Ten­cent Mu­sic grow­ing rapidly but val­u­a­tion for up­com­ing IPO still seems high

Global Times - - BIZCOMMENT - Page Edi­tor: huwei­[email protected]­al­times.com.cn

Ten­cent Mu­sic En­ter­tain­ment will strain to hit Spo­tify’s high notes. China’s so­cial me­dia and gam­ing ti­tan is float­ing its mu­sic-stream­ing arm at a val­u­a­tion of up to $24.5 bil­lion. Sales are up, and the unit has a novel, prof­itable busi­ness model. Still, the com­pany’s huge premium to Spo­tify is hard to jus­tify.

China’s top mu­sic app orig­i­nally planned to raise at least $2 bil­lion in Oc­to­ber, sources told Reuters at the time. But a global stock sell-off, ag­gra­vated by US-China trade ten­sions, led Ten­cent Mu­sic to de­lay.

Now the plan is to sell up to $1.2 bil­lion of shares in a lower-key IPO in New York slated for mid-De­cem­ber. Par­ent Ten­cent will chip in an ad­di­tional $32 mil­lion in sup­port, thus lift­ing its stake to 62 per­cent.

At the top of the mar­keted price range, Ten­cent Mu­sic will be worth roughly the same as Spo­tify. As­sum­ing the Chi­nese group’s rev­enue keeps grow­ing at the same run-rate as in the pre­vi­ous nine months, to $2.6 bil­lion, that rep­re­sents an ear-split­ting 9.4 times this year’s sales. That’s more than twice the mul­ti­ple Daniel Elk’s out­fit com­mands.

True, growth has been im­pres­sive, and un­like Spo­tify, Ten­cent Mu­sic is al­ready in the black.

Earn­ings in the nine months to Septem­ber more than tripled from a year ear­lier to $393 mil­lion. That’s thanks to the com­pany’s “so­cial en­ter­tain­ment” ser­vices, like on­line karaoke and livestreaming apps that make money from fans buy­ing vir­tual gifts and such for their fa­vorite per­form­ers. Rev­enue from that fast-grow­ing seg­ment alone ac­counts for some 70 per­cent of the com­pany’s to­tal.

Yet the val­u­a­tion gap still looks a stretch. Ten­cent Mu­sic says pay­ing lis­ten­ers on its stream­ing apps in­creased by 36 per­cent from last year to 25 mil­lion as of Septem­ber. That’s far short of Spo­tify’s sub­scribers, which grew 40 per­cent from the pre­vi­ous year to 87 mil­lion. The Swedish group also claims a world­wide mar­ket, with Latin Amer­ica ac­count­ing for more than a fifth of monthly ac­tive users. In ad­di­tion, while Ten­cent Mu­sic has poured huge sums into ex­pand­ing its mu­sic cat­a­logue and fight­ing piracy, it is ex­tract­ing less av­er­age rev­enue per sub­scriber than it did in 2016. That is not some­thing to trum­pet.

The au­thor is Robyn Mak, a Reuters Break­ingviews colum­nist. The ar­ti­cle was first pub­lished on Reuters Break­ingviews. bi­zopin­[email protected]­al­times.com.cn

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.