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Tencent Music IPOs at bottom end of expected price bracket

By | Published on Wednesday 12 December 2018


Tencent Music has priced its shares at the bottom end of the expected $13-$15 price range as the music division of Chinese web giant Tencent arrives on the New York Stock Exchange today.

That means the company will raise about $1.1 billion from the initial public offering and will arrive on the NYSE with a market cap valuation of about $21.3 billion. Although still a significant stock exchange debut, the money raised and accompanying valuation is considerably lower than what had been predicted earlier this year.

Tencent confirmed in July that it would spin-off its music division as a standalone business via an IPO in the US. But the listing was subsequently delayed as most publicly-listed tech firms saw their share prices dip and the trade war between the US and China escalated.

There was talk of the IPO being pushed back into 2019, but Tencent announced the listing was going ahead after the stock market responded positively to talks between the US and China at the recent meeting of G20 countries in Buenos Aires.

A further hitch then occurred after it emerged an early investor in a company that subsequently merged with Tencent Music was suing over allegations he’d been tricked into selling his shares in 2013.

Tencent Music, of course, owns China’s market-leading streaming service QQ Music, and has a number of other digital, distribution and label operations too. The firm’s IPO has been frequently compared to the direct listing earlier this year of Spotify, with which Tencent has a formal alliance.

Spotify arrived on the New York Stock Exchange with a market cap valuation of about $30 billion, considerably more than Tencent. However, Spotify’s share price has since taken a hammering, so that its market cap today is just over $23.2 billion, so not that much more than its Chinese ally.

Although there are lots of parallels between Spotify and Tencent Music – other than them both now being listed on the New York Stock Exchange – there is one big difference that has been frequently noted in recent weeks. Whereas Spotify listed while still incurring significant monthly losses, Tencent Music is already profitable.

That’s despite the vast, vast majority of QQ Music’s users being on its free service, whereas Spotify has impressive premium subscriber figures.

Tencent has achieved profitability partly by having other revenue streams than just ads and subscription sales. And partly by having made lower financial commitments to the global music industry, which was much more flexible when it came to negotiating streaming deals in an emerging market that traditionally brought in very little income at all for the Western record companies and music publishers.

With both Spotify and Tencent now listed on the New York Stock Exchange and therefore obliged to publish quarterly financial reports, the music industry will have regular opportunities to check-in on how two major players in streaming are performing, and to see how growth in the Chinese market compares with the rest of the world.