Tencent Music Entertainment Group Earnings Loom With Stock Ourperforming (NYSE: TME)

Tencent Music Entertainment Group's stock (NYSE: TME) has delivered strong outperformance through the first months of 2025, with 26.59% in gains a significant upside on broader markets.

Markets are closely watching for TME’s Q1 2025 results, scheduled for release this morning before the market open. Analysts project earnings of $0.18 per share and revenue of $1.00 billion for the period, slightly below the reported level last quarter.

Despite the strong start to the year for the stock, over the past 12 months, TME has declined 3.18% to sit close to 2024 highs. The resistance around the $15 level has proved stubborn to break in the recent past, with any moves to the upside seeing bears step in.

Looking at recent reports and it is clear the financial health is improving. TME reported solid Q4 2024 financial results, with total revenues reaching RMB7.46 billion (US$1.02 billion), an 8.2% year-over-year increase. Subscription revenues grew 18% to RMB4.03 billion, driven by a 13.4% rise in paying users to 121 million. Net profit surged 47.3% to RMB2.08 billion, while full-year 2024 revenues climbed 2.3% to RMB28.40 billion. The company’s gross margin expanded to 42.6% in Q3 2024, reflecting improved cost management.

In a move signaling confidence in its financial health, TME’s board approved an annual cash dividend of US$273 million and authorized a US$1 billion share repurchase program over 24 months starting March 2025. These initiatives underscore TME’s commitment to returning value to shareholders, contributing to a 12% stock price surge on March 18, 2025, following the earnings announcement.

Analysts' views on the stock remain mixed, with a low target of 13.06 set against the high of 19.20. The consensus of $16.61 indicates perceived upside of more than 10% from current price action, although the latest set of numbers could help analysts adjust accordingly.

Recent Developments Boost TME

Ximalaya Acquisition

TME is in advanced talks to acquire podcasting giant Ximalaya for $2.4 billion, as announced last month. This acquisition would diversify TME’s content portfolio beyond music, tapping into China’s growing podcast market, which boasts 303 million monthly active users.

The deal, structured as a mix of cash and shares, involves key stakeholders like Tencent Holdings, Baidu, and Sony Music Entertainment. For Sony, which holds a $50 million stake in Ximalaya, the acquisition could yield significant returns.

Warner Music Collaboration

TME expanded its partnership with Warner Music Group, renewing a multi-year licensing agreement and establishing a joint venture record label. This collaboration enhances TME’s content library, providing access to Warner’s global artist roster while fostering localized A&R capabilities in China. The synergy aims to amplify cross-border music promotion, aligning with TME’s strategy to dominate China’s digital music ecosystem.

While the firm's fundamentals remain strong, broader risks loom. The U.S.-China regulatory environment, including potential delisting of Chinese stocks from U.S. exchanges, casts uncertainty. Treasury Secretary Scott Bessent’s ambiguous stance on delisting has kept investors cautious, though TME’s dual listing in Hong Kong (HKEX: 1698) provides a buffer.

TME also faces intensifying competition from platforms like NetEase Cloud Music and ByteDance’s TikTok Music. However, its dominance in music streaming (260 million licensed tracks) and live-streaming services like WeSing provides a moat. The Ximalaya acquisition further differentiates TME by integrating long-form audio content, a segment growing at 15% annually in China.

The Q1 2025 earnings report could prove vital to validating TME’s growth trajectory. With a strong cash position and innovative content strategies, TME remains well-equipped to capitalise on China’s digital consumption boom, albeit with eyes on geopolitical and competitive risks.