Tencent Music 4Q25 Review: Investors are already scared to death

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A 25% plunge, the market has killed Tencent Music's valuation logic for the next two years.

$Tencent Music (TME.US)$$Tencent Holdings (00700.HK)$

Tencent Music's Q4 earnings report wasn't actually a bomb. Revenue exceeded expectations, profit margins held up, and other revenue streams like advertising and performances within the online music segment were even significantly stronger than market expectations.

But a 25% plunge candle clearly indicates: What the market killed last night wasn't the Q4 performance, but Tencent Music's valuation logic for the next two years.

With the core long-term metric of active users declining, subscription price hike logic hitting a ceiling, and management stopping the disclosure of key operational metrics, investors are no longer willing to be patient with any company facing competitive pressure.

The most direct trigger for last night's plunge was that ARRPU didn't increase sequentially.

The paid penetration rate was 24.1%, continuing to improve year-over-year; net paid user additions were 1.7 million, better than the 1.3 million last quarter. This shows Tencent Music hasn't lost its ability to attract new users; its product and copyright moat remains.

But ARRPU was only RMB 11.9, up 7% year-over-year, flat sequentially, and below the market expectation of RMB 12+. Why is this so critical? Because the core stock price logic for Tencent Music over the past two years was: user numbers grow steadily a bit, ARPPU increases a bit more, and profits can be released continuously. Now, the second, most crucial part of this formula is stuck.

This isn't accidental. During last year's Double Eleven, Tencent Music's membership prices hit a multi-year low. In the current consumer environment, further price hikes are inherently difficult. SVIP and tiered benefits can still be implemented, but the marginal contribution is clearly declining. For at least the next 2-3 quarters, it's highly likely to enter a phase where paid users can still grow, but ARPPU will first stagnate or even decline. For a company whose valuation was originally supported by steady price hikes, this is enough for the market to reprice it.

An even more dangerous signal is that starting in 2026, the company will no longer disclose quarterly data for online music MAU, paid user numbers, and ARPPU.

This move is highly damaging; it directly removes the transparency the market relies on most. In the past, people were willing to hold Tencent Music as a value stock largely because, although its growth wasn't fast, its competitive landscape was good, its model was simple, and its data was transparent, allowing investors to calculate clearly.

Now, with the three core subscription metrics gone, the market will only assume the worst first: Is MAU decline pressure greater? Is ARPPU failing? Is paid user growth also nearing its end?

Management may have its own logic, perhaps wanting to downplay short-term volatility and emphasize long-term LTV. But in the current market environment, the less you say, the more the market assumes you have a problem. For a low-growth company, losing transparency is almost like voluntarily giving up a valuation premium.

Looking at this earnings report within the company's entire cycle, Tencent Music is actually at a very delicate position.

Over the past few years, it has completed the transformation from a live-streaming tipping platform to a high-quality music subscription platform: social entertainment revenue has continued to decline, online music has become the core, and gross and net profit margins have kept rising. With a stable competitive landscape and an appealing story about spiritual consumption, this is still a very attractive internet cash cow model. But the dividends from this phase have been largely realized, and favorable conditions are facing reversal.

Previously, Tencent Music at 15x could easily be called undervalued in a market with low interest rates, low volatility, and scarce certainty. But now AI has disrupted the valuation systems of all internet companies, and the company has also admitted to facing short-term pressure due to intense competition. The market is unwilling to give any premium to companies with "low growth + competition + lack of imagination," no matter how beautiful their cash flow or how high their profit margins.

In the short term, a rebound is possible after the oversold condition, as the valuation is no longer expensive, and buybacks and dividends can provide support. But what determines the stock price potential in the medium to long term is whether Tencent Music can still prove its competitiveness.

If ARPPU continues to stagnate, MAU continues to be eroded, and advertising and performances only fill the gaps, then it becomes a very cheap but hard-to-rise stock, similar to Vipshop with its 7x PE and high shareholder returns.

As one investor commented: Tencent Music now has a pursuer, and it feels like it can't win.