Tencent Music Entertainment Group Q3 FY2025 earnings call

Content Coverage Expansion

• Enriched content coverage in different music genres and languages, e.g., renewed contracts with Korean dramas, partnered with Tencent Games and Blizzard Entertainment for game-related music.

Large-Scale Concerts and Events Success

• Hosted G-Dragon's 2025 World Tour with 14 shows in 6 cities, annual TMEA concert, and inaugural TME Live International Music Awards (TIMA) with 22 global artists.

Artist Partnership Innovation

• Partnered with Tencent's Crossfire to produce a new song, premiered Lejiang's digital album with collectible cart packages, and rolled out new Starlight cards with popular artists.

Platform System Integration and Function Upgrade

• Supported Apple's Liquid Glass mode, adapted app for HarmonyOS, upgraded player interactive features and AI-powered functionalities, expanded AI-powered lyrics card feature, and upgraded AI assistant.

In Q3 2025, online music revenues grew over 27% year-on-year to RMB 7 billion. Music subscription revenues grew 70% year-on-year to RMB 4.5 billion, with monthly ARPPU reaching RMB 11.9. Advertising revenue continued strong growth. Offline performances and artist-related merchandise sales delivered triple-digit year-on-year revenue growth. Social entertainment service and other revenues were RMB 1.5 billion, down by 3% year-on-year. Gross margin in Q3 2025 was 43.5%, up 0.9 percentage points year-on-year.

2025 Outlook

• Hopeful to deliver strong performance of online music services for good revenue and profit growth.

2026 Outlook

• Implement platform and content ecosystem dual engine strategy. Subscription business expected to have sustained healthy growth though at a slightly slower rate due to high base. Non-subscription businesses' contribution to group performance will continue to increase and grow faster than subscription business.

Q: About the fourth quarter this year and the 2026 outlook for the business.

A: With holistic high-quality growth strategy, delivered strong results. Subscription side: multipronged membership offerings help cater to user needs, paying users and ARPPU grow steadily. Non-subscription side: advertising diversified and innovative ad formats drive growth, live concerts business has achieved breakthroughs at home and abroad with triple-digit revenue growth, fan-based economy explores new product combinations. For 2026, implement dual engine strategy, subscription business expected to grow healthily though slower, non-subscription contribution to increase and grow faster.

Q: Thoughts on industry competition landscape and strategy to enhance leadership in content differentiation, user mindset, and service offering.

A: Competition is normal. TME's competitive edge lies in music library and accumulated user asset management. Leads in sound quality, extends content coverage, has unique fan interaction features like Starlight Card, Bubble. Strong in social entertainment business and leasing product. Product innovation, optimize user experience, continue to pioneer and lead market. Provide most complete and high-quality application content, co-create with music creators and partners.

Q: 2026 pipeline for music concert and challenges/opportunities in pursuing concert business for sustainable growth.

A: Organize top artists' tours and performances, leverage own proprietary IP like TMEA and TIMA. Integrate online and offline music resources, deepen collaboration with music ecosystem. Provide performance and fan-based economy privileges to promote SVIP subscription business development. Merchandise sales from tours have been successful, continue to provide primary privileges to fans.

Q: Growth driver for subscription services in 2026, including ARPPU and net adds, and thoughts on competitive dynamic and SVIP goals.

A: Growth drivers include leveraging high-quality content, content privileges like Starlight Cards and concerts, functional privileges like sound quality and AI-powered features. Low-priced packages are not new, TME has experience in balancing commercialization and user retention. SVIP continues to be critical, penetration and ARPPU still growing, key driver for 2026 is forging comprehensive partnership with IP partners to drive SVIP growth.

Q: Profitability of offline performance and artist-related merchandise initiatives and impact on gross profit and margin trend.

A: Subscription and advertisement business growth benefits GP margin. Offline performance and artist-related merchandise initial investment has negative impact on GP margin in early stage. Q4 GP margin expected to be elevated compared with Q3. 2026, confident in revenue growth and margin growth despite seasonality, still confident in 2026 revenue and margin growth