Episode Details

Tencent Music Entertainment Group (TME) Q2 2026 — Q2 2026 (three months ended June 30; released before the open on Tuesday August 11, so August 11 is the reaction session): total revenue RMB 8,933M (US$1,317M) vs a US$1,300M bar, non-IFRS EPS US$0.25 per ADS vs a US$0.24 bar - a beat on both lines, and the stock still fell 11.9%. Tencent Music beat on revenue and earnings and fell 11.9% anyway. Revenue rose RMB 491M - and RMB 407M of that came from Ximalaya, acquired May 18. Organic growth was 1.0%. The metrics that would prove otherwise were withdrawn in March. THE CALL: HOLD (3/5, MODERATE - CHEAP BUT UNAUDITABLE) — base-case value ~$11.33 vs ~$8.84 today. KEY METRICS: - CALL: HOLD, 3/5. Fair value $11.38 vs the $8.84 close on August 14, about 29% higher - and we are still not buyers. This is an EV/owner-earnings grid: non-IFRS profit less all stock compensation and half the deal amortisation. Bear $8.58 (8.0x), base $11.33 (10.5x), bull $14.27 (13.0x), weighted 25/50/25. Headline Street target is $15.22, but targets written since the print average $11.50. - THE QUARTER (ended June 30, 2026; IFRS, in RMB at 6.7851/USD): revenue RMB 8,933M (US$1,317M), up 5.8%. Music related services RMB 7,605M, up 11.0%. Social entertainment RMB 1,328M, down 16.4%. Gross margin 44.2%. IFRS diluted EPS per ADS RMB 1.57 (US$0.23); non-IFRS RMB 1.70 (US$0.25). One ADS = two Class A shares, per the 6-K. - THE ANGLE - 83% OF THE GROWTH WAS ACQUIRED: revenue rose RMB 491M, and the release states Ximalaya, consolidated from May 18 (about six weeks), contributed RMB 407M. Strip it and organic growth was 1.0%. Music related services grew 11.0% reported, 5.0% ex-Ximalaya. The six-week stub annualises near RMB 3.4bn, so Q3 reported growth improves and means less. - AND THE METRICS THAT WOULD CHECK IT ARE GONE: on March 17, 2026, under Planned Disclosure Change, TME discontinued quarterly online-music MAU, paying users and ARPPU, reporting total paying users annually instead. Last disclosed: 127.4M paying users, ARPPU RMB 11.9 (flat two quarters), MAU 528M, down 5.0% and falling faster. Four downgrades followed within days. - THE CASH IS SMALLER THAN THE HEADLINE: cash, deposits and short-term investments rose 16.2% to RMB 44,222M (US$6,518M). But borrowings went from zero at December 31 to RMB 13,139M for Ximalaya; total debt is RMB 16,529M. Net cash is RMB 27,693M (US$4,082M), DOWN 19.8% in six months. Operating cash flow was strong at RMB 2,864M, up 74.8%. - THE BUYBACK DOES NOT SURVIVE DECOMPOSITION: TME repurchased 43.5M ADSs for US$400.0M at an average US$9.2 - yet weighted-average basic ADSs ROSE 2.2%, to 1,564.2M. Treasury shares rose RMB 2,725M while paid-in capital rose RMB 5,014M: roughly twice as much stock issued as retired. Tencent holds 93.6% of the votes in this Cayman-incorporated VIE. What to watch: UP: the annual paying-user figure showing the base compounded through the blackout; Q3 separating Ximalaya from the organic base; the ADS count finally shrinking. DOWN: another quarter of ~1% organic growth; net cash falling again; a year-end disclosure with no ARPPU beside it. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.