"Comprehensively perfect financial report"! This major bank praised Tencent Music to the skies: showcasing the monetization capabilities of every segment, which competitors cannot replicate

Barclays released an extremely optimistic report, praising Tencent Music (TME)'s latest financial report as "completely perfect."

According to the Chasing Wind Trading Desk, on August 12, Barclays published a research report stating that Tencent Music not only comprehensively exceeded the market's high expectations but, more importantly, successfully demonstrated its strong ability to monetize every aspect of the user music experience—from online listening to offline participation. This deeply integrated ecosystem is a core moat that its competitors cannot replicate.

Barclays believes that Tencent Music has moved beyond low-dimensional competition that solely relies on user growth and price wars, entering a high-dimensional development stage that enhances user stickiness, increases user value (ARPPU), and improves profit margins through its ecosystem. Barclays significantly raised TME's target price from $16 to $27, a 69% increase.

"Perfect" Financial Report: A Comprehensive Victory Beyond Expectations

Barclays stated at the beginning of the report, "It's hard to pinpoint what was most impressive this quarter," because Tencent Music exceeded already high market expectations across all key metrics.

In the second quarter of 2025, Tencent Music achieved revenue of 8.442 billion RMB, a year-on-year increase of 17.9%, surpassing Barclays' expectations by 6.0%.

Among them, online music service revenue was 6.854 billion RMB, a year-on-year increase of 26.4%, exceeding expectations by 6.8%.

Particularly noteworthy is the strong performance of non-subscription online music revenue, which was 19% higher than expected. Among them:

• Advertising revenue grew by over 30% year-on-year,
• Other revenues, including offline concerts and artist merchandise, doubled.

These businesses account for 30% of online music revenue. Barclays believes this is not only a stable source of revenue growth for the next few quarters but also the best proof of Tencent Music's core differentiation.

SVIP Growth Engine: An Unreplicable Moat

Financial report data shows that Tencent Music's Super VIP (SVIP) membership has successfully surpassed 15 million.

Barclays believes that Tencent Music's SVIP growth plan is clear and sustainable. Its strategy can be summarized as: converting users with core rights and retaining users with ecosystem rights.

Specifically, high-definition music can effectively attract ordinary music lovers to become SVIPs; while priority purchasing rights for artist digital albums and advance booking rights for offline concert tickets precisely convert core fans.

The former may be interested in additional podcast/audiobook content, while the latter may be attracted by AI-driven user sing-along features and exclusive fan cameras during online concerts.

User stickiness data confirms the success of this strategy: The average daily usage time of users on the Tencent Music platform has reached a historical high, with SVIP users spending nearly 100 minutes on the platform daily and showing strong retention rates.

Barclays emphasizes that this is the most important insight of the quarter: users are actively embracing the exclusive services offered by TME, which cannot be found elsewhere.

Accelerating Profitability: The Winning Path to Escape the Price War

Barclays pointed out that thanks to its unique business model, Tencent Music does not need to rely primarily on discounts or marketing expenses to compete like Cloud Music and Soda Music.

Instead, the company is able to focus on expanding its SVIP user base while increasing the average revenue per SVIP user (ARPPU), which Barclays estimates has grown by about 1% quarter-on-quarter, while keeping sales and marketing expenses relatively unchanged.

This virtuous cycle is directly reflected in the financial data: Tencent Music's adjusted net profit margin exceeded 30% in the second quarter of 2025, reaching 31.3%, far higher than the 26% in the same period of 2024.

Barclays expects that even if the proportion of lower-margin businesses such as concerts and peripheral products increases in the future, this trend of sustained profit margin growth will continue.

Based on this "perfect" financial report, Barclays not only reiterated its "overweight" rating on Tencent Music but also raised its target price from $16 to $27.

The new target price implies that Tencent Music's expected price-to-earnings ratio (P/E) for the fiscal year 2027 is 28 times, making it one of the highest-valued stocks among Chinese concept stocks. However, Barclays believes this pricing is reasonable. Compared to the approximately 40 times expected P/E ratio for global music streaming giant Spotify in fiscal year 2027, Tencent Music is still much cheaper.

Barclays concluded that Tencent Music's unique and recently strengthened market position, along with its consistently excellent execution record, fully justifies such a valuation premium