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On Tuesday, Jefferies analyst Thomas Chong increased the price target for Tencent Music Entertainment Group (NYSE:TME) shares to $17.00, up from the previous $15.20, while maintaining a Buy rating on the stock. The company, currently valued at $23.18 billion, has seen its shares surge 27.8% year-to-date and is trading near its 52-week high of $15.77. According to InvestingPro analysis, TME appears to be slightly undervalued at its current price of $14.66. Chong’s adjustment follows Tencent (HK:0700) Music’s first-quarter results, which aligned with market expectations. The company’s management, during the earnings call, confirmed expectations for revenue acceleration and margin expansion by 2025. InvestingPro data reveals TME maintains excellent financial health with an overall score of 3.39 (rated as "GREAT"), supported by strong profitability metrics and robust cash flows. For deeper insights into TME’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
Tencent Music’s quarterly report showed consistency in revenue and non-IFRS earnings with analyst forecasts. Chong noted that for the second quarter, revenue estimates have been slightly revised upward, influenced by gains in other revenue streams and social entertainment, although subscription revenue projections remain the same.
The company’s strategy for its subscription business is to sustain high-quality growth, propelled by an increase in subscribers and average revenue per paying user (ARPPU). For its non-subscription segments, Tencent Music aims to boost ad revenue through enhanced ad performance and product innovation. With a projected revenue growth of 9% for FY2025 and a P/E ratio of 24.86, TME shows promising growth potential while maintaining reasonable valuations. Additionally, the company plans to increase revenue from merchandise and concerts by strengthening partnerships with music labels and artists.
The analyst highlighted key points from the earnings call, including the anticipation of year-over-year revenue growth and margin improvements for the full year of 2025. Chong pointed out that the subscription side of the business is expected to thrive due to both subscriber gains and ARPPU expansion.
Moreover, the company’s SVIP membership and ARPPU exhibited robust growth momentum. Both the number of SVIP members and ARPPU saw sequential increases in the first quarter of 2025, signaling positive trends for Tencent Music’s premium services.
In other recent news, Tencent Music Entertainment Group reported strong first-quarter results for 2025, surpassing analyst expectations with a revenue of RMB7.36 billion ($1.01 billion), marking an 8.7% year-over-year increase. The company’s non-IFRS diluted earnings per ADS were RMB1.37 ($0.19), exceeding the anticipated RMB1.32. This growth was primarily driven by a 15.9% year-over-year surge in the online music services segment, with music subscription revenue climbing 16.6% to RMB4.22 billion ($581 million). Despite this strong performance, revenue from social entertainment services and others decreased by 11.9% year-over-year, attributed to changes in live-streaming features and compliance procedures.
Morgan Stanley (NYSE:MS) recently raised its price target for Tencent Music to $16.50 from $14.70, maintaining an Overweight rating on the shares. The revision followed Tencent Music’s first-quarter earnings, with adjustments made to earnings estimates for 2025 to 2027. Factors contributing to the price target increase include the market value of Tencent Music’s strategic investments and an updated currency exchange rate forecast. These strategic investments include stakes in Spotify (NYSE:SPOT), Universal Music Group (AS:UMG), and Warner Music Group (NASDAQ:WMG). The company’s gross margin improved to 44.1% from 40.9% in the previous year, supported by growth in higher-margin music subscriptions and advertising services. Tencent Music ended the quarter with RMB37.67 billion ($5.19 billion) in cash and cash equivalents, term deposits, and short-term investments.
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