TME (Prior-Quarter Earnings Call Transcript (2026-05-12).):
Millicent T.:
Good evening, good morning, and welcome to Tencent Music Entertainment Group’s First Quarter 2026 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, which are more thoroughly explained and reconciled to the most comparable measures, reported under IFRS in our earnings release and filings with the SEC.
All participants are muted at this time. After management’s remarks, there will be a Q&A session. And please be advised that today’s call is being recorded.
With that, I’m pleased to turn the call over to Cussion, Executive Chairman of TME. Cussion?
Cussion:
Thank you, Millicent. Hello everyone, and thank you for joining our call today.
Despite an increasingly competitive landscape in the music streaming industry, we delivered a steady performance overall this quarter. Our growth is increasingly driven by diversified monetization across the music value chain, with the offline concert related business achieving another quarter of triple-digit year-over-year growth. We will continue to accelerate the development of our multi-dimensional commercialization model, which is deeply rooted in our commitment to cultivating a vibrant and legitimate music ecosystem.
While AI is rapidly expanding the supply of content, it is also introducing significant market noise and new industry challenges. The proliferation of unauthorized AI-generated content not only creates headwinds for our music subscription growth, but also undermines creators’ rights and dilutes the long-term value of the music ecosystem as a whole.
In response, we are working closely with creators, rights holders, and regulators to lead and champion robust copyright protection efforts. While the nature of these challenges is unique to the AI era, we have successfully navigated major copyright and IP transitions before — and have
consistently been at the forefront of those efforts. We remain confident in our ability to adapt, lead by example, and help shape the future framework for intellectual property protection in the age of AI.
This commitment has further sharpened our focus on what truly drives long-term value and sustainable growth. Today, we are more convinced than ever that original human creativity and premium music IPs are the ultimate differentiators. That’s why we are evolving beyond traditional streaming services into an integrated music ecosystem that further unlocks the value of every piece of IP. This holistic approach is designed to deepen engagement and expand user wallet share.
Against this backdrop, we have further optimized our catalog, ensuring that our licensed and proprietary content offers valuable emotional resonance that users crave for. Let me share two examples:
1) First, we further enhanced our classic music catalog, capitalizing on the enduring demand and extended lifecycles of timeless hits. We recently renewed contracts with labels including JVR Music, Linfair Records, and MOK-A-BYE BABY MUSIC LTD., securing continued access to iconic catalogs from artists such as Jay Chou (周杰伦), Karen Mok (莫文蔚), Harlem Yu ( 庾澄庆), and Angela Zhang ( 张韶涵), further reinforcing our leadership in premium copyrights. We also deepened our strategic partnership with TF Entertainment, providing users with a 30-day head-start benefit for upcoming releases and exploring collaboration across physical products, live performances, and other IP-related opportunities.
2) Second, the streaming share of our in-house new releases has seen a steady rise, reflecting our ongoing efforts to enhance production capabilities. A notable example is our collaboration with Sony Pictures on the Chinese theme song *The Star Fixer* (修星星的人), for the sci-fi blockbuster *Project Hail Mary*. Performed by Zhou Shen (周深), the song gained strong traction upon release, quickly topping multiple charts across our platforms.
Across our business, AI has become a key enabler—accelerating time-to-market, improving production efficiency, and enhancing user experience. Importantly, it complements—not replaces— human creativity, and further reinforces the scarcity and value of premium IPs.
Let me walk you through how we are actively embracing AI to further enhance our content ecosystem and in turn, unlock additional value from legacy IPs.
1) We provide creators with tools to reshape every stage of the creative process. For instance, our one-stop AI music production tool, Venus, stimulates the full-cycle songwriting process of professional musicians, from lyrics, composition, and arrangement to vocal performance and mixing. This empowers creators to produce high-quality works more efficiently and at lower cost.
2) As we bring more legitimate AI-generated music onto our platform, we are pleased to see that high-quality AI works can, in turn, revitalize classic IPs and endear them to younger generations. Some AI covers of classic hits are often among the most popular tracks. By reimagining iconic songs with innovative styles and vocals, these reinterpretations spark renewed interest, driving listeners back to the original versions and amplifying the visibility and commercial value of legacy IPs.
As more premium IPs thrive on our platform, they serve as a powerful engine for our broader commercialization efforts. By building holistic, pan-IP related music experiences, we continue to lead industry consumption and grow at scale. Whether through immersive live performances or innovative fan-based economy, we are elevating music’s influence while deepening wallet share. Specifically,
1) Our highly loyal user ecosystem continues to attract leading artists and IPs seeking deeper collaboration. By strengthening strategic partnerships, we extend IP value chains through integrated virtual and physical offerings. A key example is our collaboration with Jay Chou on his digital album Children of the Sun, where we launched packaged offerings combining the album, SVIP membership, and physical collectibles. Supported by a nationwide offline campaign across 45 cities, the release achieved strong viral traction, topped major charts, surpassed RMB100 million in sales, and drove meaningful SVIP conversion. We also deepened partnerships with leading artists including KUN (蔡徐坤) and Roy Wang (王源), whose recent releases delivered strong fan engagement and commercial performance.
