In an increasingly competitive streaming market, Tencent Music delivered an unexpectedly strong performance: Q2 saw a dual acceleration in revenue and profit, with robust growth in online music services.
On Tuesday afternoon, Tencent Music announced its Q2 financial report. Key points are as follows:
Financial Performance
<ul>
<li>Total revenue reached RMB 8.44 billion, a year-on-year increase of 17.9%, primarily driven by strong growth in online music services.</li>
<li>Online music service revenue was RMB 6.85 billion, up 26.4% year-on-year; music subscription revenue was RMB 4.38 billion, an increase of 17.1%.</li>
<li>Net profit was RMB 2.41 billion, a year-on-year increase of 43.2%; non-International Financial Reporting Standards net profit was RMB 2.57 billion, up 37.4%.</li>
<li>Gross margin improved to 44.4%, compared to 42.0% in the same period last year.</li>
<li>Cash and cash equivalents totaled RMB 34.92 billion, indicating a solid financial position.</li>
</ul>
Core Business Progress
<ul>
<li>SVIP users surpassed 15 million, with average monthly ARPPU rising to RMB 11.7 (a year-on-year increase of 9.3%).</li>
<li>Online music paying users reached 124.4 million, a year-on-year increase of 6.3%, but monthly active users were 553 million, down 3.2% year-on-year.</li>
<li>Social entertainment service revenue was RMB 1.59 billion, a year-on-year decrease of 8.5%, continuing to face pressure.</li>
</ul>
<h2>Core Growth Engine: Strong Performance of Subscription Business</h2>
The biggest highlight of Tencent Music's Q2 was undoubtedly the strong performance of its online music business.
Online music service revenue reached RMB 6.85 billion, a year-on-year increase of 26.4%, further increasing its share of total revenue to 81.2%. Among this, music subscription revenue was RMB 4.38 billion, up 17.1%, continuing to play a major role in driving revenue growth.
Of particular note is the continuous improvement in user value. Average monthly ARPPU increased from RMB 10.7 in the same period last year to RMB 11.7, a year-on-year increase of 9.3%, primarily due to the successful promotion of the SVIP membership program. Management revealed that SVIP subscription users have surpassed 15 million, setting a new historical high, reflecting strong demand and willingness to pay for premium music experiences.
However, the issue of a ceiling on user growth still exists. Online music MAU was 553 million, down 3.2% year-on-year, marking a continuous decline over several quarters. Although the number of paying users continues to grow (124.4 million, up 6.3% year-on-year), the overall shrinkage of the user pool may limit long-term growth potential.
Tencent Music is transitioning from a pure streaming platform to a comprehensive music entertainment ecosystem. In this quarter, the company made significant progress in new areas such as performance business and artist merchandise sales. It successfully held a G-DRAGON concert in Macau, attended by over 36,000 fans, with official merchandise quickly selling out. Additionally, the company organized a series of stadium concerts for artists such as Ding Dang, Yuan Yawei, and GAI.
<h2>Significant Improvement in Profitability and Enhanced Operational Efficiency</h2>
Gross margin increased from 42.0% in the same period last year to 44.4%, mainly benefiting from the higher proportion of high-margin music subscription and advertising service revenues, while the revenue share from social entertainment services decreased
The operating expense ratio dropped significantly from 16.0% to 13.7%, demonstrating the company's cost control ability under scale effects.
Net profit reached 2.41 billion yuan, a year-on-year surge of 43.2%, with profit growth clearly outpacing revenue growth, reflecting the effectiveness of business structure optimization. The diluted earnings per ADS were 1.55 yuan, a substantial increase from 1.07 yuan in the same period last year.
<h2>Concerns and Challenges Cannot Be Ignored</h2>
Despite the overall impressive performance, several potential issues warrant attention.
First, revenue from social entertainment services and other businesses declined by 8.5% to 1.59 billion yuan, indicating that this traditional advantageous business is under sustained pressure. Although this business now accounts for only 18.8% of total revenue, its shrinking trend may affect the sustainability of overall growth.
Second, revenue costs increased by 13.1% to 4.69 billion yuan, primarily due to rising costs related to IP, artist merchandise, offline performances, and advertising agency fees. As the company continues to invest in diversified businesses, cost control will become a key challenge in maintaining profitability.
Finally, there have been some concerning changes in cash flow conditions. Operating cash flow decreased from 2.94 billion yuan in the same period last year to 1.64 billion yuan, while investment cash flow was negative 630 million yuan, mainly used for new business investments. Cash and cash equivalents fell from 37.67 billion yuan at the end of the first quarter to 34.92 billion yuan

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In the second quarter, Tencent Music's online music service revenue reached 6.85 billion yuan, a year-on-year increase of 26.4%, further increasing its proportion of total revenue to 81.2%. The number of SVIP users exceeded 15 million, with the average monthly ARPPU rising to 11.7 yuan (a year-on-year increase of 9.3%)

- Tencent Music reported strong Q2 results, with total revenue reaching 8.44 billion RMB, a 17.9% year-on-year increase, driven by robust online music service growth.  
- Online music service revenue grew by 26.4% to 6.85 billion RMB, while net profit surged 43.2% to 2.41 billion RMB, reflecting improved profitability and operational efficiency.  
- However, challenges remain, including a decline in social entertainment service revenue and cash flow concerns, which may impact long-term growth sustainability.

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With the boost from online music services, Tencent Music's Q2 revenue increased by 17.9% year-on-year, and net profit surged by 43.2% year-on-year | Financial Report Insights