FQ3 due to incr’d investments in technology and product development
  • And margins will remain under pressure in the near term due to ongoing investments

Alibaba – Continues To Advance Its Foundational AI Models

• The Co remains fully committed to open source
  • Launched the Qwen3 series in April, which is a new generation of hybrid reasoning models and is fully open-sourced; It’s ranked amongst the top performers globally on multiple authoritative benchmarks
  • The Co has open-sourced over 200 models under the Qwen family, with more than 300mn downloads worldwide and over 100,00 derivative models, making it the world’s largest open-source model family

2) JD.COM – See below for our thoughts on key themes, updates, and takeaways

JD.com – Delivers Impressive Q1 Results

• Headline numbers surpassed expectations: Q1 rev was up +15.8% y/y (vs +13.4% y/y in Q4), beating cons by 3.8%; Adj EBITD topped cons by +8.8%; Non-GAAP EPADS finished a wider +19.6% above cons
  • Net Product revs (~80% of total rev) – BEAT: Net Product Revs grew +16.2% y/y in Q1 (vs +14.0% y/y in Q4) and beat cons by +3.9%
    • Electronics & Home Appliance rev topped cons by +3.5%: Q1 rev inc’rd +17.1% y/y (vs +15.8% y/y in Q4) driven by strong domestic consumption, govt’s policies, tech innovation, supply chain efficiencies, and continuous rollout of new product models
    • General Merchandise rev also beat cons by +4.4%: Rev rose +14.9% y/y in Q1 (vs +11.1% y/y in Q4), as “healthy momentum” was driven by another double-digit y/y rev growth qtr from supermkt category; Chinese Lunar New Year was a driver
  • Net Svs Revs (~20% of total rev) – BEAT: Q1 Net Svs Revs were up +14.0% y/y (vs +10.8% y/y in Q1) beating cons by +4.0%; Mktplace & mkting revs saw a meaningful pick up +15.7% y/y (vs +12.7% y/y in Q4), while logistics & other svs revs incr’d +13.0% y/y (vs +9.5% y/y in Q4)

JD.com – There Are Signs Of Stabilization In The Chinese Economy / Govt Stimulus Has Been Working

• There are signs of stabilization in China’s economy in Q1 w/ improved consumer sentiment and incr’d shopping frequency among users
  • Growth of order volume and the user base in lower tier markets also continued to outpace that of higher tier markets on its platform
• The govt’ stimulus has encouraged consumption and stabilization of the economy
  • The govt’s trade-in program not only boosted consumer demand & drove sales of home appliances and mobile phones, but also promoted the industry’s shift towards offering more high-end and intelligent product selections
    • Outlook: The Co sees significant potential for the Chinese consumer market and expects very strong momentum of the electronic category, including mobile phone and home appliance categories in Q2

JD.com – Seeing Accelerated Retail Revenue Growth & Strong Active Customer Trends

• JD Retail rev growth accel’d seq: Rose +16.3% y/y (vs +14.7% y/y in Q4) due to solid performance across all major categories
• The Co is making steady progress w/ the low-priced strategy & building out the 3P ecosystem: 3P order volume and 3P buyers incr’d strongly y/y
• Overall qtrly active customers cont’d to grow at a +20% y/y rate: Quarterly active customers have maintained a double-digit growth rate for six consecutive quarters
  • Growth of user base expansion and order volume were higher in lower tier mkts vs higher tier ones this qtr
  • The Co cont’d to experience improved NPS due to competitive pricing
  • JD Retail’s gross margin improved for the 12th consecutive qtr as the Co further boosted its procurement capabilities and accelerated growth of high-margin rev streams

JD.com – Supermarket Category, On-Demand And Grocery Delivery Are Key Growth Vectors

• The supermarket category saw double digits growth for the 5th consecutive qtr: The total addressable market for the Chinese supermkt industry is “enormous”
• Experienced a robust promotion season during the Chinese Lunar New Year
  • OUTLOOK: The momentum of the supermarket category is expected to “carry on throughout 2025”

