Tencent Music Entertainment Group NYSE: TME is China's music streaming leader, accumulating a large market share. The entertainment company boasts about 528 million active users (MAUs) and generated $1 billion in revenue from online music services in its most recent quarter.
Tencent Music Entertainment Group Today
Tencent Music Entertainment Group
- 52 week interval
- $8.78
▼
$26.70
- Dividend Yield
- 1.85%
- The P/E ratio
- 9.26
- Target Value
- $22.03
Meanwhile, the company's main competitor, NetEase NASDAQ: NTESit brought in only R282 million from music. With such a wide revenue share lead, “Spotify of China” is a perfect monitor for Tencent Music Entertainment.
However, unlike Spotify Technology NYSE: SPOTAn emerging competitor is making major changes to TME's governance, scaring investors. This was one of the key factors that caused the stock to fall more than 60% from its 52-week high. However, given the currency's steep decline, there is reason to believe that markets are overly pessimistic about the future of TME. At current levels, the stock may be able to recover to a significant level.
Is Bytedance Sinking Its Teeth Into TME Users?
In its latest quarter, TME delivered strong results. Revenue rose just under 16% year-over-year (YOY) to $1.24 billion, beating estimates of $1.23 billion. Adjusted earnings per depository share rose 9% to 23 cents per share, in line with estimates. Despite these numbers going well as expected, shares fell 32% in the two days following the results. Investors seem to be worried about the underground threat.
Bytedance is one of the largest private equity firms in the world, recently valued at $550 billion. For reference, this figure is about 100 billion more than the market price of Costco Wholesale NASDAQ: Cost. The company came to prominence by creating TikTok.
Bytedance subsidiary Douyin (the Chinese version of TikTok) has been growing its Soda music platform at a breakneck pace. Its MAUs reached 120 million by September 2025, poised for 90% YOY growth. Six months later, that number reportedly increased to 140 million.
Especially when you consider the trajectory of TME's user base, it makes sense why market participants are running for the hills. Although revenue increased significantly, Tencent saw a 5% YOY decline in its MAUs in Q4 2025. This marks a continued acceleration in MAU decline, with the figure down 4.3% in Q3 2025 and 3.2% in Q2 2025.
Many investors may be concerned that these users are not compatible with Soda Music and that this decline will accelerate. As the number of users declines, TME's revenue base declines, leading to concerns about the company's future growth.
However, several factors suggest the reaction to this fear is exaggerated.
TME's High Value Strategy Translates to Financial Profits
Although Tencent's total MAU is falling, the company's paying users are increasing. Paying users increased during the quarter by 5.3% YOY to 127 million. Paying users also increase how much they spend. The company's monthly revenue per paying user increased 7.2% YOY to around $1.70.
This shows that while low-value, non-paying users are declining, high-value paying users continue to grow. This dynamic creates growth and greater profits at Tencent, despite what happened at Soda Music. This comes as Soda specifically targets free and low-end users, and the company has a “very low” content library compared to Tencent.
Rather than licensing large amounts of albums and full-length rights, the company uses Douyin for most of its content. When Douyin creators release short videos with songs, users can switch to Soda Music to listen to the entire song. In contrast, TME invests heavily in relationships with top music labels and artists.
TME offers a premium service, while Soda Music draws users further into the price shilling. Since the companies are targeting two different types of audiences, it is clear that both companies can continue to grow in their respective areas. This is especially true for TME, considering that while overall users are declining, they still far outpace paying users. At 528 million users compared to 127 million paying users, the company still has a much larger pool of over 400 million non-paying users to convert.
However, there is a threat that Soda Music could look to target high-value users in the long run by expanding its offerings.
TME: Continuous Growth Can Lead to Significant Profits
Overall, TME's ability to continue to grow is significant given its valuation. Shares have fallen so much that they suggest the company will see negative free cash flow growth for many years. Meanwhile, free cash flow has grown at a compound annual rate of nearly 11% over the past few years. However, growth has slowed to 7.3% in 2025.
Tencent Music Entertainment Group ADR (TME) price chart for Friday, April 3, 2026
Still, markets appear to be pricing in a much stronger case than the evidence suggests. As TME continues to grow revenue and profitability with high value users, there is a significant opportunity that free cash flow can continue to grow. If this happens, it can have a long-term negative effect.
Notably, Wall Street analysts disagree with TME's view. The MarketBeat consensus price near $22 implies a huge upside of nearly 140%. However, the target price was revised after the company's earnings report from $12 to $23. The estimate for this target is above $17, still representing an upside of more than 80%.
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