Tencent Music Rises After-hours on Q2 Estimates Beat

Still, TME stock is down 54% year-to-date as its music monopoly in China has been shattered by regulators.
Aug. 16, 2021 22:24
Tencent Music Rises After-hours on Q2 Estimates Beat

Early-day losses turned to gains after-hours for Tencent Music Entertainment Group (NYSE: TME) as it beat estimates on ads and subscription revenue in the second quarter and reported a 41% increase in paying users.

The music giant, a subsidiary of Tencent Holdings (OTC: TCEHY; HKEX: 0700), booked $1.24 billion in revenue in the three months through June, up nearly 16% year-over-year, according to a report published after markets closed Monday. Music subscription and ads revenues drove the growth during the period, TME said.

The number of paying users exceeded 66 million, marked by record quarterly net increase since 2016. Net profit was $128 million, or 8 cents per share, the report said.

While shares in TME ended 9% lower Monday, in after-hours trading the stock jumped 4%, to $9.28. Down 54% year-to-date, TME shares hit their 52-week low of $8.88 per share Monday before rebounding after markets closed.

As anticipated, TME's management commented on the anti-monopoly crackdown in China, specifically, the end to Tencent's exclusive rights to online music and a 500,000 yuan ($77,150) imposed on the company in late July.

In the statement today, TME's executive chairman Cussion Pang reiterated the company's commitment to complying with the new rules. He continued, "While we expect some impact to our business operations as a result of this decision, we remain steadfast in our ongoing goals of fostering innovation, fulfilling our social responsibilities, providing users with better services and promoting the long-term, healthy development of the digital music industry."

TME, China's top music giant, operates apps for audiobooks, music, and karaoke, including QQ Music, Kugou Music, Kuwo Music and WeSing, to name a few. The probe into its exclusive licensing deals dates back to at least early 2019, when the market watchdog was scrutinizing TME for deals with major record labels Sony Music Entertainment, Warner Music Group Corp. and Universal Music Group. The company held exclusive rights for a number of the record labels' catalogs, then sold some content to other music and video platforms, including those operated by Alibaba Group Holding Ltd. (NYSE: BABA), Baidu Inc. (Nasdaq: BIDU), NetEase Inc. (Nasdaq: NTES) and ByteDance Inc. The halt on TME's sublicensing at the time had offset its revenue growth.

In the report today, Pang also commented on TME's future development: "We will operationally focus on the dual flywheels of content and platform, and have taken several important steps to expand our ecosystem to empower artists and provide users with one-stop music and audio services. With respect to content, we will continue to broaden partnerships with music labels, and work with artists and content partners to develop more differentiated content while further strengthening our self-production capability."

Earlier this year, news surfaced that TME was in talks with banks for a dual listing in Hong Kong. However, the deal, expected to be worth $5 billion, has stalled until next year, as reported by Nikkei Asia. In its 2018 initial public offering in New York, TME raised $1.1 billion. However, its significant decline in market value this year may dampen investors' interest at this time.

TME, Tencent, China, NetEase