• The Co is pushing hard into on-demand retail and food delivery: Believes that the on-demand retail and food delivery business is a natural extension from its core retail business
  • Launched JD Food Delivery in Feb and results have been strong: Still in early stage, but already showing strong momentum, with daily order volumes nearing 20mn

JD.com – The Co’s Advertising Business Is Showing Accelerated Momentum

• Advertising rev maintained double-digits growth y/y with “accelerated momentum”
• The Co sees AI as a big driver for its ads business –
  • AI large language model can enhance the ad algorithm and recommendation effectiveness, driving higher ad conversion rates and accelerating ad revenue growth
  • Actively developing & implementing AI-powered advertising agents that can execute complex ad campaigns through simple command from merchants
  • There is significant potential for monetization, particularly through AI large language model driven efficiency gains that will fuel sustainable long term growth
  • There is great potential for AI adoption in advertising content generation

JD.com – Other Key Updates

• Expansion of JD Logistics: In March, JD Logistics officially launched its operations center in Hong Kong, marking a significant step-up in expanding the coverage of its express delivery network and boosting service efficiency in the region
• The JD PLUS program also recorded double digit y/y growth in both shopping frequency and ARPU in Q1
• The Co has also been driving AI and automation technologies across the demand, supply, and fulfillment aspects of its entire ecosystem
  • This includes providing the right products with various delivery options, improving efficiency of its warehousing and fulfillment operation, and developing AI-enabled tools to create better cost effectiveness for its 3P merchants

In addition to the eCommerce giants that reported this week (Alibaba and JD.com – see Theme #5), Tencent and Tencent Music (TME) provided updates on key trends in the China videogame and music markets, among other segments. Big picture, both Tencent and TME reported better than expected results within these businesses, especially the former given the Co continues to benefit from very easy comps in its domestic gaming businesses.

Similar to commentary out of Alibaba and JD.com, neither Tencent nor TME seem overly concerned about the macro environment negatively impacting their respective businesses, and Tencent articulated the view that the Chinese govt has a lot of room for additional stimulus as well. With that said, Tencent has been stock piling AI chips.

In terms of Tencent’s core domestic Videogame business (47% of the total VAS revenue), the strong +24% y/y growth was driven by its flagship games, including Honour of Kings and Peacekeeper Elite, as well as from recently released games such as DnF Mobile and Delta Force. While multi-player games are the majority of the Co’s gaming revenue, we’d flag that the Co is well positioned to benefit from growth in first person action games which are gaining momentum in China, especially with younger demos.

One thing that was also clear is that Tencent is aggressively implementing AI across its entire organization. The good news is that the Co is seeing tangible results with 1) improved ad targeting, which boosts ad revenue; 2) improved content recommendation, which boosts user time spent; 3) higher usage of AI within gaming, which boosts user engagement and thus game revenue; and 4) deployment of GPUs and AI across its computing infrastructure, APIs and platform solutions, which generates cloud revenue. The bad news is that some longer-cycle AI investments will take time to yield significant returns, hence the Co’s operating leverage will be negatively impacted in the near term (an investor sore spot).

For TME, its Music Subscription business grew a strong +17% y/y and was up +5% sequentially with the Co’s premium SVIP membership program helping to drive results, coupled with reduced promotional activity. Higher SVIP penetration is helping to drive ARPPU, which grew +8% y/y and topped analyst expectations. SVIP members are getting 1) premium sound quality and audio effect; 2) unique perks, including unique album discounts, special badges, early access to merchandise, and live events; and 3) long form content, such as audio dramas which is boosting retention. TME also posted “strong growth” in advertising revenue. The Co’s Social Entertainment Services business continues to be a big drag (fell -12% y/y) but it did manage to decline less than expected. Also, going forward, the Co will not be providing disclosure of operating metrics w/in this segment and “have shifted our strategic focus on to our core music business.”

All in all, investors were happy with the momentum in both Tencent and TME’s videogame and music businesses and the forward growth prospects. From a longer-term perspective, Tencent also has its sights on the ecommerce market as well which will be something we will be tracking.

See below for 2 sections for our takeaways and key points on 1) Tencent and 2) Tencent Music Entertainment (TME).

