Tencent Music prices US IPO at lower end of expectations amid tech and trade war uncertainties

  • Debut occurs as a global tech sell-off, amid slowing growth and a US-China trade spat, has hurt US and the Chinese companies alike
PUBLISHED : Wednesday, 12 December, 2018, 11:22am
UPDATED : Wednesday, 12 December, 2018, 10:43pm

Tencent Music Entertainment Group, the music industry spin-off of China’s biggest social network operator Tencent Holdings, priced its shares at the lower end of expectations for its initial public offering in New York amid ongoing global market volatility.

Tencent Music, one of the most anticipated IPOs of the year, priced its stock at US$13 per American Depositary Receipt (ADR), at the bottom of a US$13 to US$15 range, according to a filing by Tencent to the Hong Kong stock exchange on Wednesday.

It is set to raise around US$1.1 billion through the debut on the New York Stock Exchange, smaller than earlier reports of US$2 billion before IPO proceedings were paused in October amid a global tech sell-off, according to various news reports citing sources familiar with the matter. The pricing values China’s biggest music streaming service at US$21.3 billion.

Tencent Music said to delay US IPO amid market turmoil

A global tech sell-off amid slowing growth and a US-China trade spat has hurt US and the Chinese companies alike. Facebook, the social media giant, has lost almost 40 per cent of its market value in the past five months. Chinese smartphone maker Xiaomi, touted as one of this year’s hottest Hong Kong IPOs, has had a bumpy ride and fell below its initial price while Chinese food delivery giant Meituan, which went public in September, is currently a quarter lower than its debut price.

Shares of Spotify, a Swedish company with a similar music streaming service to Tencent Music, has seen its shares slashed by nearly 30 per cent since October.

Tencetn Music is also facing the threat of litigation after Xie Guomin, co-president of Tencent Music Entertainment, was accused by an early investor of fraud and coercion last week in an arbitration proceeding. Tencent Music and Xie “intend to vigorously contest [the claims]”, according to a filing to the US Securities and Exchange Commission.

There’s now a way to invest in the rising popularity of online karaoke

Tencent Music operates music streaming app Kugou Music, Kuwo Music and QQ Music, which works more like Spotify, and WeSing, a karaoke music app. In contrast to Spotify, which is still unprofitable, Tencent Music posted a profit of 1.7 billion yuan for the six months to end June 2018, compared with 395 million yuan in the same period a year ago.

In the second quarter of 2018 Tencent Music reported a total of more than 800 million monthly active users, who each spend on average more than 70 minutes per day on its platform. Social entertainment services, which include virtual gifting revenues from online karaoke and live-streaming services, accounted for 70 per cent of total revenue in the first half of 2018. Music streaming revenue accounted for the rest.