Key Takeaways:
Tencent Music shares fell 12.34 percent on the HKEX after reporting first-half net profit of RMB 4.69 billion, down 31.6 percent year over year.
"Our second-quarter results reflect the continued strength of our content-and-platform strategy," Cussion Pang, executive chairman of TME, said. "Concerts, merchandise, and other IP-driven experiences drove another quarter of solid growth in our marketing and consumption services."
Q2 revenue rose 5.8 percent to RMB 8.93 billion, beating the RMB 8.79 billion consensus, while diluted EPS of RMB 1.57 per ADS missed the RMB 1.62 estimate. Music-related services revenue grew 11 percent to RMB 7.61 billion, with membership services up 8.1 percent to RMB 4.79 billion.
The first-half profit decline reflects RMB 2.57 billion in lower other gains and higher amortization from the Ximalaya acquisition completed May 18. Operating expenses rose 12 percent to RMB 1.30 billion in Q2, and new borrowings lifted total debt above RMB 13 billion as of June 30, up from zero at year-end 2025.
The Ximalaya consolidation contributed RMB 407 million in Q2 revenue and supported a gross margin of 44.2 percent, broadly stable from 44.4 percent a year earlier. Marketing and consumption services, spanning advertising, offline performances and artist merchandise, grew 16.2 percent to RMB 2.81 billion, while social entertainment services fell 16.4 percent to RMB 1.33 billion.
Adjusted EBITDA rose 5.2 percent to RMB 3.25 billion, and non-IFRS net profit reached RMB 2.78 billion. The company repurchased 43.5 million ADSs for approximately US$400 million in Q2 at an average price of US$9.2 per ADS, while cash, cash equivalents, term deposits and short-term investments totaled RMB 44.22 billion as of June 30. No interim dividend was declared.
TME also expanded its AI push, integrating with Tencent's Weixin XiaoWei assistant and upgrading in-app AI agents on QQ Music and Kugou Music to act as personalized DJs. The company deepened partnerships with Dream Music Group for first-release windows and invested in THE BLACK LABEL, the South Korean label behind the KPop Demon Hunters soundtrack. It also holds a stake in SM Entertainment acquired from HYBE last year. SVIP membership continued to grow, with new benefits including digital albums and tailored gift packages for artists such as aespa, RIIZE and Lay Zhang.
The profit decline and EPS miss indicate that TME's expansion into long-form audio through Ximalaya carries near-term margin pressure even as top-line growth continues. Investors will watch the next earnings release for signs that acquisition-related amortization is easing and SVIP membership growth can offset rising costs.
This article is for informational purposes only and does not constitute investment advice.