->Tencent traded up +2.8% after its results and ended the week up +3.5%; TME was up +2.5% post its print and built on those gains through the week to end up +18.0%; YTD, Tencent and TME are both up +23.1% and +46.4%, respectively

1) TENCENT- See below for our key takeaways and highlights from Q1 results

Tencent – Delivered A Mixed Consolidated Set Of Results But Gaming & Marketing Svs Growth Were Key Positives

• Tencent’s headline results were mixed with stronger than expected revenue but lighter profitability: Total rev grew +12.9% y/y in Q1 (vs +11.1% y/y in Q4) and topped cons by +2.5%; But non-IFRS op profit was up +18.3% y/y (vs +21.0% y/y in Q4) and closed -2.8% below cons; Non-IFRS net income incr’d +21.9% y/y (vs +29.6% y/y in Q4) and beat cons by +3%
  • Value-Added Svs (~51% of total rev) – BEAT: Q1 rev rose +17.2% y/y (vs +14.4% y/y in Q4) and exceeded cons by +6.3%; Gross margin incr’d +2ppts y/y to 60% (vs 56% in Q4), given a higher mix of domestic games rev
  • Marketing Svs (~18% of total rev) – BEAT: Q1 rev was up +20.4% y/y (vs +17.5% y/y in Q4) and beat cons by +2.4%; Gross margin expanded +1ppt y/y to 56% (vs 58% in Q4) due to growth in high margin Video Accounts and Weixin Search rev
  • FinTech & Biz Svs (~30% of total rev) – BEAT: Rev grew +5.0% y/y in Q1 (vs +3.2% y/y in Q4) and finished a slight -0.6% below cons; Gross margin incr’d +5ppts y/y to 50%, driven by improved cost efficiency in Fintech and Cloud Svs

Tencent – Recent Datapoints On The Consumer Were Positive

• Mgmt had positive comments on the consumer: “I think the big picture is that consumer spending has been fluctuating in the last several quarters, but the most recent data point is a fluctuation upward. And so, it is possible that fluctuation upward is reflective of overall consumer confidence and consumption activity stabilizing”
• But tariffs create an uncertainty: “I think we just have to see what will be happening in the next quarter”
• With that said, there is room for more gov’t stimulus: The govt has been “very supportive” with stimulus and “I think the Chinese government still have a lot of room for rolling out more stimulus”

Tencent – Domestic Gaming Business’ Strong Growth Is Benefitting From Easy Comps

• Domestic Games rev growth continues to benefit from easy comps: Q1 rev was up +24% y/y (vs +23% y/y in Q4) “against a low base” in Q1:24; Key driver were flagship games, including Honour of Kings and Peacekeeper Elite, as well as from recently released games such as DnF Mobile and Delta Force
  • Honour of Kings achieved “record high” gross receipts given a higher % players making in-game purchases
  • Peacekeeper Elite’s DAUs and gross receipts grew due to incr’d popularity of extraction shooter mode, complementing the original battle royale mode, as well as new a Tang Dynasty-themed setting and items
  • Also highlighted strength in CrossFire Mobile, VALORANT
  • Delta Force grew its PC plus mobile user base to a post-launch record level of 12mn peak DAU in April: It is now the sixth most popular mobile game by DAU and the highest DAU new game released in the last three years industry-wide

• International Games rev growth also accel’d seq: Q1 rev grew +23% y/y (vs +15% y/y in Q4), or +22% y/y ex-FX; Cited contributions from Brawl Stars, Clash Royal, and PUBG Mobile
  • PUBG Mobile’s gross receipts grew by “teens% y/y”: The game benefited from Golden Moon-themed events and outfits, and collaborations with brands including Bugatti and the K-Pop group BABYMONSTER
  • Call of Duty Mobile’s gross receipts grew y/y: Benefiting from top-tier operator outfit featuring halo and wings, and from Secret Cache, new engagement system where players unlock rewards by completing tasks and events
  • PC version of Delta Force outside China steadily grew its user base, achieving a record level of concurrent users on Steam in May this year
    • The mobile version of Delta Force is the second most downloaded mobile game in international markets since its launch on Apr. 21
    • Plan to launch a console version of Delta Force in H2

