Why Tencent Music Bears Were Right Before A 61% Drop

If you had bought Tencent Music Entertainment Group at the start of this review period expecting smartphone adoption, fan clubs and live shows to re-rate the business, the result has been brutal. Investors who held Tencent Music Entertainment Group over the past year are down 60.5%, including dividends. If that entry decision was based on analysts’ 2025 assumptions for double digit revenue growth, still high margins and a near 30x future P/E, what exactly did that thesis overlook?

The useful thing about a Narrative is that the reasoning is checkable: the assumptions sit beside the argument, and together they imply an estimated Fair Value you can disagree with.

Tencent Music Entertainment Group has already moved. See which of 34 high quality undervalued stocks still trade below our estimates.

The Argument You Would Have Been Weighing Up On Tencent Music Entertainment Group

The shares cost US$22.31 at the start of the period, and Tencent Music Entertainment Group sat between two very different stories about what came next.

On the upbeat side, one narrative put Fair Value at US$28.34. That view leaned on 14.8% assumed annual revenue growth, helped by rising smartphone usage, fan-focused features such as SVIP and "bubble," and a 29.8x future P/E assumption.

The more cautious script pointed to a Fair Value of US$14.54. This camp focused on tightening Chinese regulation, higher compliance costs, and fierce competition from platforms like NetEase Cloud Music and ByteDance as key risks to future performance.

What The Results Changed For The Tencent Music Argument

The big swing factor was Tencent Music Entertainment Group closing the US$2.4b Himalaya acquisition and folding podcast revenue into Q2 2026, which helped lift total revenue to RMB 8,933m and supported the optimistic case on new formats and fan time spent. At the same time, net margin slipped from 28.5% to 27.7%, which challenged the easy high margin assumption.

The portable lesson is clear. When a thesis leans on expanding ecosystems, especially through deals, you need to track whether margin moves with revenue. For any similar stock, line up each acquisition headline with future segment sales and the net margin trend to see if scale is actually rewarding shareholders.

What Tencent Music’s Lower Price Now Asks You To Believe

Tencent Music Entertainment Group now trades at US$8.91. The selected Narrative sees Fair Value above that figure and ties the gap to a wider audio ecosystem that leans on AI tools, offline performances and higher value IP based services rather than just music streaming.

For the past year’s 60.5% fall to look more like an opening rather than a warning, a buyer today would need confidence that this broader ecosystem and AI driven creator tools can support engagement and monetization despite competitive and cost pressure.

"A key consideration is that Tencent Music Entertainment Group continues to develop its broader music and audio ecosystem, including offline performances, artist merchandise, and audiobooks and podcasts from the Ximalaya acquisition, while managing competitive and AI-related pressures on its core music streaming business."

Not everyone reads the same price the same way. → See the higher figure this Narrative lands on, and how it gets there

Where Tencent Music’s Story Connects

Tencent Music leans heavily on engagement, attention and time spent with audio.

Across the industry, another giant is chasing the same scarce resource from a different direction.

It is weaving AI into search, video and workplace tools to keep users inside its universe longer.

That platform is also turning its cloud services into an engine for companies building AI driven products.

If more entertainment and creator tools ride on that backbone, your Tencent Music watchlist might sit closer to this shift than it first appears.

That argument has a Narrative and a number behind it. → See the company one Narrative values 55% above its price

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