Shares of China’s music streaming giant Tencent Music (TME) were down more than 7.0% in after-hours trading today. Tencent Music announced its second-quarter results after the market closed. It reported sales of $859 million, a rise of 31.0% year-over-year, and its adjusted earnings came in at $0.10.
Analysts expected TME to post revenue of $843 million and EPS of $0.09 for Q2. But Tencent Music shares fell despite the earnings and revenue beat. TME is now trading flat year-to-date after today’s pullback. The stock was listed on the New York Stock Exchange in December 2018, and it closed trading at $14 per share on December 12. The stock then rose $19.97 in March 2019 before falling to $12.8 in June.
Key metrics in the second quarter
It’s still unclear why TME has lost market value today. The company performed extremely well in the second quarter. It managed to add 2.6 million paid users in Q2—which is the highest level since Q1 of 2018. TME’s total online paying users stand at 31 million, an increase of 33% year-over-year.
Tencent Music chief executive officer Cussion Pang stated, “We are pleased with second quarter results driven by the strength of both our online music and social entertainment businesses. … We continued to expand our music content leadership by partnering with more music labels, as well as adding more content including music-centric variety shows, short-form videos and long-form audio such as audio books and podcasts.”
Tencent Music expanded its content via several collaborations, partnering with Tencent Games, Tencent Video, and Tencent Pictures to produce premium music for games, TV shows, and movies. It also released several online albums of upcoming and established artists on the TME platform.
TME’s operating expenses accounted for 17.8% of sales in Q2, down from 18.5% in the prior-year period. Its operating profit increased by 7% to $158 million. TME’s sales and marketing expenses were up 11.2%, driven by increased product and brand spending to acquire paying users.
TME stock has declined after recovering well since June 2019. Its 12-month analyst price target stands at $17.02, indicating upside potential of 26% from the current price.