Tencent – Future Growth Drivers For Gaming – AI, New Content, First Person Action Games

• AI will create substantial value in gaming
  • Improving the player experience, especially in big multi-players games: AI to being used to help coach new players, to help accompany existing players, to help prevent cheating and hacking and so forth
  • Improving content creation: Deploying gen AI into more content driven games will facilitate initially faster creation of content by the game studio itself
• New areas to be explored include user-generated content, varying quality of experiences, and dynamically created content where the game itself is spinning up new environments if the players choose to venture off the preset map
• Tencent is well positioned for growth in first person action games: First-person action genre represents 10-20% of gamer time spent in China which is much lower than the 40-50% in RoW; In certain younger demo cohorts in China, it is higher
  • “Tencent is the leader” in first-person action games with titles such as Peacekeeper Elite, CrossFire Mobile, Call of Duty Mobile, VALORANT, and Delta Force
  • With gross receipts growing and achieving record highs in evergreen titles, users are moving towards those first-person action games

Tencent – In Addition To Gaming, AI Is Playing A Significant Role Across Other Key Business Area

• AI in advertising –
  • Upgraded its ad tech platform w/ enhanced generative AI capabilities such as ad generation and video editing tools to accelerate ad creation and digital human solutions, and to facilitate live streaming activities for content creators and merchants
  • The Co is leveraging LLMs to enhance its system’s comprehension of merchandise and user preferences across its apps, ultimately improving ad recommendations
  • Expect more ad views: AI can be used to deliver more engaging content to consumers, leading to increased time spent in the feed and, consequently, more ad views
  • Tangible ROIs: Previously, banner ads achieved a roughly 0.1% click-through rate, feed ads achieved roughly 1.0% click through rate, but with the benefit of AI, it has been seen that the click-through rate on certain ad inventories can improve toward 3.0%

• AI in social networks –
  • More AI features on Weixin: The Co is in early stages of rolling out AI features in Weixin to enhance the user experience such as for search, language input, and content generation
  • Weixin Search now includes results powered by LLMs, including the fast-thinking model, HunYuan Turbo S, and the Chain of Thought reasoning models, HunYuan T1 and DeepSeek R1
    • The share of the ad revenue contributed by Weixin Search is “on a good upward trend”
  • The Co has the oppty to develop unique Agentic AI w/in the Weixin ecosystem, leveraging its social graph, communications, community features, and content platforms
    • This AI would integrate transactional and operational capabilities across various application verticals, making it more specialized compared to general Agentic AI models

• AI in content creation –
  • Providing AI tools so that content creators can generate images matching the text of their Official Accounts articles, and generate video effects for Video Accounts videos utilizing preset templates
  • Reduced Mini Programs development time via an AI coding assistant for creating AI programs that supports natural language prompts and image inputs

Tencent – Near Term Operating Leverage Will Be Impacted By AI & GPU Investments

• “We are stepping up investments in AI in the form of capital expenditures as well as operating expenses”

• While the Co is already seeing tangible results from AI and GPU investments…
  • Improved ad targeting, which boosts ad revenue
  • Improved content recommendation which boosts user time spent and thus ad revenue
  • Usage of AI within evergreen games, which boosts user engagement and thus game revenue
  • Deployment across computing infrastructure, APIs and platform solutions, which generates cloud revenue
• … there will be time lag with some other AI and GPU investments, which will impact operating leverage: GPU and AI investments during this time will result “in a temporary smaller gap between our revenue and operating profit growth rate than we have achieved in recent quarters”

Tencent – Stock Piling AI Chips To Help It To Execute On Its AI Priorities

• The Co has a strong stockpile of chips which would be very useful in executing its AI strategy
  • These chips will be used for applications which will give immediate returns, such as advertising and content recommendation
  • Training large language models which require high-end chips, is the next priority, and mgmt. is confident that they have enough high-end chips to continue training thier models “for a few more generations going forward.”

