Tencent Music Stock Outshines Spotify as China's Music Giant

Core Viewpoint - Tencent Music Entertainment Group (TME) has significantly outperformed Spotify in 2025, with a total return of approximately 122% compared to Spotify's 54% year-to-date increase [1][2]. Company Performance - TME is the largest music streaming service in China, boasting over 550 million monthly active users and nearly 125 million paying users, indicating its dominant market position [3]. - TME's Q2 earnings report showed a revenue growth acceleration of 18%, marking its seventh consecutive quarter of growth, following a nearly 2% revenue decline a year prior [6]. - The company's gross margin improved to 44.4%, an increase of 240 basis points year-over-year, and operating margin grew to 35.3%, up from 21.1% two years ago [7]. Investment Insights - Spotify's investment in TME, valued at around $1.6 billion at the end of 2024, suggests strong confidence in TME's business model and growth potential [5]. - Analysts have set a 12-month price target for TME at approximately $24.50, indicating a slight downside, but the average target from recent updates suggests potential upside to around $28.25, representing a 13.5% increase [8][9]. Market Position - TME's forward price-to-earnings (P/E) ratio is around 27x, which is significantly lower than Spotify's P/E of over 59x, indicating a potential undervaluation of TME [9]. - Despite TME's lack of geographic diversification, it has substantial growth potential within China, where only about 9% of the population are paying users [11][12].