TME Shares Rally 3.45% as Subscription Revenue Jumps 17% Strategic Shifts Drive Margin Expansion

Tencent Music (TME) shares surged to a new peak on Monday, climbing 3.45% intraday to reach their highest level since September 2025. The rally reflects investor confidence in the company’s strategic pivot toward high-margin music subscriptions and technological innovation, despite ongoing regulatory scrutiny.

The company’s core online music business drove growth, with subscription revenue rising 17% year-over-year and paying users reaching 122.9 million. A premium SVIP tier offering high-fidelity audio and exclusive content boosted average revenue per user to RMB 11.4, while gross margins expanded to 44.1%. This shift has offset declines in the social entertainment segment, which fell 12% YoY, as TME focuses on sustainable, diversified revenue streams.

Strategic moves into advertising and merchandise further strengthened its financial position. Collaborations with Tencent Video and partnerships to monetize physical albums have diversified income sources. However, a 4% drop in monthly active users to 555 million highlights challenges in retaining engagement in a saturated market. The acquisition of Ximalaya, valued at $2.4 billion, aims to expand TME’s audio ecosystem but faces regulatory hurdles requiring open licensing terms, potentially limiting monetization potential.

TME’s AI-driven innovations, including personalized recommendations via DeepSeek LLM, have enhanced user retention and reduced curation costs. Coupled with RMB 37 billion in cash reserves and a $1 billion share repurchase plan, these measures reinforce investor sentiment. The company’s forward P/E ratio of 27x lags global peers like Spotify, suggesting valuation upside as it scales new revenue streams. Analysts project a median price target of $24.47, reflecting optimism about its ability to navigate regulatory risks and tap into China’s $15 billion audio market by 2027.