Tencent Music's First Quarterly Print Since IPO Out-Of-Tune With Investors

Tencent Music Entertainment Group – ADR TME’s first earnings report as a public company isn't exactly music to the ears of investors.

What Happened

While the Chinese company beat earnings per share and revenue estimates for the fourth quarter Tuesday, the company saw its U.S.-listed shares drop as investors appeared displeased by high licensing and production costs.

The stock was down in after-hours trading Tuesday and continued to drop Wednesday, trading down by nearly 9 percent. 

Revenue in the quarter ended Dec. 31 was up 50.5 percent year-over-year to $785 million. For the full year ended Dec. 31, total revenue was up even more, jumping 73 percent to $2.76 billion, the company said.

Tencent said the number of paying online music service listeners grew by nearly 40 percent over the same period a year earlier, reaching 27 million by the end of 2018. 

Fees for content and other production costs grew by more than 60 percent.

BofA Stays Bullish 

Chinese customers aren’t as used to the pay-to-play streaming music model as Americans, but Bank of America Merrill Lynch analyst Eddie Leung said the company is steadily moving toward making money on music.

Leung reiterated a Buy rating on Tencent Music with a $20.10 price target.

“We expect gradual but not aggressive monetization in music in this year,” the analyst said in a Wednesday note. “Monetization, in terms of paying user ratio and average revenue per paying user, should continue a steady uptrend but won’t be boosted by aggressive measures at the current stage.”

Tencent appears committed to improving algorithms and data to enhance targeting of content, as well as investing in niche musical genres and expanding distribution formats, including produced shows, Leung said. 

Tencent Music is controlled by Chinese technology company Tencent Holdings.

Price Action

Tencent Music shares were down 8.94 percent at $16.91 at the time of publication Wednesday. 

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