Tencent Music Entertainment Group (TME) Q3 2025 Earnings Call Transcript

Date: November 12, 2025 | Source: Company IR (ir.tencentmusic.com) — official transcript

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Millicent T. (Head of IR, Tencent Music): Good evening, good morning, and welcome to Tencent Music Entertainment Group's Third Quarter 2025 Earnings Conference Call. I'm Millicent Tu, Head of IR. We announced our quarterly financial results earlier today before the US market opened. The earnings release is now available on our IR website and via Newswire services. During today's call, you'll hear from Mr. Cussion Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. Then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to the Safe Harbor statement in our earnings release, which applies to this call as we'll make forward-looking statements. Please note that we will discuss non-IFRS measures today. With that, I'm pleased to turn the call over to Cussion.

Kar Shun (Cussion) Pang (Executive Chairman, Tencent Music): Thank you, Millicent. Hello everyone and thank you for joining our call today. In the third quarter, we delivered another set of strong financial results, underpinned by the well-rounded performance of our online music business. Our ongoing innovations across content, services, and live experiences continued to fuel steady growth in our subscription business, while boosting momentum in non-subscription revenue, particularly in concerts and artist merchandise.

First, we further enriched our content coverage to include more offerings in different music genres and languages. For example, in pop music, we renewed contracts with DREAMUS, a leading Korean label, and partnerships with G.E.M. Studio, Jason Zhang's studio, and Lay Zhang's studio, strengthening our collection of top hits. To better serve users' passion for game-related music, we partnered with Tencent Games to co-produce "Atlas of Tomorrow," the 10th anniversary theme song performed by JJ Lin for Honor of Kings, which quickly garnered over 600 million social media mentions within two weeks of its release. We also collaborated with Blizzard Entertainment for the first time, introducing 50 original soundtracks from iconic game titles including World of Warcraft and Hearthstone. To further enrich anime and K-pop music categories, we established strategic partnerships with renowned Japanese ACG label KING RECORDS and Korean label CEREAL.

Second, during the quarter, we successfully staged several large-scale international concerts and events, extending our reach beyond borders to tap into international market opportunities. A prime example is the G-DRAGON 2025 WORLD TOUR. Building on our success in the second quarter, this time we put on 14 additional sold-out shows for him across six cities, including Sydney, Melbourne, and Kuala Lumpur, drawing over 150,000 attendees. Our annual flagship TMEA concert was another success and a highlight for the quarter, featuring 35 different artists and groups and drawing more than 10,000 attendees. This year we broke new ground and introduced another flagship concert IP, TME Live International Music Awards (TIMA), featuring 22 globally renowned artists and groups, with the two-day event immersing over 20,000 attendees. We also organized and delivered several major concert tours for well-known artists like Fiona Sit, TIA RAY, Angela Zhang, and GAI.

Third, we continued to break new ground with artist partnerships. We premiered Lay Zhang's new digital album "ROCK THE HEAVENLY PALACE" together with collectible card packages, and the production and release of Bai Lu's first physical album "My Odyssey" marked another success. All of the above examples illustrate the power and flywheel of our content and platform dual engine. Last but not least, on ESG, for seven consecutive years we have proudly run the Music Garden Space public welfare program. Looking ahead, we will continue to leverage our dual engine strategy and explore new opportunities, building a seamless, vibrant, all-in-one music service platform. Now I would like to hand it over to Ross.

Liang (Ross) Zhu (CEO, Tencent Music): Thank you, Cussion. Hello, everyone. Our music ecosystem continued to thrive in the third quarter, benefiting from our profound user insights and operational excellence. As we focused on enhancing the value proposition for users, this quarter we achieved steady growth in SVIP penetration and ARPPU. To this end, our commitment to harnessing AI to elevate user experiences continued to empower us to remain at the forefront of delighting music users. We were among the first to support Apple's "Liquid Glass" mode in iOS 26, and introduced Liquid Glass themes and player on Android. We also fully adapted our app for HarmonyOS. We pioneered a multi-mode song transition feature, Automix, offering seamless remixes and a more immersive streaming experience. We expanded our AI-powered lyrics card feature, newly covering over 200 leading artists. Our upgraded AI assistant allows users to generate a personalized playlist with just one tap or easily create their own original music.

Our multi-pronged membership offerings cater to distinct needs. Whether a freemium user, a deeper-value ads member, or a standard subscriber, we provide different services. In fact, recently, we started to see an increasing willingness of freemium users upgrading to ads members, which also led to increased time spent. For those looking for the ultimate experience, our SVIP offers an unparalleled range of premium features, which have been crucial in driving SVIP adoption rate and average spend. Its penetration and ARPPU expanded both year-over-year and quarter-over-quarter, as we introduced new privileges and innovative services. We also advanced our smart vehicle coverage, deepened our presence in the Tencent ecosystem, and continue to build out our cross-device strategy. This concludes my prepared remarks. I'd like to turn the call over to Shirley.

