On August 12, Tencent Music Entertainment Group (NYSE:TME) held its second-quarter 2026 earnings call, and the numbers told a story bigger than a music app. Total revenue reached RMB 8.9 billion, up 6% year over year, with the freshly consolidated audio platform Ximalaya adding roughly RMB 0.4 billion of that total. Music-related services revenue climbed 11%, and membership revenue rose 8% to RMB 4.8 billion. But the more interesting shift is happening beyond the subscription numbers, in concert stadiums, merchandise tables and a new audio business the company is only beginning to fold in.
Bull Case: From Playlists To Stadium Tours
Tencent Music is no longer content collecting streaming fees. Management pointed to live entertainment and artist merchandise as the fastest-growing part of the business, with both delivering strong double-digit year-over-year growth in the quarter. One collaborating rapper’s stadium tour opener in Xi’an drew more than 30,000 fans, while another artist wrapped two consecutive sold-out arena shows in Hangzhou and a third sold-out debut arena show in Shenzhen quickly after tickets went on sale. The company’s own concert franchise, TIMA, moved to a larger Hong Kong venue this year and more than tripled its audience capacity from last year’s event. Fan meetings in Macau for an SM Entertainment trainee group drew tens of thousands of attendees and strong merchandise sales, and the company also invested in The Black Label to expand artist promotion and merchandise collaboration. None of this shows up cleanly in a subscriber count, but it is where TME is choosing to put its energy and capital.
The financial base underneath these bets held up too. Adjusted EBITDA rose 5% to RMB 3.3 billion, non-IFRS net profit attributable to equity holders rose to RMB 2.5 billion from RMB 2.4 billion a year earlier, and IFRS net profit climbed 4% to RMB 2.7 billion. Combined cash, deposits and short-term investments grew to RMB 44.2 billion from RMB 41 billion just three months earlier. The company also kept buying back stock, repurchasing 43.5 million shares for $400 million during the quarter under a program it expects to complete on schedule.
Bear Case: The Ximalaya Math Problem
The acquisition that management is most excited about is also the one that muddies the picture. Ximalaya’s consolidation contributed positively to both membership and advertising revenue this quarter, and after accounting for amortization of intangible assets under purchase accounting, it had a favorable effect on gross margin as well. That is a lot of moving parts feeding into headline numbers that otherwise look straightforward. Strip out the roughly RMB 0.4 billion Ximalaya added, and the underlying growth rate looks noticeably softer than the 6% topline figure suggests.
There are other cracks worth watching. Gross margin actually slipped slightly, to 44.2% from 44.4% a year ago, and operating expenses rose to 14.5% of revenue from 13.7%, with the Ximalaya-related amortization cited as a driver of that increase. Management also flagged that its ad-supported advertising business faced headwinds from a challenging macro environment and a more competitive market, a weakness that Ximalaya’s own advertising contribution partly papered over this quarter. And with copyright protection efforts being stepped up specifically because AI is reshaping how content gets created and distributed, the long-term value of the premium IP the company is betting on is not guaranteed to hold.
Wall Street’s Mixed Signals
Hedge fund ownership of Tencent Music slipped to 24 funds holding a position last quarter from 29 the quarter before, a pullback in institutional conviction worth noting. Short interest sits at just 4.56% of the float, which is not the level of a stock under heavy bearish pressure. Meanwhile, shares trade at a forward price-to-earnings ratio of 9.53 as of August 19, a multiple that assumes very little future growth is priced in.
Two Stories, One Stock
Tencent Music’s quarter contains two narratives running side by side. One is a company successfully turning music IP into concerts, merchandise and artist partnerships that are growing faster than subscriptions ever did. The other is a company whose reported growth and margin trends now lean partly on a recent acquisition whose long-term contribution is still unproven. For the live entertainment and artist management push to matter, it needs to keep scaling well past this quarter’s early wins. For the Ximalaya bet to pay off, the audio platform needs to prove it can grow on its own rather than simply flattering this year’s numbers.
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