Tencent Music (Minutes): Subscription growth slightly slowed, short-term investments impact profitability
The following is the 3Q25 earnings call minutes of $Tencent Music(TME.US) organized by Dolphin Research. For financial report interpretation, please refer to "ByteDance's Efforts: Can Tencent Music Still Be 'Small and Beautiful'?"
I. Review of Core Financial Information
1. Tencent Music Entertainment Group (TME) reported a 21% year-over-year increase in total revenue for the third quarter of 2025, reaching RMB 8.5 billion, marking the highest growth rate since the first quarter of 2021. This was driven by the continuous growth of the music subscription business, strong performance in offline concerts, advertising services, and artist merchandise sales.
2. Online music revenue increased by 27% year-over-year to RMB 7 billion. Driven by the continuous growth in average revenue per user (ARPU) and the subscription user base, music subscription revenue for the third quarter of 2025 increased by 70% year-over-year to RMB 4.5 billion, benefiting from the expansion of the subscription user base and the increase in ARPU to RMB 11.9 (up from RMB 10.8 in the same period last year). The expansion of the SVIP membership program, DTS speaker functionality, and innovative benefits such as artist star cards effectively boosted membership penetration and activity.
Advertising revenue continued its strong year-over-year growth trend, mainly due to the diversified expansion of the product matrix and innovative forms such as ad-supported models. Offline concerts and artist merchandise sales achieved triple-digit year-over-year growth this quarter. Multiple concerts at home and abroad performed well, driving rapid expansion of the overall non-subscription business.
3. Social entertainment services and other revenue amounted to RMB 1.5 billion, down 3% year-over-year. The gross margin for the third quarter of 2025 was 43.5%, up 0.9 percentage points year-over-year. The increase in gross margin was mainly due to the strong growth in music subscription and advertising revenue, while the revenue share ratio of social entertainment services decreased. However, the gross margin of emerging business segments such as offline concerts and artist merchandise sales is relatively low, and changes in the revenue structure may lead to fluctuations in gross margin at different times.
4. Non-IFRS net profit increased by 28% to RMB 2.5 billion, and net profit attributable to the company's shareholders increased by 33% to RMB 2.4 billion. Operating expenses for the third quarter of 2025 reached RMB 1.3 billion, accounting for 15.5% of total revenue, significantly down from 17.4% in the same period last year. Sales and marketing expenses were RMB 216 million, up 18% year-over-year, mainly due to increased content promotion expenses and channel placements. Administrative expenses were RMB 1.05 billion, up 5% year-over-year. The effective tax rate for this quarter was 17.7%, roughly flat compared to the same period last year.
5. As of September 30, 2025, TME held cash, cash equivalents, term deposits, and short-term investments totaling RMB 36.1 billion, up from RMB 34.9 billion at the end of June. The company repaid USD 300 million of maturing unsecured senior notes this quarter, maintaining a stable overall financial structure.
6. Outlook: TME will continue to deepen IP cultivation and self-produced content construction while maintaining product innovation to build a vibrant and comprehensive music ecosystem. With the robust growth of core businesses and the diversified expansion of offline concerts and artist merchandise, the company is confident in the high-quality development of its business.
II. Detailed Content of the Earnings Call
2.1 Key Information from Executive Statements
1) The company delivered another impressive performance in the third quarter, with the online music business showing comprehensive and steady growth. Management emphasized that innovation in content, services, and live experiences collectively drove steady growth in the subscription business and accelerated the increase in non-subscription revenue, particularly in the concert and artist merchandise sectors.
2) TME continues to expand its content landscape, deepening cooperation with international labels such as King Records and Serial to expand anime and K-pop music categories; at the same time, it launched 50 classic game soundtracks in collaboration with Bristed Entertainment, strengthening its diverse content matrix. In terms of large-scale live events, the company planned the G-Dragon 2025 world tour and launched a new flagship music IP—the TME International Music Festival (TMA), significantly enhancing its international influence.
3) TME continues to explore new models of artist cooperation, providing comprehensive support and leveraging its increasingly enhanced promotional capabilities to enrich artist-exclusive services. Innovative forms such as digital albums and collectible card packs drive the development of the artist economy and platform commercialization. Game linkage and music integration (such as the new song "COPD" in collaboration with CrossFire) significantly increase user engagement and album sales, forming a dual-engine growth model for content and platform.
4) The company strengthens ESG and social responsibility, being awarded the "Music Public Welfare Program" partner for seven consecutive years, working with artists and users to support rural music education, with over 380,000 user participants.
5) In terms of user experience, TME continues to introduce artificial intelligence and system optimization. The company is the first to support iOS 26 liquid glass mode and HarmonyOS adaptation, and launched the "Automix" function, achieving a seamless streaming experience and comprehensively enhancing visual and interactive experiences.