Tencent – Ecommerce Is Another Potential Leg Of The Stool Long Term

• ECommerce is “a very long-term project with a very long runway”: The Co has a number of initiatives:
  • Focused on enhancing the shopping experience through higher-quality products, better return policies, customer service, and competitive pricing
  • Additionally, the Co aims to expand product supply by onboarding strong brands and motivated merchants while boosting traffic through live broadcasts which “will really convert more sales”
  • Over time, Tencent seeks to create a unique Weixin eCommerce ecosystem, integrating Mini Programs, Mini Shops, Moments, search, gifting, and Official Accounts to strengthen transactions and merchant connections

2) TENCENT MUSIC ENTETERTAINMENT (TME) – See below for our key takeaways and highlights from Q1 results

TME – Slightly Better Than Expected Results

• Stronger than expected Q1 performance: Total rev were up +9% y/y (vs +8% in Q4) and beat cons by +1.2%; Both online music services and social entertainment beat expectations, but the latter remains a drag on growth, falling -12% y/y; Online music revs grew y/y to +16%
  • Gross margins expanded to1% (vs cons 44.0%), up 3.2ppts y/y, primarily due to strong growth in music subscription revs (higher ARPPU), ad revs, social entertainment leasing membership, scaling owned IP, better monetization models w/ labels
  • Online music avg revenue per paying user (ARPPU) was up +8% y/y and beat cons by +0.9%

• Expect cont’d focus on music business in 2025: Focused on growing music subscriptions by expanding SVIP memberships, expanding advertising business, diversifying offerings across the music value chain, strengthening partnerships with labels and artists, and investing in owned content and tech innovation
  • “For FY25 expect y/y growth rate to accelerate from last year, and we will continue to expand our margin as well”

TME – Seeing Strong Growth In The Music Subscription & Ad Business BUT The Co Is De-Emphasizing Social Entertainment

• Online Music Services total revs grew +16% y/y (78% of total revs) & beat cons by +0.2% given upside in the subscription business
  • Music subscription revenues (57% of total revs) grew +17% y/y and was up by +5% seq: Driven by cont’d expansion of the SVIP membership program and reduced promotional activity
    • Monthly ARPPU for online music expanded a strong +8% y/y to RMB11.4 and beat cons by +0.9%
  • Solid growth in advertising revenues: Achieved “strong growth” on a y/y basis, driven by growth in ad-supported model revenues, with more interactive features and enriched benefits while attracting more advertisers
  • Also made good progress on artist-related merchandise sales and off-line performance
  • 2025 comments: Expect both subscriber gains and the ARPPU expansion as well as steady advertising revenue growth and higher revenue from merchandise and concerts

• Social Entertainment Services revs fell -12% y/y (22% of total revs) but it still beat cons estimates (by +4.7%): This is also an improvement from -13% y/y in Q4
  • Going forward, the Co will cease disclosure of operating metrics w/in this segment – “We have shifted our strategic focus on to our core music business”

TME – Doesn’t Expect Macro To Impact Ad Rev Growth

• Mgmt is optimistic about the macro backdrop not impacting the business: “So, actually, we also observed the macroeconomic picture is looking right. So, for the online advertising business, no matter in Q1 of this year or the full year, at least from the operational perspective, we still maintain a very positive attitude on the advertising revenue for the whole year”

TME – SVIP Membership Is Yielding Strong Benefits

• “We are quite satisfied with SVIP business progress”

• What are SVIP members getting?
  • Premium sound quality and audio effect (used by ~50% of the SVIP user base)
  • Unique perks, including unique album discounts, special badges, early access to merchandise, and live events
  • Includes long form content, such as audio dramas which is boosting retention

• Have seen strong growth momentum in SVIP penetration & ARPPU: “Paying user and ARPPU all demonstrate very good sequential growth”

Other Key Updates/Comments

• AI is elevating its user engagement: The Co intro’d an interactive commentary feature that transforms music charts into conversations, and raising fan emotion
  • Users can also personalize music effects, switching between different vocals and instruments with one single click
  • Adopted DeepSeek LLM to help evaluate content quality and the improved recommendation precision with user preferences

