To The Moon

Tencent Music Entertainment (TME) fell 11.92% yesterday to close at $8.72, after touching an intraday low of $8.21. At first glance, the company’s earnings did not appear weak enough to justify such a sharp sell-off. So why did the stock tumble nearly 12% following the results?

In the second quarter, TME generated RMB 8.93 billion in revenue, up 5.8% year over year and above market expectations. Revenue from music-related services increased 11% to RMB 7.61 billion, while membership revenue rose 8.1% to RMB 4.79 billion. Non-IFRS net profit increased 4.4% to RMB 2.69 billion.

The problem is that markets do not simply price whether a company is growing. They price whether that growth is strong enough to justify its valuation.

1. Ximalaya contributed significantly to headline growth

Ximalaya contributed approximately RMB 407 million in revenue during the quarter. Excluding this contribution on a simple basis, TME’s quarterly revenue would have been roughly RMB 8.53 billion—only around 1% higher than a year earlier.

In other words, a meaningful share of this quarter’s revenue growth came from the Ximalaya acquisition rather than the organic expansion of TME’s existing businesses.

Membership revenue also appeared resilient, rising from RMB 4.57 billion in the first quarter to RMB 4.79 billion in the second. However, Bloomberg cited Morgan Stanley estimates suggesting that membership revenue may have declined sequentially after excluding Ximalaya’s contribution.

That is the signal that concerns investors: TME’s core subscription business—its most important growth and profit engine—may be losing momentum.

2. Competitors are increasing pressure on pricing and users

ByteDance’s Soda Music offers a basic subscription for approximately RMB 8 per month, compared with TME’s average revenue per paying user of roughly RMB 12.

Against a backdrop of weak consumer sentiment, economic uncertainty and persistent price pressure, Soda Music’s lower subscription price and deep integration with ByteDance’s Douyin ecosystem could make it particularly attractive to younger and more price-sensitive users.

TME also acknowledged intensifying competition during its earnings call. The company is using Kugou Free, Kugou Concept Version, Bodian Music and traffic from WeChat Channels to attract and retain casual listeners.

This indicates that competitive pressure is no longer merely a concern raised by investors. It is already influencing management’s operating decisions.

3. Profit growth did not keep pace with revenue

TME’s gross margin was 44.2% in the second quarter, down from 44.4% a year earlier and 44.9% in the first quarter. Operating expenses increased 12% year over year, considerably faster than the 5.8% increase in revenue. IFRS diluted earnings per ADS came in at RMB 1.57, below some market expectations.

The consolidation of Ximalaya, the amortization of acquired intangible assets and integration expenses may create temporary pressure on profitability. Nevertheless, from an investor’s perspective, the quarter did not validate the previous narrative that growth in high-margin subscriptions would continue to drive rapid profit expansion.

4. TME no longer discloses its most important operating metrics

Since reporting its full-year 2025 results, TME has stopped regularly disclosing paying users, monthly active users and average revenue per paying user.

For a subscription-based platform, these figures are essential for determining whether membership revenue is being driven by user growth, higher prices, a rising share of SVIP subscribers or newly consolidated businesses.

Without them, investors must infer operating trends from membership revenue alone. At a time of intensifying competition, reduced transparency may itself justify a valuation discount.

The business still has meaningful strengths

These concerns are real, but they do not invalidate TME’s long-term investment case.

The company retains one of China’s strongest music-content and copyright ecosystems. Its SVIP membership continues to expand, while concerts, artist merchandise and digital albums are becoming increasingly important growth drivers. Revenue from advertising, merchandise and other services increased 16.2% year over year in the second quarter.

This suggests that TME is evolving from a pure music-streaming platform into a broader entertainment ecosystem combining music rights, subscriptions, live events, merchandise and long-form audio.

TME also held RMB 44.2 billion in cash, term deposits and short-term investments. During the quarter, it repurchased $400 million of ADSs at an average price of approximately $9.20—above the latest closing price of $8.72.

Why I Remain Bullish on Tencent Music

In my view, the 12% decline was an overreaction—and I remain bullish on Tencent Music.

The market has legitimate reasons to question the company’s slowing organic growth, intensifying competition and reduced disclosure. However, these concerns appear increasingly reflected in the share price. TME remains highly profitable, holds substantial financial resources and continues to generate growth from SVIP memberships, concerts, digital albums, merchandise and other IP-related businesses.

Its competitive advantages have also not disappeared. TME still possesses China’s strongest music-content ecosystem, a large paying-user base and access to Tencent’s broader social and entertainment network. Soda Music may pressure lower-priced subscriptions, but TME is better positioned to monetize high-value users through premium memberships, exclusive experiences and diversified music-related consumption.

The company’s decision to repurchase $400 million of ADSs at an average price of approximately $9.20 also signals management’s confidence in the business. With the stock closing at $8.72, investors can now buy the shares below the company’s recent average repurchase price.

Short-term volatility may continue until organic membership growth stabilizes and the benefits of the Ximalaya acquisition become clearer. Nevertheless, I believe the sell-off has created an attractive entry point for investors willing to look beyond the next one or two quarters.

My bullish view rests on a simple thesis: TME does not need to return immediately to its previous growth rate. If it can stabilize its core subscription business, sustain SVIP expansion and successfully integrate Ximalaya, its current valuation leaves meaningful room for recovery.

The market is pricing TME as though its growth story is fading. I believe the company is instead evolving into a broader and more resilient music-entertainment platform.

For that reason, I view the recent plunge as a buying opportunity rather than the beginning of a long-term decline.