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Tencent Music's IPO expected to dominate global music sector despite delay

The initial public offering of Tencent Music Entertainment Group, the music unit of Chinese tech giant Tencent Holdings Ltd., is positioned to be the biggest market debut in the music service and publishing sector in nearly two decades.

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Tencent Music filed for an IPO of up to US$1 billion in early October, with the intention of listing American depositary Shares on the NYSE or the Nasdaq as early as that month, but soon delayed its plans amid global market volatility that hit the technology sector. The company may proceed with its IPO in November, according to an Oct. 11 report in The Wall Street Journal, but the exact timing of the offering remains unclear. Tencent originally had aimed for an IPO of as much as US$4 billion, according to media reports.

Tencent Music operates QQ Music, Kugou Music, Kuwo Music and WeSing music apps. Its revenue increased 89% year over year to 4.50 billion yuan at the end of June. About 70% of that revenue comes from Tencent Music's social entertainment services, which includes virtual gift sales and premium memberships. Jefferies equity analyst Karen Chan said the IPO represents a "large yet under-monetized opportunity" given Tencent Music's strong user engagement and diversified business model.

While Tencent Music has far fewer paying subscribers to its streaming music services than competitor Spotify AB, at 23.3 million to Spotify's 83 million, the Chinese company's music segment had 644 million mobile monthly active users at the end of the June quarter, versus Spotify's 180 million in total MAUs. Tencent Music's online music segment had roughly twice the users as Tencent's social entertainment services segment by both paid user and MAU figures.

Spotify parent company Spotify Technology SA made its market debut earlier this year via a direct listing, raising over $900 million while bypassing the traditional IPO listing structure and pricing without the assistance of bank underwriters. Spotify's stock began public trading in April at $165.90 per share, or 26% above the NYSE's reference price of $132.

Tencent Music's IPO is expected to rank as the largest such offering in the music services and publishing industry since 2000. The highest sector IPO of the current millennium to date is Warner Music Group Corp.'s US$554.2 million offering in 2005, according to data compiled by S&P Global Market Intelligence. EuropaCorp's listing in June 2007, ranked No. 2, raised US$95.2 million.

The Tencent Music IPO also is expected to be among the top 10 Chinese IPOs listed on U.S. stock exchanges since 2014. Alibaba Group Holding Ltd. ranks as the largest in that category with its 2014 IPO of US$21.77 billion. Chinese retailer JD.com Inc. raised US$3.11 billion with its IPO, also in 2014, and Baidu Inc.-backed iQIYI Inc. raised US$2.25 billion this year.

Tencent secured clearance from Hong Kong's stock exchange for its proposal to spin off its music business in July, amid a busy season of Chinese companies listing in the city, including Xiaomi Corp. and China Tower Corp. Ltd.

As of Oct. 19, US$1 was equivalent to 6.93 yuan.

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