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Tencent Music: Analyzing the Latest IPO

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Analyzing Tencent Music

So far, 2018 has been tough for Tencent (TCEHY) due to the US-China trade war and Chinese regulatory bodies cracking down on the games that Tencent launched. The company’s stock value has experienced a massive loss. Tencent initiated share buybacks in September after four years to enhance the EPS by lowering the number of outstanding shares. China’s leading gaming company retaliated by developing other product lines and diversifying its revenue earning base.
tencent music stream
Tencent announced the IPO of Tencent Music Entertainment on October 3. The IPO intends to generate $2 billion in the US listing. Initially, Tencent planned to collect $3 billion–$4 billion from the IPO. Baidu’s online streaming platform iQIYI (IQ) received $2.3 billion in its IPO in March. China’s online music entertainment market is expected to grow at a compound annual growth rate of ~37% to $31.3 billion between 2017 and 2023.

Tencent Music has generated revenues of $1.3 billion and profit of $263 million in the first half of 2018. WeChat’s billion user base, QQ, and Tencent Video drove the revenues and profits. WeChat is Tencent’s messaging, social media, and mobile payment app. QQ is Tencent’s instant messaging software service, which includes online games, music, shopping, and movies. Tencent Video is Tencent’s video streaming platform. Tencent owned 75% of China’s music streaming market in 2017 through QQMusic, KuGou, and Kuwo. NetEase (NTES) and Baidu (BIDU) had a relatively smaller market share. Tencent Music had 872 million monthly users in aggregate. However, Tencent Music had a paying ratio of only 3.6% in the second quarter.

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