2) We also continued to strengthen cross-cultural reach through deeper offline partnerships with leading domestic and international labels and artists. This quarter, we delivered multiple flagship concerts, each drawing over 10,000 attendees, maintaining a strong execution standard in live performances. Notably, BABYMONSTER’s concerts in Taiwan, China, and NCT WISH’s concerts in Hong Kong, China, attracted both core fans and broader audiences, expanding their reach.
3) We are cultivating a premier artist roster to amplify the global footprint of Chinese music. This is exemplified by Silence Wang (汪苏泷)’s debut world tour across Asia and North America and GAI (周延)’s first large-scale show in Singapore. Domestically, concerts by Will Pan (潘玮 柏), Tia Ray (袁娅维), Angela Zhang (张韶涵), Jane Zhang (张靓颖), and Zhang Yuan(张远) further deepened fan engagement.
Before concluding, I’d like to share our ESG progress. In April, we published our 2025 ESG Report. Over the past year, we stepped up in creator empowerment, product inclusivity, and value-chain sustainability. These efforts reinforced the long-term value and resilience of our ecosystem, as reflected in ESG rating upgrades and external recognition.
In closing, we are encouraged by the progress we have made. Amid the challenges, we are elevating the strategic priority and investment in copyright governance, taking a more resolute stance to
safeguard the long-term health of the music industry. We remain committed to advancing the broader creative economy, unlocking new opportunities, and driving enduring long-term value.
Now I would like to hand the call over to Ross for an update on our overall platform development. Ross, please go ahead. Thank you.
Ross:
In an increasingly competitive landscape, we are building a more resilient platform powered by our content-and-platform dual engine, driving user differentiation, engagement, and lifetime value.
As we strengthen our competitive edge and further differentiate our offerings, we are transitioning to a membership-based model that goes beyond content subscriptions to deliver more immersive music experiences. I’ll share more details shortly.
For today’s call, I would like to primarily focus on two areas: user growth and monetization efficiency improvement resulting from better services.
On the user front, maintaining a healthy top-of-funnel remains our foundation. Let me share some updates.
1) First, we are excited to further deepen our integration with the WeChat ecosystem to broaden reach and streamline user conversion. By embedding a pathway within Weixin Video Accounts, we facilitate a seamless transition from short video music discovery to full-track playback on our platform. This also elevates musicians’ exposure, helping them convert casual short-video viewers into a loyal fan base on our platform.
2) Second, for Kugou, where competitive pressure is a bit more acute, we lowered barriers to entry through more freemium and ads memberships.
3) Third, we leveraged AI to drive engagement. With improved recommendation systems, efficient discovery enabled by AI agents, and easier playlist creation, growth in music assets boosted engagement. We also saw exponential growth in both AI-driven messaging and playback DAU. At the same time, personalized features-such as themed avatars, player innovations, and interactive tools, led to a deeper sense of belonging on our platform.
Turning to how we are unlocking greater IP value and increasing users’ lifetime value, we continue to execute existing tiered plans.
As I mentioned earlier, we launched a new initiative to transition to a membership-based concept with enriched content and rights offerings. Although still in its early stages, we see strong long-term
potential in IP-driven offerings through enhanced benefits and integrated rights.
1) First, SVIP membership continued to see strong adoption and retention thanks to our refined operations and innovative benefits. For example, we appointed major artists such as Ryan Ding (丁禹兮), Ju Jingyi (鞠婧祎), Liu Yuning(刘宇宁), JC-T(檀健次), and Karry Wang (王俊凯) as ambassadors for a variety of collaborations. These strategic partnerships significantly enhanced the perceived value and public awareness of our premium offerings. In addition, to further differentiate our SVIP premium offerings, we continue to expand fan-based benefits and audio privileges. On the content front, we introduced China-limited edition digital albums combined with physical collectibles for leading K-pop artists such as BLACKPINK, EXO, and IVE. On the platform and product front, we launched TME Connect, enabling high-fidelity audio transmission across multiple devices. Kugou Music launched Livehouse sound effects, and QQ Music further deepened collaboration with Dolby to become the first music platform in China to support Dolby AC-4 audio format. We also extended this immersive experience to Dolby House, an offline audio experience space, for artists like Charlie Puth, Silence Wang(汪苏泷) and BLACKPINK.
2) Second, we pioneered more IP-centric memberships to capture diverse user demands. A key milestone this quarter was the launch of our inaugural Fan Club, *Romance Universe*, with Silence Wang(汪苏泷), offering priority ticket access, unique content, and artist-centric perks that resonated well with fans. At the same time, we continued to expand artist reach on *bubble*, welcoming Sury Su ( 苏 芮 琪) as *bubble’s* first Sony Music artist, and enhanced product features such as in-chat search functionality, which further strengthened user engagement and retention.
