CLSA Slashes Tencent Music Target to $63.6 on AI, Competition Fears

CLSA Slashes TME Price Target to $63.6 on 2026 Growth Concerns

Investment bank CLSA has materially lowered its expectations for Tencent Music Entertainment (01698.HK), cutting its 2026 adjusted net profit forecast by 5%. The firm slashed its target price for TME's Hong Kong-listed shares to $63.6 and its U.S. counterpart to $16.3, citing reduced earnings visibility. The downgrade comes as the company’s stock fell 7.47% on March 18, reflecting investor anxiety over weakening performance at the start of 2026. CLSA attributed the dimmer outlook to a slowdown in subscription revenue growth and anticipated higher sales and marketing expenses needed to promote original content against new competitive pressures.

Downgrade Follows 15.8% Revenue Growth in 2025

The analyst downgrade presents a stark contrast to Tencent Music's solid operational results from 2025. During that year, the company successfully expanded its paid user base to 127.4 million, a notable increase from 121 million the prior year. This conversion of free listeners to subscribers propelled online music revenues up by a healthy 15.8% year-over-year to RMB 32.9 billion ($4.71 billion). However, total monthly active users for its online music services declined by 5% to 528 million, signaling a shrinking pool of potential new subscribers and underscoring the competitive challenges ahead.

AI Poses Double-Edged Sword as Competition Mounts

The key challenge highlighted by CLSA is the rise of AI-generated content, which threatens to disrupt the music industry's economics. This new form of competition is a primary factor behind the brokerage's forecast for slower growth and higher costs for TME. Paradoxically, Tencent Music is also a participant in this trend, having developed its own AI music production platform that boasts over 10 million users and 150,000 artist participants. The company's ability to navigate this dual role—fending off AI as a competitive threat while leveraging it as a growth tool—will be critical in determining its long-term value capture.