6) The membership system continues to expand, with the multi-tier structure of SVIP, ADS, and standard memberships driving growth in ARPPU and penetration rates. New privileges and value-added services (such as star cars and bubble features) enhance artist-fan interaction, increasing community stickiness and user retention.
2.2 Q&A Session
Q: What is the company's outlook for the fourth quarter of this year and 2026?
A: With a comprehensive high-quality growth strategy, the company achieved strong growth in both revenue and profit in the third quarter. In the music subscription business, the number of paying users and ARPPU maintained steady growth, with SVIP penetration continuing to rise; advertising membership services are performing well and will further unlock the value of free users. Non-subscription business will remain a growth focus, with advertising business expected to expand steadily, and offline concert revenue expected to achieve triple-digit year-over-year growth. In the fan economy sector, the company has explored various new product combinations and service models, which will effectively help artists and record companies unlock commercial value. The company is expected to continue driving steady growth in revenue and profit through the strong performance of online music services in 2025.
Looking ahead to 2026, TME will fully promote the dual-engine strategy of platform and content ecosystem. Based on the existing solid foundation and new initiatives, although the growth rate of the music subscription business may slow down due to the high base, it will still maintain healthy growth. The contribution of non-subscription business to the group's performance will continue to increase, with growth expected to surpass that of the subscription business.
Q: Recently, there have been concerns about increased competition in the music streaming industry, including user growth and rising content procurement costs. How does management view the changes in the competitive landscape? What strategies will the company adopt to further consolidate its leadership position, including content differentiation, user perception, and overall service experience?
A: Competition in the music industry is normal, and the company has gone through multiple competitive cycles while maintaining its lead. The core competitiveness lies in a rich music content library, a long-term accumulated user asset management system, and an excellent sound quality experience. TME continues to invest in high-fidelity sound effects and multi-terminal scenario layouts, maintaining a leading position in mobile, PC, and in-car services. In terms of content, the company continues to co-create deeply with top IPs such as Tencent Games and Tencent Video to create diverse music content. Through the "One Body, Two Wings" strategy—integrating platform and content development, TME will continue to consolidate its leading advantage in the music streaming industry.
Q: Can the company share its plans for the concert business in 2026? How should we model the revenue growth of concert merchandise sales and digital album sales? What challenges and opportunities does the company face in promoting the concert business? How will it ensure sustainable long-term stable growth in this business?
A: The concert business is a long-term strategic commitment of TME, and the company continues to invest resources to consolidate its core advantages. TME is leveraging its own IP—TMEA and the TME platform to create top artist tours and immersive music experiences, and has achieved success in tour projects in the Asia-Pacific region. In the future, the company will continue to integrate online and offline resources, strengthen collaboration with artists and partners, and deepen the fan economy through concert privileges, exclusive benefits, and fan community building. Management pointed out that this model not only helps to increase merchandise and digital album sales but also enhances the value of SVIP subscriptions, thereby promoting sustainable long-term growth in the concert business.
Q: What are the growth drivers for subscription services in 2026? How will the company balance user growth and ARPU in the face of increased competition and the introduction of low-cost packages? Additionally, can you disclose the penetration rate target for SVIP users?
A: Growth drivers may come from the following aspects:
First, continue to rely on high-quality content to serve enterprise customer groups. The company will continue to collaborate with IP partners to provide users with high-quality and unique content.
The second growth point may come from content IP. Starting in 2026, the company will expand new boundaries beyond traditional music content while promoting the expansion of star cards, similar launches, and merchandise boundaries.
Another key growth point will come from the enhancement of functional privileges, including sound quality optimization, sound effect enhancement, ringtone editing, and AI-powered audio creation functions. These differentiated features will become core competitive advantages in the market. Additionally, through the integration and innovation of content and functions, the company aims to expand the subscription scale while achieving ARPPU growth.
Low-cost packages are not a short-term strategy but an important part of the freemium model launched three years ago. Through the multi-stage membership system of "Free—Standard—SVIP," users are gradually guided to upgrade, balancing user growth and monetization efficiency. The company emphasizes that it has accumulated rich experience in balancing commercialization efficiency and user retention. Regarding SVIP, management noted that its penetration rate and ARPPU continue to rise, and in the future, it will continue to drive high-value membership growth through high-quality content and in-depth cooperation with IP partners.
Q: Given the rapid growth of offline concerts and artist merchandise sales, which may change the revenue structure, what impact will these businesses have on overall gross profit and profit margin trends?
A: The continuous growth of subscription and advertising businesses will continue to drive gross margin upward, and the company is also continuously optimizing the content cost structure and efficiency. However, with the rapid expansion of offline concerts and artist merchandise sales, there will be some short-term seasonal fluctuations and investment pressures. In the long term, these emerging businesses can enhance user value and overall revenue scale, helping to drive steady growth in gross profit and profit. It is expected that the gross margin in the fourth quarter will be higher than in the third quarter, and the company remains confident in revenue growth and profit margin improvement in 2026.
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