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Investing.com - CFRA has lowered its price target on Tencent Music Entertainment Group (NYSE:TME) to $21.00 from $25.00 while maintaining a Hold rating, citing a more cautious view on member growth from the company’s large paid user base. The new target aligns more closely with InvestingPro’s Fair Value assessment, which suggests the stock is currently slightly undervalued despite falling 14.79% in the past week. Analyst targets for TME range from $17.07 to $33.07, reflecting mixed sentiment on the entertainment giant.
The research firm applied a narrower equity risk premium and a forward P/E of 21.4x compared to the three-year historic average of 24.7x in its valuation adjustment. Despite the price target reduction, CFRA increased its 2025 EPS estimate by $0.20 to $6.15 and its 2026 estimate by $0.16 to $7.00. TME’s current P/E ratio stands at 21.29, but its remarkably low PEG ratio of 0.24 indicates the stock is trading at a discount relative to its expected growth rate.
Tencent Music shares fell following the report of weaker monthly active users (MAUs) for online music, which declined 4.3% year-over-year. The company did show positive metrics in other areas, with paying users for online music increasing 5.6% year-over-year to 125.7 million and monthly average revenue per paid user (ARPPU) rising 10.2% to RMB11.90. This user monetization strategy appears to be working, as TME has achieved 13.95% revenue growth over the last twelve months, with analysts forecasting 14% growth for fiscal year 2025.
CFRA noted that Tencent Music is ahead of competitors in leveraging artificial intelligence to further localize features and functions, leading to improved user retention. These AI innovations include in-app translation and speak-to-text capabilities. InvestingPro data shows TME maintains excellent financial health with an overall score of 3.26 (rated "GREAT"), providing the company with ample resources to continue investing in technological advancements.
The firm also highlighted that advertising is showing solid growth from an innovative ad-supported model, while its revenue projections for Tencent Music stand at RMB32.4 billion for 2025 and RMB36.2 billion for 2026, in line with consensus estimates. TME holds more cash than debt on its balance sheet and boasts a strong current ratio of 2.09, giving it financial flexibility to pursue growth opportunities. InvestingPro has identified 10 additional investment tips for TME, including its impressive 80.34% price return over the past year. Discover the full analysis in TME’s comprehensive Pro Research Report, available among 1,400+ top stocks covered on the platform.
In other recent news, Tencent Music Entertainment Group reported its third-quarter earnings for 2025, surpassing analyst expectations. The company achieved an earnings per share of $1.54, compared to the forecasted $1.52, and revenue reached $8.46 billion, exceeding the anticipated $8.23 billion. These results highlight the company’s strong financial performance in the recent quarter. Macquarie maintained its Outperform rating on Tencent Music while adjusting its price target to $28.30, citing a solid third-quarter performance and robust music business momentum. Non-subscription music revenue exceeded both Macquarie’s expectations and broader market consensus. Meanwhile, Morgan Stanley reiterated its Overweight rating with a $27.50 price target, noting the strategic investments in concerts and merchandise as positive long-term moves for Tencent Music. Both firms acknowledge the company’s strategic direction, albeit with some caution regarding near-term margin pressures. These developments reflect a positive outlook from analysts on Tencent Music’s future growth potential.
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