Tencent Music Stock Outshines Spotify as China’s Music Giant

Key Points

• Tencent Music Entertainment Group has seen its share price more than double in 2025.
• The company is the leading music streaming service in China. Spotify is investing in the firm, rather than challenging it.
• With growth accelerating, profitability improving, and a runway for growth, investors should consider TME.

If you thought Spotify Technology NYSE: SPOT was the best-performing music streaming stock of 2025, think again. Spotify’s performance has been impressive, with the stock up nearly 54% year-to-date. 

However, that return pales compared to Tencent Music Entertainment Group NYSE: TME, a company that one could call the Spotify of China.

In 2025, TME has provided a total return of approximately 122%.

The company has been accelerating its revenue growth, vastly improving its profitability, and gaining tens of billions in market capitalization.

Below, we’ll dive into this name that is finding big-time success in the world’s second-largest economy. Ultimately, is Tencent Music Entertainment Group a stock that investors should consider?

TME Dominates Music in China, Spotify Has Taken Notice

TME is China's largest music streaming service, with over 550 million monthly active users and nearly 125 million paying users. The firm’s closest competitor is NetEase NASDAQ: NTES subsidiary NetEase Cloud Music (NECM), with approximately 200 million users. This shows that TME has considerable dominance in the Chinese music streaming market.

Notably, Spotify is not officially available in China, as the platform is reportedly banned in the country. TME’s scale compared to NECM and Spotify's absence demonstrates its strong grip on the Chinese music streaming market.

Notably, Spotify appears to have recognized TME’s prowess and decided to invest in the company rather than actively competing with it. On page 11 of Spotify’s latest annual filing, it said the majority of its long-term investments relate to TME.

Spotify’s disclosures suggest its investment in TME was likely worth around $1.6 billion at the end of 2024. This is a compelling reason for investors to consider TME. Spotify knows the music streaming business better than anyone, and it made it a point to invest billions in the company.

TME’s Q2 Earnings Show Strong Growth and Profitability Progress

In Q2, TME posted its seventh quarter in a row of revenue growth acceleration, with sales increasing by 18%. This comes after revenues fell by nearly 2% a year ago. The firm also made extensive profitability improvements. Its 44.4% gross margin increased by 240 basis points from a year ago, and by over 1,000 basis points from two years ago.

Additionally, operating margin grew by nearly 460 basis points to 35.3%. This figure is up massively from 21.1% two years ago. The company’s paying users increased by 6.3%, and the firm’s average revenue per paying user rose 9.3%. Overall, shares gained by 12% after the Aug. 12 report, showing that TME had a very strong quarter.

Latest Price Targets See Upside in TME, Valuation Is Well Below SPOT

The MarketBeat consensus price target on TME is approximately $24.50. That figure implies a 2% downside compared to the stock’s Aug. 28 closing price. However, it is worth considering what the most recent analysts' targets have to say about this stock. Since TME’s latest earnings report, MarketBeat tracked several analysts who updated their price targets on the stock.

Among them, the average target comes in at approximately $28.25. This number flips the script, suggesting that shares could rise another 13.5%.

Investors should also note that TME trades at a forward price-to-earnings (P/E) ratio of around 27x. That appears cheap when compared to Spotify. SPOT trades at a forward P/E of more than 59x, an approximately 120% premium over TME.

Still, Spotify has multiple factors on its side that help justify its premium valuation. That includes having over 150 million more paying users than TME and generating more than three times as much revenue from each paying user.

Additionally, Spotify’s business generates revenue worldwide, while TME essentially only operates in China.

TME: Room for Growth in a Massive Market

Despite its lack of geographic diversification, TME still has a significant runway for growth within China. With over 1.4 billion people, the company’s paying user base only extends to around 9% of the country.

According to a January 2025 report, Spotify had 55 million Premium users in the United States. That’s equal to approximately 16% of the U.S. population of 340 million. This shows that TME still has a long way to go before reaching similar levels of penetration.

For this reason and the others outlined above, investors should consider TME. Its dominance in China and financial improvements are hard to ignore. Spotify's investment is also a strong sign, and the latest Wall Street price targets are bullish.