Skip to content
    TME
    Earnings call· Mar 2026(Q1 FY26)

    Tencent Music Entertainment Group Q1 FY26 earnings call TME

    May 12, 2026 Source

    Executive summary

    Tencent Music Entertainment Group Q1 FY26 — Diversified Monetization and AI Strategy

    Tencent Music Entertainment Group delivered steady Q1 FY26 performance, driven by diversified monetization and a focus on IP expansion. The company is navigating intense competition and the challenges of AI-generated content by strengthening copyright protection, deepening integration with the WeChat ecosystem, and evolving into an IP-based, one-stop music service platform. Management remains confident in long-term growth through comprehensive IP monetization and strategic partnerships.

    Highlights

    5

    • Overall revenue grew 7% year-on-year.

    • Revenues from membership services grew 7% year-on-year to RMB 4.6 billion.

    • Off-line concert related business achieved triple-digit year-on-year growth.

    • Adjusted EBITDA increased 10% year-on-year to RMB 2.8 billion.

    • Gross margin improved by 0.8 percentage points year-on-year to 4.9%.

    Concerns

    5

    • Revenues from social and channel services and others decreased 11% year-on-year to RMB 1.4 billion.

    • Operating expenses as a percentage of total revenues increased to 50.3% from 15.5% in the prior year, primarily due to increased channel spending.

    • Sales and marketing expenses rose 36% year-on-year to RMB 271 million due to intensifying competition and user acquisition efforts.

    • Competitive pressure, including price competition and pirated AI-driven content, introduced uncertainties for traditional streaming services' revenue growth.

    • Short-term volatility is expected in the growth rate for membership and advertising businesses for the remainder of the year.

    Guidance & targets

    4
    CategoryTargetConfidence
    Gross Margin
    on par with last year
    medium materiality
    High
    Membership and Advertising Business Growth Rate
    short-term volatility
    high materiality
    Medium
    Comprehensive IP-based Monetization Growth
    maintain steady growth
    high materiality
    High
    Selling Expense Growth Rate
    reasonable rate
    medium materiality
    High

    Operational metrics

    14
    Total Revenue Growth
    7%YoY
    Q1 FY26

    Overall revenue growth for the quarter.

    Revenues from Membership Services
    RMB 4.6BUp 7% YoY
    Q1 FY26

    Primarily consists of membership fees and IP-related benefits. The transcript stated 'RMB 4.6 million' which is an ASR error given the company's scale; corrected to 'RMB 4.6 billion'.

    Off-line Concert Related Business Growth
    triple-digitYoY
    Q1 FY26

    Achieved another quarter of strong growth.

    Revenues from Social and Channel Services and Others
    RMB 1.4BDown 11% YoY
    Q1 FY26

    Revenue from social entertainment services.

    Gross Margin
    4.9%Up 0.8 percentage points YoY
    Q1 FY26

    Improvement primarily due to increased revenues from membership and advertising services, along with decreased channel fees and cost-efficient improvement for IP-related services.

    Operating Expenses
    RMB 1.2B
    Q1 FY26

    The stated prior year percentage of revenue (15.5%) appears to be an ASR error, as it represents a significant and unlikely year-over-year increase in operating expenses as a percentage of revenue.

    Sales and Marketing Expenses
    RMB 271MUp 36% YoY
    Q1 FY26

    Increased in response to competition and to mitigate user churn, with increased channel spending for user acquisition.

    General and Administrative Expenses
    RMB 140MRelatively stable YoY
    Q1 FY26

    Remained relatively stable compared to the same period of 2025.

    Net Profit Attributable to Equity Holders
    RMB 2.1BCompared to RMB 4.3B in Q1 2025
    Q1 FY26

    The prior year figure included a RMB 2.4 billion gain from disposal of an associate.

    Diluted Earnings Per ADS
    RMB 1.34
    Q1 FY26

    Diluted EPS for the quarter.

    Adjusted EBITDA
    RMB 2.8BUp 10% YoY
    Q1 FY26

    Non-IFRS metric to better reflect core business operations.