Shirley Hu (CFO, Tencent Music): Thank you, Ross, and greetings, everyone. Let me now turn to our financial results. In Q3 2025, our total revenues grew 21% year-on-year to RMB 8.5 billion, marking the highest revenue growth since Q1 2021. This resulted from continued growth momentum in music subscriptions, together with robust growth in offline performances, advertising services, and artist-related merchandise sales. Online music revenues grew 27% year-on-year to RMB 7.0 billion. Music subscription revenues grew 17% year-on-year to RMB 4.5 billion in Q3 2025, driven by continued growth in monthly ARPPU and subscriber base. Monthly ARPPU reached RMB 11.9 this quarter, compared to RMB 10.8 in the same period of last year, primarily driven by expansion in the SVIP membership program. Advertising revenue continued its strong growth trajectory on a year-on-year basis, primarily driven by more diversified product portfolio and innovative ad formats such as the ad-supported mode. Offline performances and artist-related merchandise sales delivered triple-digit year-on-year revenue growth this quarter. Social entertainment services and other revenues were RMB 1.5 billion, down by 3% year-on-year.

Our gross margin in Q3 2025 was 43.5%, up by 0.9 percentage points year-on-year. The increase was mainly attributable to strong growth in music subscription and advertising revenues, alongside a lower revenue-sharing ratio in social entertainment services. At the same time, new growth areas such as offline performances and artist-related merchandise sales have lower gross margin. Moving on to operating expenses, they amounted to RMB 1.3 billion, representing 15.5% of our total revenues in Q3 2025, compared with 17.4% in the same period of last year. Selling and marketing expenses were RMB 260 million, up by 18% year-on-year, primarily due to higher content promotion expenses and channel spending. General and administrative expenses were RMB 1.05 billion, up by 5% year-on-year, primarily due to growth in employee-related expenses.

Our effective tax rate for Q3 2025 was 17.7%. For Q3 2025, our net profit increased by 29% to RMB 2.2 billion, and net profit attributable to equity holders of the Company increased by 36% to RMB 2.2 billion. Non-IFRS net profit increased by 28% to RMB 2.5 billion, and non-IFRS net profit attributable to equity holders of the Company increased by 33% to RMB 2.4 billion. Our diluted earnings per ADS this quarter was RMB 1.38, up by 37% year-on-year, and non-IFRS diluted earnings per ADS was RMB 1.54, up by 33% year-on-year. As of September 30, 2025, our combined balances of cash, cash equivalents, term deposits and short-term investments were RMB 36.1 billion, as compared to RMB 34.9 billion as of June 30, 2025, impacted by the repayment of US$300 million for the senior unsecured notes due in Q3 2025.

Looking forward, we will put more efforts in IP cultivation and self-produced content, while keeping product innovation to foster a vibrant and comprehensive music ecosystem. With solid growth in our core business and increased product diversification such as offline performances and artist-related merchandise, we are well positioned and confident in the high-quality growth of our business. This concludes our prepared remarks. Operator, we are ready to open the call for questions.

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Questions & Answers

Analyst (Q1): On the competition and subscription trajectory — how should we think about the SVIP growth and ARPPU contribution to overall growth?

Liang (Ross) Zhu (CEO): Our high-value SVIP users have not been affected by competition; what has been most affected is casual or lighter users. We continue to stabilize our SVIP base and put more benefits into the SVIP package, including merchandise, performances, and, with Ximalaya, more high-value long-form audio. Our core music business still has solid growth, and we can tap more potential from lightweight apps through deeper collaboration with Weixin Video Account. Competition has never upset us; the most important thing is to do our own job well.

Analyst (Q2): Can you update on the offline performances and artist-related merchandise momentum?

Liang (Ross) Zhu (CEO): Offline performances and artist-related merchandise delivered triple-digit year-on-year growth in Q3. We hosted G-DRAGON's 14 shows across six cities with over 150,000 attendees, held flagship TMEA and the inaugural TIMA events, and delivered major domestic tours. This flywheel, combined with our member benefits, continues to drive SVIP growth and monetization.

Analyst (Q3): On gross margin and the revenue mix impact from offline business?

Shirley Hu (CFO): Gross margin was 43.5%, up 0.9pp year-on-year, driven by music subscription and advertising growth and lower revenue-sharing in social entertainment, partially offset by the lower-margin offline performance and artist-merchandise mix. Revenue diversification offers potential for further growth in revenue and gross profit while helping cultivate a one-stop music services ecosystem.

Analyst (Q4): On capital returns and shareholder return plans?

Shirley Hu (CFO): We continue to generate strong operating cash flow and maintain diversified financing options. Under the share repurchase program announced in March 2025, we have been executing buybacks, and we remain committed to shareholder returns over time.

Millicent T. (Head of IR): In the interest of time, I would like to wrap up today's call. Thank you again for joining us today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you next quarter. Thank you, and bye.