What happened

Shares of Tencent Music (TME -1.83%) were gaining today after the Chinese music streaming company posted strong third-quarter earnings and benefited from braoder gains in China stocks.

As of 11:02 a.m. ET, the stock is up 21.7%.

So what

The company topped estimates on both the top and bottom lines, though revenue declined 5.6% to $1.04 billion, which was ahead of expectations at $994.3 million.

Tencent Music is in the midst of a strategic shift from free users to paying ones, meaning it's sacrificing revenue for profitability. Revenue from music subscriptions rose 18.3% to $316 million, and paying subscribers increased 19.8% to 85.3 million. On the other hand, monthly active music users fell from 7.7% to 587 million. 

On the bottom line, adjusted earnings per share rose $0.09 to $0.12, beating estimates at $0.10.

CEO Cussion Pang said, "As we are employing a balanced approach to grow paying users and ARPPU [average revenue per paying user], revenues from online music services increased at a healthy pace in the third quarter, driven by year-over-year gains in subscriptions. Meanwhile, effective cost optimization measures and improved operating efficiency led to increased profitability amid challenging macro conditions this quarter."

Now what

Tencent Music did not provide guidance, but the stock is also likely benefiting from broader tailwinds among Chinese stocks, as investors responded well to the first face-to-face meeting between President Biden and Chinese leader Xi Jinping. Additionally, signs that the COVID and property crises in China are easing also lifted the sector. The Hong Kong–based Hang Seng index has even entered a bull market after rallying over the last few weeks.

With Tencent Music already showing profit growth and gains in paying subscribers, the company's performance could get another boost if the situation improves at the macro level as well.