    Non-IFRS Net Profit Attributable to Equity Holders
    RMB 2.3BUp 7% YoY
    Q1 FY26

    Non-IFRS metric.

    Cash, Cash Equivalents, Term Deposits and Short-Term Investment
    RMB 41BCompared to RMB 38M as of December 31, 2025
    As of March 31, 2026

    Combined balance, backed by changes in exchange rate of RMB to USD.

    Cash Dividend Paid
    USD 317M
    April 2026

    Cash payment for the declared dividend.

    Industry KPIs

    1
    MetricValueDetails
    Share buyback capital returned—

    Product announcements

    3
    ProductTypeDetails
    TME Connectlaunch
    Kugou Music Live House on Effectslaunch
    On-ground Cloud Romance Universe with Silence on Monsoonlaunch

    Deals & partnerships

    6
    JV Music, Ninfa Records, Monkey Baby Music LimitedRenewed contracts to secure continued access to iconic catalogs from artists such as Jo Joan, Karen Moran way Haining, and Angolan hub.

    Enhanced classic music catalog by renewing contracts with these labels, reinforcing leadership in premium copyrights.

    TF EntertainmentDeepened strategic partnership providing users with a 30-day head start benefit for upcoming releases and exploring collaboration across physical products, live performances, and other IP-related opportunities.

    Strategic partnership deepened to enhance content offerings and IP-related opportunities.

    Sony PicturesCollaboration on the China theme song for 'Star Fixes', choosing Sinderen for the project Helmer, performed by Jose.

    Collaboration for a movie theme song, which gained strong traction and topped multiple charts.

    J. ChaoCollaboration on his digital album 'Children of the Sun', launching packaged offerings combining the album, SVIP memberships, and physical collectibles, supported by a nationwide offline campaign across 45 cities.RMB 100M in sales

    Key example of strengthening strategic partnerships to extend IP value chains through integrated virtual and physical offerings.

    WeChat ChannelsDeep partnership entered in April 2026, integrating short-form video with music consumption, allowing WeChat users to jump directly to QQ Music with one click for seamless discovery to listening.

    Strategic integration with the Tencent ecosystem to broaden reach and streamline user conversion.

    SAMR (State Administration for Market Regulation)Received notice of approval from SAMR for the HMA transaction.

    Approval received for the HMA transaction, with TME and Tencent Group committed to strictly follow requirements of trader commitments.

    Risks & headwinds

    5
    Competitive landscape in music streamingOngoing

    Intensifying competition, price competition

    Mitigation: Building a more resonant platform, transitioning to a membership-based model, deepening integration with WeChat ecosystem, leveraging AI for recommendations and engagement.

    Unauthorized AI-generated content and piracyOngoing

    Ramp issue of pirated content driven by AI, introducing uncertainties regarding future revenue growth of traditional streaming services.

    Mitigation: Working closely with creators, rights holders, and regulators to lead copyright protection efforts; establishing a dedicated rights production mechanism to safeguard legal interests; suppressing 'some washing' and other infringing behaviors.

    Short-term volatility in membership and advertising business growthRemainder of FY26

    Expected some short-term volatility in growth rate for membership and advertising business.

    Mitigation: Proactive copyright safeguarding, diverting more traffic from the Tencent ecosystem, rigid cost control measures, reducing resource allocation to low-value content.

    User churn and price sensitivity for light usersOngoing

    Users on Kugou platform are more price sensitive and promotion sensitive, easily flowing away in face of multiple choices.

    Mitigation: Using a free and ad-supported mode to reduce barrier to entry; adopting more flexible pricing and content to retain light users; leveraging offline performance and multi-device user experience as competitive edges.

    Increased operating and sales & marketing expensesQ1 FY26, expected to normalize for full year

    Operating expenses at 50.3% of total revenues (vs 15.5% in prior year); Sales and marketing expenses up 36% YoY to RMB 271M.

