Tencent Music beats estimates as AI enhances user experience

Tencent Music Entertainment Group shares surged following fourth-quarter earnings that exceeded expectations that reinforced its strategic focus on high-quality growth and artificial intelligence (AI) to enhance user engagement.

Tencent Music's total revenue rose 8.2% year-over-year to RMB7.46 billion, exceeding consensus estimates by 2.2%.

Online music services revenue increased 16% to RMB5.83 billion, while social entertainment revenue declined 13% to RMB1.63 billion—an improvement from the prior 15% year-over-year drop.

The company’s US-listed shares rose 14.6% on Tuesday afternoon following the results.

Jefferies analysts noted that Tencent Music's "strategy is intact" and emphasized that "AI is key to drive better experience." The firm maintained a Buy rating, highlighting expectations for a "healthy trend for subscriptions revenue in 2025" and solid momentum in SVIP and advertising.

Strong Q4 performance

Subscription revenue for online music climbed 18% year-over-year to RMB4 billion, in line with Jefferies’ estimate. The number of paying users reached 121 million, with net additions of 2 million during the quarter. Monthly average revenue per paying user (ARPPU) increased 3.2% quarter-over-quarter and 3.9% year-over-year to RMB11.1. Other revenue grew 12% year-over-year to RMB1.8 billion.

Gross profit expanded 23% year-over-year to RMB3.25 billion, surpassing Jefferies’ estimate of RMB3.1 billion. The company's GPM rose 5.3 percentage points year-over-year to 43.6%, while non-IFRS earnings of RMB2.4 billion topped consensus expectations of RMB1.98 billion. Non-IFRS net margin reached 32%, beating the 27.2% consensus estimate.

2025 outlook

For the first quarter of 2025, Jefferies expects Tencent Music's total revenue to increase 7% year-over-year to RMB7.2 billion. Online music services revenue is projected to rise 15.5% to RMB5.78 billion, while social entertainment revenue is forecast to decline 17% to RMB1.47 billion. The firm anticipates net subscriber additions of 2 million and ARPPU growth to RMB11.3.

For full-year 2025, Jefferies estimates revenue growth of 9.5% to RMB31 billion, driven by a 16% increase in online music services revenue.