3) Last but not least, we are unlocking incremental growth by scaling IP-driven offline offerings, particularly with artist merchandise. For instance, we served as the sole distributor for TransfOrm Project (TOP 登陆少年组合)’s debut physical album, and other sold-out merchandise such as YUQI (宋雨琦)’s GIGI New Year Gift Box and Hu Xia (胡夏)’s plush collectibles. Beyond merchandise, we brought the i-dle CITY of SENSE China debut exhibition to life in collaboration with CUBE, delivering a multi-dimensional immersive experience for fans.
To conclude, while challenges remain, we are confident in our path forward. We will continue sharpening our competitive edge to strengthen our vibrant platform—one that attracts users, deepens engagement, and unlocks new monetization opportunities.
With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.
Shirley:
Let me now turn to our financial results. Amid the challenging environment, we have delivered steady financial results in the first quarter of 2026 with 7% year-on-year revenue growth.
Revenues from music related services grew 12% year-on-year, driven by solid growth in revenues from membership services and offline performance related services, supplemented by growth in revenues from advertising services.
Revenues from membership services were RMB 4.6 billion, up by 7% year-on-year, in the first quarter of 2026. This quarter, we started presenting membership service revenues to better reflect the nature of our membership business. Revenues from membership services primarily consist of membership fees paid for membership benefits and privileges within music related services. Over time, some IP-related benefits, such as artist merchandise and offline performances, have emerged as key drivers of SVIP adoption. Additionally, our newly launched Fan Club membership further enriches fan experience and is a great example for innovative, integrated product with content-and-platform strategy. These collaborations we have built with the strategic artists across music promotion, offline performances, artist-related merchandise, and fan club membership provide more immersive experiences for fans and help enrich privileges of our membership programs, building win-win relationships for everyone.
Additionally, we delivered solid year-on-year growth in advertising revenues, driven by growth of ad- supported mode and sponsorship advertising. Our increased number of paying users and the churn of casual users created more challenges for our advertising business in the increasingly competitive market. We have taken actions and improved ads exposure, lowered entry barriers and offered more engaging, interactive ads tasks for users.
As our emerging growth engine, offline performance related services have achieved strong results. In Q1, we have positioned our strategic artists, such as Will Pan, Silence Wang, and GAI, on high- profile stages across domestic and overseas markets, effectively expanding their global influence and further unlocking their long-term commercial value. Also, we have hosted flagship concerts with leading K-pop groups, including BABYMONSTER and NCT WISH.
Revenues from social entertainment services and others were RMB1.4 billion, down by 11% year-on-year.
Our gross margin in Q1 2026 was 44.9%, up by 0.8 percentage points year-on-year. The year-on- year increase was primarily due to increase in revenues from membership services, along with decreased channel fees. Additionally, we are happy to see cost efficiency improvement for IP-related services. In the long run, we are confident that our gross margin will remain competitive in the industry, although it may fluctuate quarter over quarter due to seasonality.
Moving on to operating expenses, they amounted to RMB1.2 billion, representing 15.3% of our total revenues in Q1 2026, compared with 15.5% in the same period of last year.
Selling and marketing expenses were RMB271 million, up by 36% year-on-year.
In response to the competition and to mitigate the impact of user churn, we increased channel spending this quarter. Operationally, we have improved the relevance of targeted audience while keeping high ROI level in the industry. Going forward, we expect to dynamically adjust our channel spending strategies according to evolving market conditions with ROI requirements. Meanwhile, we expect to increase content promotion and continue to provide high quality content to our users, which concurrently helps grow users on our platform.
General and administrative expenses were RMB940 million and remained relatively stable compared with the same period of 2025.
Our net profit attributable to equity holders was RMB2.1 billion, compared with RMB4.3 billion in the same period of 2025, as we have recognized a gain of RMB2.4 billion on deemed disposal of an associate in the first quarter of 2025. Our diluted earnings per ADS this quarter were RMB1.34.
This quarter, we started disclosing non-IFRS metrics, adjusted EBITDA, to better reflect our core business operation results. For Q1 2026, our adjusted EBITDA was RMB2.8 billion, up by 10% year-on-year. Non-IFRS net profit attributable to equity holders of the Company was RMB2.3 billion, up by 7% year-on-year.
As of March 31, 2026, our combined balance of cash, cash equivalents, term deposits and short-term investment was RMB41.0 billion, as compared to RMB38.0 billion as of December 31, 2025. This combined balance was affected by changes in the exchange rate of the RMB to USD at different balance sheet dates.
In March 2026, we declared a cash dividend of US$0.12 per ordinary share, or US$0.24 per ADS, for the year ended December 31, 2025, and the cash payment for the dividend of US$370 million was made in April 2026.
In addition, as part of our long-term commitment to shareholder returns, we plan to complete the two-year stock repurchase program that we announced in March 2025 on time.
Finally, I'll conclude with some remarks on the outlooks.
Millicent:
Millicent:
Thank you. Thank you everyone for joining us today. If you have any further questions, please feel free to contact our IR team. And this concludes today's call, and thank you so much again and look forward to speaking to you next quarter.