China’s leading online music platform Tencent Music Entertainment (TME) is set to release its Q2 2025 financial results before the U.S. stock market opens on August 12th (Eastern Time). According to Bloomberg analyst expectations, TME’s Q2 2025 revenue is projected to reach RMB7.979 billion, with adjusted EPS at RMB1.41.

Q1 Review

Financial reports show that in Q1 2025, TME’s total revenue reached RMB7.36 billion, a year-over-year increase of 8.7%; adjusted net profit rose 22.8% year-over-year to RMB2.23 billion. The growth was primarily driven by a 15.9% year-over-year increase in online music service revenue, which reached RMB5.80 billion in the first quarter.

Additionally, as China’s music paid user base expands and the industry enters a more mature and healthy development stage, TME’s online music paid users grew 8.3% year-over-year to 122.9 million in Q1. Average Revenue Per Paying User (ARPPU) increased from RMB10.6 in the same period of 2024 to RMB11.4 per month.

Q2 Key Focus Areas

Revenue Growth Projections

Steady Growth in Music Business

Bank of China International expects Q2 music business revenue to grow 19% year-over-year, driven by subscription expansion and non-subscription revenue growth. Multiple institutions predict a net increase of 1.5 million music paid users in the quarter. Bank of China International forecasts ARPPU to reach RMB11.7 (up 2% quarter-over-quarter), while other research reports estimate subscription revenue will rise 16% year-over-year with monthly ARPPU hitting RMB12.2. China Merchants Securities notes that balanced growth in user numbers and ARPPU will drive total revenue and non-IFRS net profit to increase 12% and 23% year-over-year, respectively.

Distinct Business Structure Differentiation

Social entertainment business remains under pressure, with revenue dropping 13% year-over-year in Q4 2024, a trend that may continue into Q2 2025. However, Kugou KTV VIP and video live streaming segments have shown steady performance. Jefferies mentions that growth in other revenue streams has partially offset business gaps, leading to a slight upward adjustment in revenue estimates. Overall, Q2 revenue is projected to grow approximately 12% year-over-year, with 11 analysts consensus expecting RMB7.9725 billion.

Positive Profit Metrics

Sustained Gross Margin Improvement

Bank of China International expects Q2 gross margin to reach 44.8% (slightly exceeding expectations), supported by optimized content costs and increased original content. Gross margin already rose 1 percentage point quarter-over-quarter to 43.6% in Q4 2024, and the upward trend is expected to continue as subscription and advertising revenue grow.

Steady Net Profit Margin Enhancement

Adjusted net profit margin is projected to reach 28.9%, with China Merchants Securities forecasting a 23% year-over-year growth in non-IFRS net profit. The company has maintained stable expense ratios despite technical investments by strictly controlling sales and administrative expenses (administrative expenses declined in absolute terms in Q4 2024), supporting net profit margin improvement.

Rationalized User Growth

Multiple institutions predict a net increase of 1.5 million paid users in Q2. The Super VIP (SVIP) model has expanded user scale while boosting ARPPU. Although management lowered the quarterly net new user guidance from 3 million to 1.5-2 million, user retention and payment willingness remain strong due to advantages in copyright libraries, music community ecosystems, and algorithm optimization.

Analyst Perspectives

Investment bank analysts generally hold a positive outlook on Tencent Music’s development. CICC maintains an "Outperform" rating, raising 2025-2026 revenue and Non-IFRS net profit expectations due to better-than-expected growth in monthly music subscription ARPPU. It predicts high-quality growth in 2025 music subscription business driven by paid user and ARPPU growth, with Q2 paid users likely increasing 1.5 million quarter-over-quarter and ARPPU rising 8.7% year-over-year.

Bank of China International expects TME’s Q2 revenue to grow 12% year-over-year, with music business up 19%. It projects a 1.5 million increase in quarterly music paid users and ARPPU of RMB11.7 (up 2% quarter-over-quarter), maintaining a "Buy" rating and raising the target price.

China Merchants Securities also maintains a "Buy" rating, forecasting 12% and 23% year-over-year growth in Q2 total revenue and non-IFRS net profit, respectively. It has raised 2025-2027 earnings forecasts due to strong online music performance and margin expansion.

CLSA raised its target price to HK$64.3 and increased 2025-2027 adjusted net profit forecasts by 4% each, believing TME’s AI initiatives will enhance user experience.

Overall, analysts agree that Tencent Music’s online music business is growing steadily with effective cost and expense control. Through original content creation, advertising innovation, and exploration of user incentive models, it continues to expand profit margins. Despite ongoing pressure in the social entertainment business, its core competitiveness positions it for long-term growth.

This content is generated based on Tiger AI and Bloomberg data, for reference only.