A regulatory crackdown could weigh on the streaming companys growth.

What happened

Shares of Tencent Music Entertainment Group (NYSE:TME) fell 12% on Tuesday after the online music platform reported its second-quarter financial results. 

So what

Tencent Musics revenue rose 15.5% year over year to $1.2 billion. The gains were driven by a 40.6% surge in online music paying users, to 66.2 million, which fueled a 36.3% increase in revenue from music subscriptions, to $277 million.

Our strong momentum in online music monetization was supported by solid subscriptions and advertising revenue growth, executive chairman Cussion Pang said in a press release.

A

Investors sold off shares of Tencent Music on Tuesday. Image source: Getty Images.

Still, Tencent Musics net profit for equity holders declined 11.9% to $128 million, due in part to higher operating expenses.

More worrisome were a 4.3% decline in online music mobile monthly active users, to 623 million, and a 13.3% drop in social entertainment MAUs, to 209 million, which management chalked up to intensifying competition.

Now what

Many investors are also worried about the ramifications of Chinas regulatory crackdown on technology companies. In July, Chinese regulators ended Tencent Musics ability to sign exclusive music licensing deals, which could slow its subscriber growth in the year ahead. 

While we expect some impact to our business operations as a result of this decision, we remain steadfast in our ongoing goals of fostering innovation, fulfilling our social responsibilities, providing users with better services, and promoting the long-term, healthy development of the digital music industry, Pang said.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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