By Megan Cheah

Shares of Tencent Music Entertainment Group plunged in Hong Kong after its annual guidance missed consensus estimates amid artificial intelligence-related headwinds.

The stock slid as much as 24% to 43.60 Hong Kong dollars, equivalent to US$5.56, its lowest intraday level since February last year. The shares have since pared losses to trade around 22% lower Wednesday. Its American depositary receipts fell 25% overnight to US$11.37.

The music-streaming arm of Chinese tech giant Tencent on Tuesday posted fourth-quarter revenue of 8.64 billion yuan, equivalent to US$1.25 billion, up 16% from a year earlier. Its adjusted net profit for the period rose 9.0% to 2.58 billion yuan.

While the results were largely in line with or better than consensus estimates, analysts said the company's guidance for the first quarter and full year fell short of expectations.

The company guided for a 7.0% year-over-year increase in first-quarter revenue to 7.9 billion yuan, about 5.0% below the consensus estimate, Nomura analysts said. Its full-year revenue forecast was a narrower miss, coming in about 2.0% below consensus, they wrote in a note.

TME's adjusted net profit guidance for the first three months of 2026 and full year also disappointed, Nomura said.

Meanwhile, the company's postearnings commentary pointed to near-term headwinds for its subscription revenue amid the disruptive force of AI-generated music and intensified competition, Citi analysts led by Alicia Yap said.

While TME's expansion into nonsubscription revenue could partially offset these headwinds, Citi analysts expressed concern that AI could disrupt the music-subscription model over the long term, with AI-generated music changing casual users' listening habits.

"The fast-moving [AI-generated music] trend threatens key metrics like user traffic and paid subscriber conversion, ultimately diluting engagement with TME's licensed music library," the analysts said. The issue is "particularly severe" in China, where short-video platforms challenge traditional music streaming, as there are no clear regulations around AI-generated music copyright, they said.

Citi slashed its target price on TME's ADRs to US$15.00 from US$29.00 while maintaining its buy rating. Nomura retained its buy rating and US$26.00 target price.

Write to Megan Cheah at megan.cheah@wsj.com

(END) Dow Jones Newswires

March 17, 2026 23:43 ET (03:43 GMT)

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