What happened
Week to date, shares of Tencent Music Entertainment Group (NYSE: TME) were up 12% as of 2:44 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
In its second-quarter earnings release on Aug. 15, Tencent Music reported strong revenue growth from online music services, driving total revenue up 5.5% year over year. Revenue was in line with expectations, but demand for the company's online music platform surpassed estimates, sending the stock higher.
So what
Revenue from Tencent's online music services, including QQ Music, Kugou Music, Kuwo Music, and WeSing, has accelerated since the end of 2022. This follows strong performance from the streaming leader Spotify Technology. Market sentiment has been positive for leading music streaming stocks lately. Shares of Tencent Music are up 43% over the last year, although the share price has fallen 17% since the beginning of 2023.
Analysts were expecting Tencent's music streaming services, which represents 58% of the business, to report revenue of $540 million, but the segment posted $586 million.
Revenue from music subscriptions grew 37% year over year to $399 million. Tencent Music supplements the revenue from subscriptions with advertising services, which also performed well in the quarter.
Now what
Music services have a lot of ways to drive higher demand, including optimizing features and recommendation engines with artificial intelligence. Plus, there has been a push this year toward higher-resolution streaming. Tidal, which is majority owned by Block, has recently started rolling out lossless audio streaming to its users, while Spotify is rumored to be getting closer to launching hi-res audio for its service.
Tencent Music has made several improvements to its services with listening features and recommendation functions, in addition to optimal sound quality. Management credited these efforts for driving growth, as well as deepening relationships with artists and record labels. These initiatives could keep the momentum going for the foreseeable future.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block and Spotify Technology. The Motley Fool has a disclosure policy.
