Tencent Music’s IPO Launches at Lowest Expected Price Range

Tencent Music executives once expected to raise up to $4 billion.  They had to settle with just over a billion.

Following Spotify’s success with its direct listing last April, Tencent Music made plans to launch its own IPO on Wall Street.

At first glance, the music division of Chinese conglomerate Tencent Holdings has several advantages over Spotify.  At least from an investor’s point of view.

First, the Chinese streaming music giant reported an adjusted profit of $180.7 million last year.  Spotify has only posted a profit once in its history.  That was due to a technicality.  Last year, Spotify triggered a massive equity swap with Tencent Music.  This year, Tencent posted an adjusted profit of $474 million.

Second, Tencent also operates three other streaming music services in China – QQ Music, Kuguo, and Kuwo.  Combined, the service has over 700 million users.

Third, Tencent Music has long-term licensing agreements with American major labels, including Universal, Warner, and Sony.  It also has deals with China’s Huayi Brothers, South Korea’s YG Entertainment, and competitors NetEase Music and Alibaba-owned Ali Music Group.

So, with its planned IPO, the company had initially planned to raise up to $4 billion.

Other Chinese companies have found success on Wall Street.  iQiyi, a streaming video platform, went public with a $2.4 billion valuation.  Pinduoduo, an e-commerce discount platform, launched its IPO with a $1.6 billion valuation in July.

Yet, taking a closer look, the Chinese streaming music giant also has major drawbacks.

This year alone, its parent company has lost over $250 billion in market value overseas.

Tencent Music also has only around 14 to 21 million subscribers, just 3% of its total monthly active users.  Spotify, on the other hand, has over 193 million monthly active users.  The company has 87 million subscribers, about 45% of its total active user base.

In addition, Tencent Music now has to deal with a frivolous lawsuit brought on by a troll.  A ‘distinguished investor’ claims the company’s Co-President forced him to sell his shares.  Days before its IPO, company executives admitted the legal battle may drain management’s resources.

Its decision to delay its public listing on Wall Street has ultimately hurt its overall value.

In September, company executives slashed the amount they hoped to receive from the IPO to $2 billion.

Then, two weeks ago, the company confirmed its final price target.  Tencent Music’s IPO would raise between $1.1 billion and $1.4 billion.

Now, with the company going public this morning, Tencent Music executives have confirmed they’ll only raise about $1.1 billion.

The Chinese streaming music giant (NYSE: TME) has launched on the New York Stock Exchange with a market valuation of $21.3 billion.  Earlier this year, analysts had valued the company between $29 billion and $31 billion.

Shares will trade between $13 and $15.  Currently, the company’s stock stands at $14.22.


Featured image by UDTech (YouTube screengrab).