Tencent Music's Q3 2025: Contradictions in Subscription Growth and SVIP Strategy Emerge Between Q3 and Q2 Updates

Date of Call: None provided

Financials Results

• Revenue: RMB 8.5 billion, up 21% YOY (online music revenues RMB 7.0 billion, up 27% YOY; music subscription revenues RMB 4.5 billion, up 70% YOY)
• EPS: Diluted earnings per ADS RMB 1.38, up 37% YOY (non-IFRS diluted EPS RMB 1.44, up 33% YOY)
• Gross Margin: 43.5%, up 0.9 percentage points YOY

Guidance:

• Continue to pursue high-quality growth and broaden IP and product investments into Q4 2025.
• Expect sustained healthy subscription growth in 2026, though at a slightly slower rate given a high base.
• Non-subscription businesses (advertising, live concerts, artist merchandise) expected to grow faster than subscriptions and contribute increasingly to group performance.
• Continue investing in platform+content (IP cultivation, product innovation, live events) to support long-term revenue and gross-profit growth.

Business Commentary:

• Strong Financial Performance:
• TME reported total revenues of RMB 8.5 billion in Q3, marking a 21% year-on-year increase, with music subscriptions growing 70% year-on-year.

• The growth was driven by strong performance in online music business, live events, and artist merchandise sales.

• Content Expansion and Innovation:

• TME enriched its content library, partnering with various artists and labels, including Korean and Japanese, and produced original soundtracks for popular games.

• This content diversification and strategic partnerships enhanced user experience and engagement, contributing to subscription growth.

• TME's music subscription revenues grew 70% year-on-year, with monthly ARPU reaching RMB 11.9.
• This growth was attributed to the expansion of SVIP membership, enhanced content offerings, and innovative features such as high-quality sound and exclusive artist collaborations.

Sentiment Analysis:

Overall Tone: Positive

• Management said they "delivered another quarter of strong financial results": total revenues grew 21% YOY to RMB 8.5 billion; net profit rose 29% to RMB 2.2 billion; diluted EPS up 37% YOY. Executives repeatedly expressed confidence in continued growth and in the platform+content strategy driving 2026 performance.

Q&A:

• Question from Liu Yang (Morgan Stanley): I would like to ask about the fourth quarter this year and the 2026 outlook for the business.
  Response: Management expects continued strong Q4 results and for 2026 to see sustained subscription growth (slower vs. 2025) while non-subscription areas (ads, concerts, merchandise) grow faster and drive group revenue and profit.

• Question from Lincoln Kong (Goldman Sachs): Do you see any change in the competitive landscape for music streaming and how will you sustain leadership in content differentiation and user experience?
  Response: Management views competition as normal but believes TME's advantages—extensive music library, accumulated user data/asset management, superior sound quality/features and an integrated platform+content strategy—preserve its leadership.

• Question from Alicis a Yap (Citigroup): What is your 2026 pipeline for music concerts and how should we model revenue from concerts, merchandising and digital album sales?
  Response: Company is committed to long-term investment in live events and proprietary IP (e.g., TMEA), scaling tours and integrating online/offline assets to grow ticket, merchandise and fan-economy revenue and to support SVIP conversion.

• Question from Thomas Chong (Jefferies): How should we think about 2026 subscription growth drivers, ARPU vs. net adds, use of lower-priced packages, and SVIP penetration goals?
  Response: Expect steady subscriber growth and ARPPU expansion driven by high-quality and exclusive content, content privileges (Starlight cards, merchandise), upgraded functional features (sound/AI) while ad-supported/lower-price tiers remain part of the monetization mix.

• Question from Unknown Analyst (Unknown): Given robust growth in offline performances and artist-related merchandise, how should we think about profitability and gross-margin trends as revenue mix shifts?
  Response: Management says subscription and advertising growth plus content-cost optimization support gross margin, concerts/merchandise have lower margins and require upfront investment, but they expect Q4 gross margin to be higher than Q3 and long-term investments to improve revenue and gross profit.

Contradiction Point 1

Subscription Growth and Strategy

It involves the company's strategy and expectations for subscription growth, which is a key revenue driver and critical for investor expectations.

What are your expectations for Q4 and the 2026 outlook? - Yang Liu (Morgan Stanley)

20251112-2025 Q3: We plan to continue healthy growth in the music subscription business, although at a slightly slower rate due to its high base. - Unknown Executive

How should we think about the second half’s revenue and profit outlook? - Lincoln Kong (Goldman Sachs)

2025Q2: Tencent Music has seen strong growth, with music subscription and non-subscription services performing well. The subscriber base reached over 124 million, showing steady growth in ARPPU. - Kar Shun Pang(CFO)

Contradiction Point 2

SVIP Strategy and Growth

It involves the strategy and expectations for SVIP growth, which is a key component of TME's subscription business and important for investor analysis.

What are the growth drivers and targets for subscription services in 2026? - Thomas Chong (Jefferies)

20251112-2025 Q3: SVIP remains critical, and we will drive SVIP growth through IP partnerships. - Unknown Executive

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2025Q2: Bubble is a collaboration with DearU, launched to enhance user experience. It offers a platform for users to interact with artists directly. The service is expected to drive SVIP growth. - Kar Shun Pang(CFO)