• Content updates/strategy
  • Cont’d focus on expanding long-form audio business: It plays a complimentary role with the Co.’s existing subscriber base while growing the user base
  • The podcast business in China remains limited vs markets like the US but it is growing: “We continue to keep an eye on podcast business. And for sure regarding its commercial value, still there will be some challenges”
  • The Co’s self- and coproducer-proprietary content is “gaining increasing traction among music fans, offering a differentiated user experience that sets us apart from other music platforms”

Super-apps have been talked about for a long time, especially given their success in Asian markets, but they have been slow to gain steam here in the US. However, we have seen a steady migration in that direction with consumer app platforms edging out into adjacent services, deepening their offering to consumers. This theme went into hyper-drive this week with both Airbnb vs Uber making some big moves to further their transformation into broader lifestyle platforms, offering everything from shared commuting solutions and restaurant bookings to in-home massages and private chefs. While Airbnb and Uber have different approaches, both companies are clearly building toward deeper platform engagement and owning more of the user journey, whether it’s commuting to work, planning a night out, or curating a staycation. Overall, this expansion from a single vertical app to a deeper multi-vertical app is one that other consumer-based companies in the sector are likely to think hard about.

See below for our takeaways on what was unveiled in Airbnb’s 2025 Summer Release, as well as the announcements from Uber’s annual Go-Get 2025 event

-> Airbnb was up +2.9% the day of the release, while Uber closed down -1.4% on the day of its Go Get 2025 Event

Airbnb Introduced Airbnb Services, Airbnb Experiences, And An All-New Airbnb App (link)

• “Seventeen years ago, we changed the way people travel. More than two billion guests later, Airbnb is synonymous with a place to stay. With the launch of services and experiences, we’re changing travel again. Now you can Airbnb more than an Airbnb,” per Airbnb co-founder and CEO Brian Chesky

• Airbnb Services –launching with 10 categories in 260 cities, “with new offerings and locations dropping regularly in the Airbnb app”:
  • The first 10 categories are –
    • Chefs: Custom in-home meals from professional chefs
    • Photography: Personalized sessions with experienced photographers
    • Massage: Swedish, deep tissue, and reflexology by certified therapists
    • Spa: Facials, scrubs, and more from licensed estheticians
    • Training: Yoga, HIIT, and strength sessions with top personal trainers
    • Hair: Cuts, blowouts, and styling from professional stylists
    • Makeup: Everyday or event looks by makeup artists
    • Nails: Manicures and pedicures by nail specialists
    • Prepared Meals: Chef-made, ready-to-eat meals
    • Catering: Full-service catering with custom menus and setup
  • Services hosts are vetted for quality –
    • Have an avg of 10 years of experience
    • Have completed Airbnb’s identity verification process
    • Required to submit relevant licenses and certifications
  • DON’T need to stay at an Airbnb or be on a trip to get use Services

• Airbnb Experiences –launching in 650 cities around the world, and adding more everyday 
  • Examples of Experiences can include –   
    • Landmark, museum, and cultural experiences
    • Food tours, cooking classes, and dining experiences
    • Outdoors, eater sports, and wildlife experiences
    • Gallery tours, art workshops, and shopping experiences
    • Workout, wellness, and beauty experiences
  • Also introduced Airbnb Originals – “extraordinary experiences hosted by the world’s most interesting people, designed exclusively for Airbnb”: Examples include –
    • Learn pastry-making at the renowned French Bastards bakery with chef Raphaelle Elbaz
    • Play beach volleyball with Olympian Carol Solberg on Rio’s iconic Leblon Beach
    • Transform into your anime alter-ego with Megan Thee Stallion in her Otaku Hottie Quest
  • Designed to be social: Later this yr, customers will be able to –
    • See who’s going before booking
    • Message the group or individual guests during the experience
    • Stay in touch afterward
    • Similar to Services hosts, Experiences hosts are also vetted for quality –
    • Hosts are assessed across areas like experience, their connection to the city, and guest feedback
    • Process is ongoing – regularly review experiences “to make sure they meet our high standards”
    • DON’T have to be traveling to join in – “we think Airbnb Experiences are so great, you’ll want to book them in your own city”

