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Just For You
The "Spotify of China" Just Got a Whole Lot CheaperBy Leo Miller. Article Posted: 4/3/2026. 
Key Points
- Tencent Music Entertainment Group has seen its share price tank, falling more than 30% after its earnings report.
- Despite strong financials, competition from the creator TikTok is driving concerns.
- Amid this, analysts are eyeing big-time upside.
- Special Report: Elon Musk’s $1 Quadrillion AI IPO
Tencent Music Entertainment Group (NYSE: TME) is China’s music-streaming leader, commanding a large market share. The entertainment company reports approximately 528 million monthly active users (MAUs) and generated $1 billion in online music-service revenue in its latest quarter. By contrast, the company’s largest competitor, NetEase (NASDAQ: NTES), reported just $282 million in music revenue. With that revenue gap, the “Spotify of China” label for Tencent Music is understandable.
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But an emerging rival is taking direct aim at TME’s user base, unnerving investors. That concern has been a key factor in the stock’s drop of more than 60% from its 52-week high. Given the steep decline, though, there’s reason to think markets may be overly pessimistic and that the stock could stage a meaningful recovery. Is Bytedance Sinking Its Teeth Into TME’s Users?In its latest quarter, TME delivered generally solid results. Revenues rose just under 16% year over year (YOY) to $1.24 billion, slightly above the ~$1.23 billion consensus. Adjusted earnings per depositary share rose 9% to $0.23, in line with estimates. Despite meeting expectations, shares fell 32% in the two days after the report, suggesting investors are worried about a looming threat. Bytedance, one of the world’s largest private companies, was recently valued at about $550 billion. The company rose to prominence with TikTok. Bytedance’s Douyin (the Chinese version of TikTok) has rapidly scaled its Soda Music platform. Soda reached 120 million MAUs in September 2025, up about 90% YOY, and reportedly grew to 140 million six months later. Given TME’s user trajectory, it’s understandable why investors are alarmed. Although revenues rose, TME’s MAUs fell 5% YOY in Q4 2025, following declines of 4.3% in Q3 and 3.2% in Q2. Many fear that users are defecting to Soda Music and that the decline could accelerate, shrinking TME’s monetizable base and future growth prospects. However, several factors suggest the market reaction may be overblown. TME’s High-Value Strategy Is Translating into Financial GainsWhile TME’s total MAUs are declining, its paying-user base is growing. Paying users rose 5.3% YOY to 127 million in the quarter, and monthly average revenue per paying user increased 7.2% YOY to about $1.70. That indicates lower-value, non-paying users are falling while higher-value subscribers are increasing in number and spending more. This dynamic is supporting revenue and profits at TME despite Soda Music’s growth, since Soda appears to be targeting free and low-tier listeners and maintains a far inferior content library compared to Tencent Music. Soda often leverages Douyin short-form videos to surface tracks and funnel users to its platform, rather than licensing full albums and extensive rights. TME, by contrast, invests heavily in relationships with top-tier labels and artists and offers a premium service. Because the platforms appear to target different user segments, both can grow in their niches. Importantly, TME still has a large pool of conversion opportunities: 528 million total users versus 127 million paying users leaves more than 400 million non-paying users it could monetize further. That said, Soda Music could try to move upmarket over time and target higher-value users, which is a legitimate risk to watch. TME: Further Growth Could Lead to Significant GainsFuture growth will be central to TME’s valuation. The shares have fallen to levels that imply the market expects multi-year negative free cash flow growth. In reality, free cash flow grew at a compound annual rate of roughly 11% in recent years, though growth slowed to 7.3% in 2025. Markets seem to be pricing a far more bearish scenario than the current evidence indicates. If TME can continue to expand revenue and profits by focusing on high-value users, free cash flow could resume healthy growth, leaving room for substantial long-term upside. Analysts remain divided. The MarketBeat consensus price target near $22 implies roughly 140% upside. Analyst targets updated after the earnings report range from $12 to $23, with an average above $17 — still implying more than 80% upside from current levels. |
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