(Adds executive comments from earnings call)
By Pei Li and Ayanti Bera
Nov 11 (Reuters) - China's Tencent Music Entertainment Group reported better-than-expected third-quarter revenue on Monday, as the streaming company added more paying users.
However, it recorded the slowest rise in a widely watched metric for its biggest business, social entertainment services, which executives attributed to growing competition.
Tencent Music's U.S.-listed shares rose as much as 2% before trading down about 1% in volatile extended trade.
The company's monthly average revenue per paying user from its social entertainment services unit rose 7.4% to 127.3 yuan ($18.20), the slowest growth since it went public in December.
"We recognize that it may be slightly below where we previously thought it would be," Tony Yip, chief strategy officer, said on a conference call. "That's primarily because of increasing competition that we are facing with the short video platforms."
Tencent Music competes with Alibaba-backed NetEase Cloud Music in streaming services, and with short video sites such as Bytedance's Douyin and Tencent-backed Kuaishou in social entertainment.
Although its music streaming unit has more users, the company's biggest revenue drivers are social entertainment services, including karaoke platforms, where users can live stream concerts and shows.
The social entertainment business reported 12.2 million paying users during the quarter, up 23.2% from a year earlier.
Yip said the firm will step up investment aimed at user growth, with a view to reach a younger demographic with content more appealing to them as well as initiatives such as offline singing competitions and partnerships with game studios.
The company also said it is exploring opportunities to take services outside China and hopes to introduce monetization methods such as virtual gifts to Thailand, Indonesia and Malaysia.
Although Tencent Music's user base is nearly three times that of world's largest music streaming service, Spotify - a peer and stakeholder - its paying users are comparatively fewer.
As of the third quarter, Spotify Technology SA had over 100 million paid subscribers, whereas Tencent Music had about 35 million.
Tencent Music, which has a user base of over 900 million, has been shifting more content behind a paywall since May.
The company, controlled by Chinese tech giant Tencent Holdings Ltd, said paid users of its online music service jumped about 42% in the quarter ended September.
Net income rose to 1.02 billion yuan from 964 million yuan a year earlier.
Revenue rose about 31% to 6.51 billion yuan, above estimates of 6.45 billion yuan, according to IBES data from Refinitiv.
Excluding items, the company earned 0.74 yuan per American depositary share, above estimates of 0.66 yuan. ($1 = 6.9941 Chinese yuan renminbi) (Reporting by Ayanti Bera in Bengaluru and Pei Li in Beijing; Editing by Amy Caren Daniel and Shounak Dasgupta)