Tencent Music shares fall on weak quarterly outlook

Shares of Tencent Music Entertainment Group fell on Thursday after the company warned of a weaker-than-expected revenue outlook for the current quarter, citing softer advertising demand and rising operational costs.

The Chinese streaming giant reported second-quarter earnings that missed analyst expectations, with revenue declining 1.7% year-over-year to 6.6 billion yuan ($910 million). Net income attributable to shareholders fell 18% to 730 million yuan, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped 12% to 1.5 billion yuan.

Tencent Music attributed the slowdown to a slowdown in online advertising, which accounts for a significant portion of its revenue, alongside higher spending on content licensing and technology infrastructure. The company also highlighted regulatory pressures in China’s tech sector as a lingering risk to its operations.

Management guided for third-quarter revenue of 6.3 billion to 6.5 billion yuan, below the 6.8 billion yuan average estimate from analysts surveyed by Refinitiv. The outlook reflects continued weakness in ad spending and competition from short-video platforms such as Douyin, which have eroded user engagement on its core music streaming services.

Analysts at Citi downgraded the stock to Neutral from Buy, citing the weaker guidance and margin compression. The bank also lowered its price target to $8 from $10, though it acknowledged that Tencent Music’s dominant market position in China’s music streaming sector remains intact.

The stock, which had gained roughly 15% year-to-date before Thursday’s decline, fell as much as 8% in early trading, paring losses to around 5% by midday. The shares were last down 4.8% at $7.20 in New York trading.

Tencent Music, which operates platforms including QQ Music and KuGou, has faced increasing competition from free, ad-supported streaming services and user-generated content platforms. The company has responded by expanding into live streaming, podcasts and short-form video, but these initiatives have yet to offset the decline in its core business.