Who Says Spotify Gets to Have All the Fun? Tencent Music Prepares for an IPO

Tencent Music Plans for IPO

Andy Ng, Vice President of Tencent Music Entertainment Group

Will investors readily line up behind Tencent Music’s IPO?

Following Spotify’s debut on the New York Stock Exchange, Tencent Holdings has now started preparing to launch its own IPO.

The Wall Street Journal reports that the company’s music division, Tencent Music, hopes to interview potential underwriting banks.  Sources told WSJ that this would likely happen over the next month.  The IPO could potentially drop during the second half of 2018.

Plans to go public may value Tencent Music at over $25 billion.  Last year, Spotify triggered a massive trade swap in Tencent Holdings.  At the time, the Swedish-born streaming platform had an estimated valuation of $16 billion.  Its Chinese counterpart’s valuation was roughly around $12.5 billion.

According to financial markets firm Dealogic, Tencent Music would likely have the 4th-biggest US-listed tech IPO to date.  When Spotify went public last month, it reportedly had a $29.5 billion valuation at its first trade.

Investors remain ecstatic over the possibility of the listing.  Chinese internet giant Tencent Holdings owns over a 50% stake in the digital music platform.  In addition, the conglomerate became the first Asian company ever to surpass a $500 billion valuation last year.

Tencent Holdings first bought a controlling stake in China Music Corp in 2016, combining it with its own music platform to create Tencent Music.

Through the service, the company has the Chinese streaming music market locked down.  Tencent Music controls QQ Music, Kuguo, and Kuwo.  Combined, these platforms have around 700 million monthly active users.  In contrast, Spotify has just 160 million monthly active users.

Yet, WSJ warns that the conglomerate could ultimately scrap plans to launch an IPO.  Pre-IPO valuations also “fluctuate until a company prices its shares.”  Investors have already seen that shares of other companies backed by Tencent Holdings have performed weakly.  Chinese search engine Suguo Inc’s shares have dropped 35% since November.  Shares of Sea Ltd, a Singapore-based gaming and e-commerce company, have dropped over 20% since October.

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Unlikely Spotify, insiders expect Tencent to move forward with a traditional IPO.  This may ultimately prove beneficial for the Chinese internet giant.  Spotify opted against a traditional IPO, instead choosing for a direct listing.  It now trades at $158.04.  The European service’s shares opened at $165.90.  Last week, shares closed at $158.40.

That suggests that Spotify has had a weak debut on Wall Street, though the Journal notes that this may prove positive for Tencent Music.

As a public stock, Spotify’s shares have so far traded largely above its private-market prices, which had already more than doubled from its pre-IPO share price a year ago.  That could bode well for investors in Tencent Music when the stock hits the public markets.

 


Featured image by midem (YouTube screengrab)

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