{"text":[[{"start":5.4,"text":"This article only represents the author's own views."}],[{"start":9.4,"text":"Internet stalwart Tencent understands the importance of social media, previously using its hugely popular WeChat platform to burrow its way into areas like online payments and e-commerce to challenge more established names like Alibaba and JD.com. Now, the company is getting challenged in the same way by newer arrival ByteDance, which is leveraging its equally popular Douyin video app in much the same way."}],[{"start":35.2,"text":"That challenge was on prominent display in the latest quarterly results from Tencent Music Entertainment Group (TME.US; 1698.HK), released on Wednesday, which showed the company’s core music business is rapidly losing market share to ByteDance’s newer Soda Music service."}],[{"start":54.050000000000004,"text":"At the broadest level, that challenge was reflected by some of Tencent Music’s slowest revenue growth since it was forced to restructure its business after China’s market regulator determined in 2021 that it engaged in monopolistic behavior. The company’s revenue rose just 5.8% year-on-year in the second quarter to 8.93 billion yuan ($1.32 billion), its slowest growth rate in two years, down from 7.3% growth in the first quarter and 15.8% for all of 2025."}],[{"start":88.05000000000001,"text":"The company is fighting back by trying to work more closely with Tencent’s broader ecosystem, including WeChat, the related WeChat payment services and Tencent’s domineering presence in gaming, which seems like a no-brainer that it should have begun leveraging earlier. It’s getting into offline events as well, which also seems like an area where it can leverage its huge user base better than its rivals. Lastly, it’s also using its recently acquired Ximalaya, China’s leading podcast platform, to expand beyond music into digital audio."}],[{"start":120.55000000000001,"text":"All of those seem like logical ways to fend off the ByteDance challenge, though investors don’t seem completely convinced. Tencent Music’s U.S.-listed stock has lost about half of its value this year, most of that since mid-March after it released its fourth-quarter and full-year results for 2025."}],[{"start":138.55,"text":"Investors were spooked by the company’s falling user base, which contracted throughout the year and stood at 528 million monthly active users (MAUs) by the end of December, down 5% year-on-year. The company further scared investors by declaring it would no longer regularly disclose MAU data, leading many to speculate the user declines might accelerate."}],[{"start":161.65,"text":"Still the leader"}],[{"start":164.1,"text":"All that said, Tencent Music is still undeniably the leader in China’s online music market, making it the local equivalent of global giant Spotify (SPOT.US). Its user figure at the end of last year was still more than triple ByteDance’s 156 million MAUs in March, according to data tracking firm QuestMobile. But ByteDance’s June figure was up nearly 80% year-on-year, in sharp contrast to Tencent Music’s declines."}],[{"start":192.7,"text":"ByteDance’s rapid rise has also vaulted it past NetEase Cloud Music (9899.HK), whose 147 million users at the end of March was down 1.4% year-on-year, according to QuestMobile. Not surprisingly, NetEase Cloud Music, whose stock is also down nearly 40% this year, also doesn’t disclose MAU figures."}],[{"start":214.14999999999998,"text":"Following its big stock decline this year, Tencent Music trades at a lowly price-to-earnings (P/E) ratio of just 10. While that’s ahead of NetEase Cloud Music’s even lower 7.7, both figures are a fraction of Spotify’s ratio of 27."}],[{"start":230.7,"text":"With all that background in mind, we’ll take a deeper dive into Tencent Music’s latest report that shows it’s still the big kid on the block, despite the ByteDance challenge. The company was even more dominant before the 2021 antimonopoly ruling. Before that, Tencent Music had exclusive rights to the China market from most of the world’s major music labels, and could decide which rights to sub-license to its Chinese rivals and on what terms."}],[{"start":257.15,"text":"Even after it gave up that control, and despite the ByteDance challenge, the company still controls about 60% of the huge Chinese market for online music. While its total revenue only rose 5.8% in the second quarter, its core music services revenue rose by a stronger 11% to 7.61 billion yuan, accounting for 85% of total revenue. Still, even that growth rate was down from 12.2% growth in the first quarter and 22.9% growth for all 2025."}],[{"start":290.59999999999997,"text":"Social entertainment drag"}],[{"start":292.99999999999994,"text":"The big drag on the company’s revenue lately has been its social entertainment services, which fell 16.4% year-on-year to 1.33 billion yuan in the second quarter, accelerating from an 11% decline in the first quarter."}],[{"start":308.09999999999997,"text":"The company detailed a number of steps it is taking to defend its position in the face of ByteDance’s challenge. Chief among those is better leveraging Tencent’s other areas to benefit its own services. Such initiatives during the second quarter included strengthening its music content distribution through WeChat’s video accounts service, and collaborating with WeChat’s payment service to drive traffic to its apps for more casual music users."}],[{"start":332.65,"text":"On its earnings call, executives pointed out the company’s biggest challenge is retaining those casual users, who are more likely to jump ship to rivals like ByteDance’s Soda Music and NetEase Cloud Music. By comparison, higher-spending VIP users are “stickier” and less likely to change."}],[{"start":351.04999999999995,"text":"The company is also holding more offline events, including fan meetings and concerts for some of its “strategically collaborated artists.” Such events are typically costlier than online activity, and the company said that difference was a factor dragging down its gross margin slightly to 44.2% in the latest quarter from 44.4% a year earlier."}],[{"start":372.65,"text":"It also drew attention to its ongoing integration of Ximalaya, which it began consolidating into its results in mid-May, or midway through the second quarter. That means the company is likely to get a revenue bump from Ximalaya in the third quarter, though that contribution will probably be relatively small."}],[{"start":390.54999999999995,"text":"On the bottom line, Tencent Music’s profit for the quarter rose just 2.5% to 2.47 billion yuan, though its adjusted profit was up by a bigger 4.4% year-on-year to 2.69 billion yuan. Still, neither of those growth rates is going to impress investors looking for strong double-digit gains. But gains of that size are probably in the past for now, which means the biggest catalyst for the stock over the next year or two will probably come from investors who believe the shares are undervalued. Meantime, more downside is always possible if the company fails to slow the ongoing ByteDance assault."}],[{"start":433.9,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1786706992_6147.mp3"}