    Mitigation: Strategically increasing expenses for user acquisition and content promotion; expecting a 'reasonable rate' for selling expenses for the full year, not growing as fast as 36%.

    What to watch in Q2 FY26

    5

    Gross Margin Trajectory

    Q2 FY26
    Current4.9% (up 0.8 percentage points YoY)
    TargetOn par with last year

    Why it matters

    Indicates the company's ability to maintain profitability despite competitive pressures and increased expenses.

    Well, as to the -- our expectation over future revenue growth, we expect to have a cheap margin on par with last in Q2.

    Q&A highlights

    4

    Asked for revenue guidance for the remainder of 2026, key drivers for membership business growth, and an update on how the Tencent ecosystem (specifically WeChat Channels approval) will improve performance.

    Management acknowledged short-term volatility in membership and advertising growth due to competition and AI-driven pirated content. They outlined three key operational areas: strengthening copyright enforcement against AI infringement, expanding traffic through deeper integration with WeChat Channels, and leveraging the ecosystem to solidify a one-stop music consumption mindset via IP expansion and value chain deepening. They confirmed SAMR approval for the HMA transaction and commitment to regulatory requirements.

    “Looking at a year as a whole, we expect some short-term volatility in growth rate for membership and advertising business due to competition, but we will try to be proactive in state guarding our copyright try to divert more traffic from the ecosystem.”

    asked by Lincoln Kong · answered by Unknown Executive

    2 min read6 chapters

    Detailed Narrative

    01

    Diversified Monetization and IP Strategy

    TME is shifting beyond traditional streaming to an integrated music ecosystem, focusing on diversified monetization across the music value chain. This includes optimizing classic music catalogs, enhancing in-house new releases, and expanding IP value chains through integrated virtual and physical offerings. The strategy aims to deepen engagement and expand user wallet share by leveraging premium music IPs and original human creativity as ultimate differentiators.

    02

    AI's Dual Impact and TME's Response

    AI is both an enabler and a challenge. While it accelerates content production and enhances user experience, it also introduces market noise and unauthorized content, undermining creators' rights and diluting music value. TME is actively working with creators, rights holders, and regulators to champion robust copyright protection. The company uses AI to stimulate songwriting, revitalize classic IPs through AI covers, and reinforce the value of premium human-created content.

    03

    User Growth and Ecosystem Integration

    TME is building a more resonant platform through a content and platform dual engine, driving user acquisition, engagement, and lifetime value. Key initiatives include deepening integration with the WeChat ecosystem, allowing seamless transition from short video music discovery to full playback on TME platforms. AI is also leveraged for improved recommendation systems and personalized features to drive engagement and retention.

    04

    Membership-Based Model and IP-Driven Offerings

    The company is transitioning to a membership-based concept that goes beyond content subscriptions, offering enriched content and immersive music experiences. SVIP memberships show strong adoption, enhanced by strategic partnerships and expanded fan-based benefits. TME is also pioneering IP-centric memberships like the 'on-ground cloud romance universe' and expanding artist reach through features like 'incadea functionality' to capture diverse user demands and increase lifetime value.

    05

    Financial Performance and Cost Management

    TME delivered 7% year-on-year revenue growth in Q1 FY26, driven by membership services and off-line performances. Gross margin improved by 0.8 percentage points year-on-year to 4.9%. Operating expenses increased significantly, primarily due to higher sales and marketing spending for user acquisition amidst intense competition. The company plans rigid cost control measures, reducing resource allocation to less effective content and leveraging the Tencent ecosystem for promotional efficiency.

    06

    Strategic Partnerships and Offline Expansion

    TME is strengthening strategic partnerships with labels and artists, extending IP value chains through integrated virtual and physical offerings. Examples include collaborations with J. Chao for digital albums combined with physical collectibles and nationwide offline campaigns. The company also delivered multiple flagship concerts, attracting over 10,000 attendees, and is cultivating its primary access to amplify the global footprint of Chinese music through world tours and large-scale shows.

    AI-generated summary of the company’s earnings call. Not investment advice.