Why Tencent Music Entertainment Plunged Almost 30% This Week
Shares of Tencent Music Entertainment (NYSE: TME) fell 28.8% this week through 3:30 p.m. Friday, according to data from S&P Global Market Intelligence. Tencent Music is sometimes regarded as the “Spotify (NYSE: SPOT) of China,” since it’s the leading streaming music subscription service in the country. However, Tencent Music’s business is a bit different, as it also generates revenue from social music interactions, such as karaoke tipping and other interactive services. Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue » This week, Tencent Music held its fourth-quarter earnings. While the headline numbers themselves weren’t bad, some concerns emerged over certain KPIs (key performance indicators). Management also said it would no longer disclose certain KPIs going forward, fueling more investor skepticism. Subscriber deceleration overshadows a revenue beat In the fourth quarter, Tencent Music grew revenue 15.9% to $1.24 billion, which beat expectations, while adjusted (non-GAAP) earnings per American Depositary Share (ADS) were up a lower 8.8%, just meeting expectations. Whenever a company grows profits at a lower rate than revenues, it could suggest that it’s feeling competitive pressure. Moreover, investors appeared concerned about the slowdown in the subscription business, which grew just 13.2%, down from roughly 17% in the prior quarter. In general, investors like to see more revenue from subscriptions, which are perceived as “recurring” and higher quality, rather than advertising or other services that may be cyclical or more fleeting. Adding to the anxiety was Tencent Music saying that it would no longer disclose quarterly online music monthly active users (MAUs), the number of paying users, or average revenue per user (ARPU). Instead, Tencent Music will only disclose total paying users at the end of each year. As justification, management wrote: … our business model has significantly evolved in recent years. As advertising and other IP-related offerings scale, and as we offer multi-tiered membership for online music subscriptions, the business impact of each paid membership varies. As a result, we are increasingly focused on revenue and profit as our primary performance indicators. Investors never tend to like it when management discloses less about a business, so it’s no surprise the stock sold off.