• Introduced an all-new Airbnb app, built on a new tech stack from the grounds up “that allows hosts to offer homes, services, and experiences – and many more offerings in the years ahead”
  • “Reimagined nearly every part of the app”, including –
    • Explore tab: An all-new homepage to discover homes in popular destinations, experiences that fit your schedule, and services around the world
    • Trips tab: An advanced travel itinerary with a schedule of your trip, details about your home, and the services and experiences you’ve booked
    • Messages: A revamped messaging platform with photo and video sharing, and integrated payments for customizing services
    • Profile: A redesigned Airbnb profile shows guests and hosts who have completed the identity verification process, and lets you share where you’ve traveled on Airbnb and see the people you’ve met along the way
  • Also rebuilt the app for hosts to include everything they need to manage their home, service, or experience
    • Airbnb Setup: A simplified listing creation tool makes it easy for hosts to submit a service or experience to Airbnb
    • Today tab: An all-new reservations management tab makes it easy to see details about upcoming reservations to help hosts provide exceptional hospitality
    • Calendar: A redesigned calendar features a new daily view with an hour-by-hour schedule, and includes real-time integration with Google Calendar
    • Listings tab: New listing management tools for services and experiences make it easy for hosts to adjust every aspect of their listing, from location to pricing

Uber Launches “New Ways To Help You Save On The Things You Do Every Day” At Go-Get 2025 (link)

• Uber wants to make “things a little easier, a little more predictable, and above all, a lot more affordable” for users, per CEO Dara Khosrowshahi 

• Route Share
  • Offers pickups every 20 mins along busy corridors during weekday commute hours with up to 2 co-riders
  • Fares are up to 50% cheaper than the cost of an UberX
  • Also exploring partnering with employers to help make Route Share eligible for commuter benefits

• Ride Passes
  • Price Lock Pass: For $2.99/mo, riders can lock in a price for a specific route and save up to $50/mo; Each pass protects the fare on a selected route for a 1-hr window, and customers can purchase passes for up to 10 routes every month
    • “The easiest way to avoid higher fares due to weather, traffic, or construction”
  • Prepaid Pass: Pay upfront for 5, 10, 15, or 20 rides on regular routes to unlock even deeper discounts; The more rides bought upfront, the more that is saved
  • Ride passes will soon be available for teen accounts, “making the school run for parents and guardians easier than ever”

• Commute Alerts and Hub
  • Users can set up AI-powered Commute Alerts to get notified when it’s the best time to request – based on personal ride history, available drivers, and real-time pricing trends
    • “Just enter your home and work details, and we’ll handle the rest”
  • Starting this summer, all commute tools will live in the new in-app Commute Hub

• Uber One Members Days + New Benefits
  • Introduced Uber One Member Days, “a week-long celebration of epic deals, special promos, and big savings just for members”
    • The first one is May 16-23, where members can access deals like 50% off shared rides, 20% off Uber Black, and 40% off Comfort Electric, with new deals each day of the week
  • Adding more benefits to Uber One, including 10% Uber One credits back when customers use Uber Rent (including Turo) or take Lime rides on Uber

• Uber Eats Savings Slider
  • When you create a grocery list, Uber Eats will compare prices within the store or recommend a nearby grocery store with better deals on those items
  • Just slide to the right to see better deals, confirm the swaps, and save

• Dine Out – “a new way to discover and claim in-person dining deals directly from the Uber Eats app”

• Teaming up with OpenTable to power reservations in the Uber Eats app in the US, Canada, Mexico, UK, Ireland, and Australia
  • Uber One members will give exclusive access to prime tables at the top spots in town
  • Can also book a ride to the restaurant in one tap, and OpenTable VIPs will soon be able to use their points on Uber and Uber Eats

• Shared Autonomous – teaming up with Volkswagen to launch the first shared autonomous ride
  • Starting in Los Angeles in early 2026, Uber and Volkswagen will deploy the fully electric, fully autonomous ID. Buzz AD, “offering a new, affordable way to ride that’s shared, electric, and self-driving”
  • “We can’t wait to expand access to it around the world”

The upfronts are in full swing at the moment, bringing with them a wave of updates, which were interestingly not just on the advertising front, but also on platform branding. To start, Netflix revealed in its upfront presentation that global MAUs on its ad-supported tier have grown by 20mn+ since November to 94mn and according to Netflix’s calculation, the ad tier now reaches more 18-34 year olds than any other US broadcast or cable network. It also shared that its Ads Suite launches are continuing, with availability in all 12 ad-supported countries will be completed by June.

