Tencent Music beats Q1 revenue estimates on strong rise in paid subscriptions

China’s Tencent Music Entertainment Group, beat first-quarter revenue estimates on Monday, helped by strong growth in paid subscriptions and advertising services on its Spotify-like music streaming platform.

Tencent Music’s shares rose over 8% in morning trade in New York after the company said the number of its paying users rose 20.2% to 113.5 million from a year earlier，marking a record quarterly growth for this metric.

The company reported overall revenue of 6.77 billion yuan ($935.9 million) for the quarter ended March 31, beating analysts’ expectations of 6.63 billion yuan, according to LSEG data.

That said, its overall revenue actually suffered a 3.4% decline from a year earlier as the company continues to feel the impact of the Chinese government’s crackdown on online gambling last year. This marks the third straight quarter that Tencent Music has suffered a revenue decline.

Revenue from the company’s social entertainment services, the revenue segment that is directly impacted by the crackdown, dropped 49.7%.

Still, the company reported strong growth in other segments. Most notably, its revenue from online music services rose 43%. Within it, revenue from music subscriptions alone saw a 39.2% jump to 3.62 billion yuan.

At an earnings call on Monday, Cussion Pang, the company’s executive chairman, said: “For the full year of 2024, our online music and subscription revenue are well on track and the profitability is also expected to do slightly better than previously anticipated.”

Pang also attributed the “better-than-expected” growth in paying user count in the first quarter to the company’s strong performance during the Chinese New Year holiday, a period when users are typically more willing to pay for entertainment, and success in expanding promotional activities aimed at high-potential users.

Overall, investors were pleased to see Tencent Music’s strong growth in this area, although whether such growth is sustainable remains a question for some.

“The streaming subscription business, which has been the investors’ focus, saw a whopping 39% year-over year growth, which validated some upbeat sentiments in prior weeks,” said Charlie Chai, an analyst at 86Research.

“However, we are calling the top of this trajectory and expect quite significant deceleration in the quarters ahead. In our view, the subscription revenue growth is likely to slow down to high-teen in Q4,” he added. Reuters