Goldman Sachs released a research report stating that Tencent Music (01698, TME.US) announced its second quarter 2025 results, with revenue reaching 4.4 billion RMB, up 18% year-over-year, exceeding market consensus expectations (GSe) by 6% and also surpassing Alpha consensus expectations (+8%). This was primarily driven by better-than-expected online music service revenue (up 26% YoY, 7% higher than GSe/consensus expectations) and social entertainment services (down 9% YoY). Non-GAAP operating profit exceeded expectations at 2.8 billion RMB (up 34% YoY), with an operating profit margin (OPM) of 33.5%, higher than expected. This was supported by gross profit margin (GPM) largely in line with expectations at 44.4% and well-controlled operating expenses (OPEX). Adjusted net profit surpassed expectations at 2.6 billion RMB (up 37% YoY, 17% higher than GSe and 14% higher than Alpha consensus expectations).

Goldman Sachs' main viewpoints are as follows:

Highlights

1) SVIP users reached a new milestone, breaking through 15 million, driving monthly average revenue per user (ARPU) to 11.7 RMB (up 9% YoY, 1% higher than GSe expectation of 11.6 RMB); net paying subscriber additions of 1.5 million were in line with market expectations. These two factors combined drove subscription revenue to 4.4 billion RMB, up 17% YoY (1% higher than GSe).

2) Other online music services revenue performed strongly at 2.5 billion RMB (up 47% YoY, 22% higher than GSe). We believe this was mainly driven by strong advertising revenue from more innovative products (including prepaid models), as well as solid growth in artist merchandise sales and offline concert performances.

3) Non-GAAP operating profit margin expansion momentum continued, reaching 33.5% in Q2 2025 (up 4.0 percentage points YoY and 1.3 percentage points QoQ), benefiting from gross profit margin maintained at 44.4% and strict operating expense control.

Key Focus Areas

1) In the second half of 2025, improvement trends in average revenue per user (ARPU) alongside net paying subscriber growth; 2) Upside potential in other online music services, particularly advertising, artist merchandise (including K-pop collaborations and fan community Bubble), and offline concerts; 3) Synergistic effects and cost efficiency in SVIP business following the acquisition of Ximalaya; 4) Room for further gross profit margin expansion.