Core Viewpoint - Barclays Bank released an extremely optimistic report, labeling Tencent Music's (TME) latest financial results as "all-around perfect" [1] Financial Performance - Tencent Music achieved revenue of 8.442 billion RMB in Q2 2025, a year-on-year increase of 17.9%, surpassing Barclays' expectations by 6.0% [2] - Online music service revenue reached 6.854 billion RMB, growing 26.4% year-on-year, exceeding expectations by 6.8% [2] - Non-subscription online music revenue showed strong performance, exceeding expectations by 19%, accounting for 30% of online music revenue [3] User Growth and Engagement - The number of Super VIP (SVIP) members surpassed 15 million, indicating a clear and sustainable growth strategy [4] - User engagement metrics are at an all-time high, with SVIP users spending nearly 100 minutes daily on the platform [4] Profitability and Business Model - Tencent Music's unique business model allows it to avoid reliance on discounts or marketing expenses for competition [5] - Advertising revenue grew over 30%, with other income sources, including offline concerts and artist merchandise, doubling [6] - The adjusted net profit margin for Q2 2025 exceeded 30%, reaching 31.3%, up from 26% in the same period of 2024 [7] Valuation and Market Position - Barclays raised the target price for Tencent Music from $16 to $27, reflecting a 69% increase [1] - The new target price implies a projected P/E ratio of 28 times for the fiscal year 2027, making it one of the highest-valued Chinese stocks [7] - Compared to global music streaming giant Spotify's projected P/E ratio of about 40 times, Tencent Music remains relatively undervalued [7]

Financial Data and Key Metrics Changes - In Q1 2025, total revenues reached RMB 7.4 billion, representing a 9% year-over-year growth [19] - Online music revenues increased by 16% year-over-year to RMB 5.8 billion, driven by strong growth in music subscription and advertising revenues [20] - Music subscription revenues reached RMB 4.2 billion, a 70% increase year-over-year [20] - Gross margin improved to 44.1%, up 3.2 percentage points year-over-year [23] - Net profit was RMB 4.4 billion, with a net profit attributable to equity holders of RMB 4.3 billion [25] Business Line Data and Key Metrics Changes - The music subscription business remains the cornerstone, with significant growth in SVIP membership and reduced promotional activity contributing to revenue increases [20][27] - Advertising revenues showed strong year-over-year growth, supported by the ad-supported model and increased engagement [20][21] - Artist-related merchandise sales and offline performances also contributed to revenue growth, with successful concert hosting leading to increased revenues [21][22] Market Data and Key Metrics Changes - The company has strengthened partnerships with record labels, enhancing its music library and user engagement [5][6] - There is a growing popularity of Korean, English, and Japanese tracks among users, indicating a diversification in music consumption preferences [7] - The company has expanded its merchandise collaborations, which have shown strong sales performance [8][9] Company Strategy and Development Direction - The company aims to enhance user engagement through a diverse range of music services and content offerings, focusing on high-quality growth [4][12] - Continued investment in original content production and innovative technologies is planned to improve user experience and strengthen the ecosystem [27] - The company is committed to expanding its SVIP membership and advertising business while diversifying offerings across the music value chain [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the 2025 outlook, expecting year-over-year growth rates to accelerate and margins to expand [31] - The company is focused on encouraging more music consumption and enhancing user engagement through unique offerings [31][32] - Management highlighted the importance of long-form audio content and its complementary role in driving user engagement and subscription growth [38] Other Important Information - The company released its 2024 ESG report, detailing practices in intellectual property protection, user privacy, and fostering diverse music communities [11] - The effective tax rate for Q1 2025 was 9.2%, a decrease from 19.9% in the same period of 2024 [25] Q&A Session Summary Question: Outlook for top line profit growth for the next quarter and full year 2025 - Management expressed confidence in achieving strong results in Q1 and expects growth rates to accelerate in 2025, driven by rich service offerings and user engagement [31] Question: Growth opportunity of podcasts in China and long-form audio user metrics - Management noted that while podcast growth in China is limited, long-form audio content is expected to grow and complement the existing subscriber base [36][38] Question: SVIP progress and key KPIs - Management reported strong growth in SVIP membership and ARPPU, with plans to enhance the membership system and improve user satisfaction [40][43] Question: Contribution of Super VIP to ARPPU growth - Management indicated that the reduction in promotional activities has positively impacted ARPPU growth, with expectations for continued growth from the SVIP business [46][48] Question: Monetization strategy for nonpaying subscribers - Management emphasized converting nonpaying users into subscribers and leveraging advertising and merchandise sales to generate revenue from this segment [51][55] Question: Future drivers for gross margin improvement - Management highlighted subscriber growth and cost management as key drivers for future gross margin improvement, with expectations for continued growth [60][62] Question: International opportunities, especially in Southeast Asia - Management acknowledged the importance of international markets and plans to invest in content creation and platform development in Southeast Asia [68][71] Question: Outlook for advertising and offline events business - Management expressed a positive outlook for advertising revenue growth and plans to enhance the quality of offline performances [79][80]