Also notable in streaming this week were some big name reveals, as well as name changes. Disney and Fox both revealed the name of their upcoming new DTC services. In the case of Disney, its long-awaited DTC streaming service, which has been referred to as “Flagship”, will simply be called “ESPN.” Details were also shared on the two subscription tiers that would be available at launch, as well as pricing. Fox also disclosed that its new DTC service coming this fall will be named FOX One.

Lastly, Warner Bros. Discovery announced that it will be changing the name of its streaming service Max back to the original name of HBO Max.

See below for the quick takes on Netflix’s, Disney’s and Warner Bros Discovery updates per the above and see Theme #4 for details on Fox One.

Netflix Shares Some Ad Related Milestones & Updates

• Netflix’s ad tier now reaches 94mn global MAUs + its leveraging Netflix Ads Suite (link/link)
  • Key stats on ad-supported plan –
    • Increased 20mn+ since its last update in Nov to reach more than 94mn global MAUs
    • Ad members spend an avg of 41 hrs/mo on Netflix in the US
    • The ad tier reaches more 18-34-yr-olds than any other US broadcast or cable network – Netflix calculated the figure by extrapolating the 94mn ad-viewing profiles, following a methodology Netflix says is used by other Cos, resulting in a total estimated viewership of 170mn
    • “When you compare us to our competitors, attention starts much higher and ends much higher”
    • “Members pay as much attention to mid-roll ads as they do to the shows and the movies themselves”
    • When compared to the CTV avg, ads on Netflix have 8X higher brand favorability, 162% higher sales per impressions, and 3x higher purchase intent
  • Update on Netflix Ads Suite –
    • Now live in US and Canada
    • Will be live in EMEA next week
    • Will be available in all 12 ad-supported countries by June
    • Can now target 100+ interests in 17+ categories
    • Includes enhanced data capabilities, more buying options and deal types, expanded measurement, and creative formats (including AI-powered interactive ads like midrolls and pause screens launching by 2026)

A Host Of Name Reveals & Names Changes Across Streaming This Week

• Disney reveals name and pricing for ESPN DTC svs (link)
  • The new DTC service will simply be called “ESPN”
    • Reasoning? “We kept coming back to our four letters…There’s power in our name. There’s trust in our name,” said ESPN chairman Jimmy Pitaro
  • Two ESPN subscription plans – Unlimited and Select plans
    • Unlimited includes full access to all ESPN content and networks; Priced at $29.99/mo or $299.99/yr
    • Select includes all ESPN+ content; Prices at $11.99/mo or $119.99/yr
  • Also offering bundling option
    • Unlimited bundle (Disney+, Hulu, ESPN Unlimited): $35.99/mo with Ads; $44.99/mo w/ no Ads
    • Select bundle (Disney+, Hulu, ESPN Select): $16.99/mo with Ads; $26.99/mo w/ no Ads
  • Transition for existing ESPN+ users
    • Standalone ESPN+ subscribers become ESPN Select subscribers
    • Disney+, Hulu, ESPN+ bundle users become ESPN Select bundle subscribers
  • Additional details, including the specific launch date, will be announced later this summer

• Fox unveils the name of its new streaming service – “FOX One” (link): The svs will have live streaming and on-demand access to the full portfolio of FOX brands as well as the option to bundle FOX Nation within one platform
  • See Theme #4 for details the Co shared on its earnings call

• Warner Bros. Discovery announced that its changing it Max’s name back to HBO Max (link): Follows WBD’s decision to drop “HBO” from the streamer’s name, rebranding it as just Max at launch in 2020
  • “Returning the HBO brand into HBO Max will further drive the service forward and amplify the uniqueness that subscribers can expect from the offering”
  • “It is also a testament to WBD’s willingness to keep boldly iterating its strategy and approach – leaning heavily on consumer data and insights – to best position itself for success”