Tencent Music 2Q26 First Take: Q2 results were not strong. The apparent beat mainly reflects the consolidation of a little over one month of Ximalaya, and Bloomberg consensus likely did not fully capture that change. Ex-Ximalaya, Dolphin Research’s rough cut indicates Q2 tracked broadly in line with end-Q1 guidance.

The only consolation lies in shareholder returns, with buybacks running ahead of pace. The plan called for just over $900 mn for the year, but the company spent $400 mn in less than two months, as buybacks could only start after Ximalaya was consolidated on May 18.

Overall, Q2 reflects the ongoing drag from competition. Tencent Music is leveraging its ecosystem to expand offline entertainment, and pursuing M&A integration as self-help.

From an investment angle, Dolphin Research keeps its view unchanged: near term, the downside looks well-defined, supported by the intrinsic value of music/audio assets and buybacks. However, upside elasticity remains limited, so the risk-reward still hinges on mean reversion after an over-selloff.

1) Total revenue was RMB 8.9 bn, up 6% YoY. Ximalaya contributed RMB 400 mn; excluding it, the legacy biz grew 1%, slightly below post-Q1 guidance.

(1) Subscription revenue: legacy music likely below expectations. Details below.

Q2 subscription revenue was RMB 4.79 bn, up 8% YoY. Since the company no longer discloses volume/price splits this year, Dolphin Research estimates legacy music membership revenue at RMB 4.5 bn (assuming Ximalaya’s subs are 65% of its revenue). Assuming flat ARPPU QoQ and -2% YoY, net adds were roughly 0.6 mn.

(2) Other music: mainly driven by offline concerts. Details below.

Other music revenue reached RMB 2.8 bn, with growth slowing to 16% on a high base. Ads likely softened on macro and competition from Soda Music, while offline concerts were the key driver.

(3) Social entertainment: further deterioration. Details below.

Live-streaming and karaoke revenue fell 16% YoY. The segment has not found a floor post clean-up, and competition from peers likely weighed.

2) Profitability improved slightly, with adj. margin up 1.5ppt QoQ to 31.1%. The QoQ change was larger than in prior years.

(1) GPM dipped slightly, reflecting the higher cost base of offline concerts, while the Ximalaya acquisition helped optimize content costs.

(2) OPM edged up. While consolidating Ximalaya added amortization of intangibles, S&M growth slowed; Q1 had already front-loaded spend (+36% YoY), and long-form audio integration also aided user acquisition.$Tencent Music(TME.US) $TME-SW(01698.HK)