Shares of Tencent Music Entertainment Group(TME -0.23%) were taking a dive today after China's leading music streaming platform reported solid growth in its fourth-quarter earnings report, but that was overshadowed by a decline in its user base.
As of 11:21 a.m. ET, the stock was down 20.8% on the news.
Image source: Getty Images.
What happened with Tencent Music
Revenue in the quarter rose 15.9% to $1.24 billion, and adjusted earnings per share improved from $0.21 to $0.23, which matched estimates.
Revenue from music subscriptions was up 13% to $653 million, while sales from music services other than music subscriptions rose 41% to $363 million.
However, one red flag stood out in its earnings report, which was that monthly active users were down 5% to 528 million, even as paying users rose 5.3% to 127.4 million. That appears to be a result of competition from short-form video platforms like ByteDance's Douyin (China's TikTok) and Qishui Music, and shows that Tencent Music's growth pipeline could be drying up.
Management noted that its super VIP user base continued to grow, topping 20 million, and average revenue per paying user rose as well, up 7% to 11.9 RMB. CEO Ross Liang said, "Our newly launched ad-supported subscription plan is gaining initial progress and will, over time, allow us to broaden user access and attract audiences."
NYSE: TME
Key Data Points
What's next for Tencent Music
Chinese companies don't offer guidance, so it's unclear what Tencent expects for 2026. The company seems committed to pivoting to a higher-end customer, and that strategy could pay off.
It's not clear if the market is bifurcating into a free tier, owned by its competitors, and a paid tier owned by Tencent, or if Tencent is losing market share.
For now, the 20% drawdown seems exaggerated, but investors should keep an eye on the MAU decline.
