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Why Tencent Music and Spotify AB May Swap Stock

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Tencent has been on an investing spree

Chinese video game and social media giant Tencent Holdings (TCEHY) has been investing big in global companies. Last month, the company purchased 12% of American social-media company Snap (SNAP) in open exchanges, and earlier this year, it invested in Indian ride-hailing company Ola. Indian e-commerce firm Flipkart is also backed by Tencent.

According to a recent report by the Wall Street Journal, Tencent Music Entertainment, Tencent’s music arm, is in talks with Swedish music streaming company, Spotify AB, to swap a 10% stake of each other’s businesses. Both Tencent Music Entertainment and Spotify are aiming to go public soon.

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How Spotify and Tencent Music could profit from the deal

The music arm of the Chinese company was valued at $6 billion last year. It’s likely to be valued higher soon. Meanwhile, Spotify AB was valued at $8.5 billion in 2015. Spotify AB has only 140 million monthly active users, compared with Tencent Music’s 700 million. However, the former has managed to garner 60 million paying subscribers, compared with the latter’s 15 million.

This deal could help Tencent monetize more of its 700 million active users. Meanwhile, Spotify AB could get more exposure in China (FXI) if the deal goes through. In fact, both companies would likely get access to markets that they don’t currently operate in, and this process could save both companies big money.

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