Tencent Music IPO Launches at Lowest Expected Price Range

Why is Wall Street so unhappy with Tencent Music Entertainment?

Despite the fact that revenues surpassed estimates — having come in at 10 cents per share, more than the nine cents per share that experts expected — Tencent Music Entertainment’s stock took a dive to the tune of seven percent.

Before the market closed, however, the company’s shares rebounded slightly, increasing by about .6 percent.

Moreover, Tencent Music Entertainment’s Q2 2019 earnings were $859 million, compared with estimated earnings of $843 million. This figure marks a 33 percent hike from 2018’s Q2 revenue.

This increase fell somewhat short of Tencent Music Entertainment’s own predictions, and revenue per music streamer increased by about 16 percent — the smallest jump since Tencent Music went public in 2018.

In short, it seems that Tencent Music Entertainment’s performance was good, but not good enough, for investors.

The drops come ahead of Tencent Holding’s anticipated purchase of Vivendi’s Universal Music Group, though it’s unclear how this played into Wall Street sentiments.

The purchase of an initial 10 percent would solve Tencent Holding’s ongoing licensing issues with TikTok, at least with UMG.  It would also open a range of licensing possibilities with other properties, with a minority share enough to seal the deal.

Tencent is expected to spend a substantial sum for its 10 precent UMG chunk, with an opportunity to buy an additional 10 percent in the future.  Vivendi’s CEO previously claimed that UMG is worth more than $40 billion, and the quick-sell will allow the French media conglomerate to entertain similar sell-offs without sacrificing majority control.  That latter point apparently ruffled previous prospective buyers of a 50% stake, with Vivendi unwilling to cede any control to a partial owner.

Interestingly, Tencent is the first Asian company to be valued at over $500 billion.  Thus, while paying four or so billion dollars for a chunk of UMG might seem risky, the purchase price is relatively minor.