Shares in Tencent Music Entertainment have dropped despite a solid earnings report – the first since its IPO in the US.
Shares in the Chinese streaming service went as low as $16.47 (£12.52) on Thursday (March 21) but rallied to close at $17.44 (£13.25). Shares reached a high of almost $20 (£15.20) earlier in the week before the financial results.
The share price initially fell by 7% following Tencent Music’s first earnings report as a public company. Prior to its publication, the stock had grown in value by around 43% since the IPO in New York in December last year.
Tencent Music – part of Chinese tech giant Tencent Holdings – saw quarterly revenue soar 50.4% to 5.4 billion yuan (£611m) in Q4.
The company has been profitable for two years, unlike Spotify, which just posted its first ever quarterly profit. However, the Chinese company did post a quarterly loss of 876m yuan (£99.2m), which was affected by a one-off 1.52bn yuan (£172m) charge relating to equity taken by Warner Music Group and Sony Music Entertainment.
Tencent Music’s much lower proportion of paying subscribers compared to Western DSPs may have contributed to the dip in the share price. Investors will also have noted that the profit margin was hit by increases in licensing fees and in-house music production costs.
Spotify’s 96m premium subscribers represents 46.4% of its total monthly users. In comparison, the number of Tencent Music users paying for online services was 27m – an increase of 39.2% but still just 4.2% of the total 644m online music mobile monthly active users.
The bulk of TenCent Music’s revenue actually comes from its social activity and users who spend money on virtual gifts and karaoke tools. Tencent Music Entertainment encompasses three music platforms – QQ Music, Kugou Music and Kuwo Music – as well as karaoke service WeSing.
During the earnings call, chief strategy officer Cheuk Tung Yip highlighted the potential for growth in subscriptions given the low ratio compared to international streaming services.
"During the fourth quarter of 2018, we recorded strong growth across our business lines, including both online music and social entertainment services, and solidified our market leadership," said CEO Cussion Kar Shun Pang. "To fuel our growth for the years to come, we are firmly committed to continue investing in premium content offering, innovative products and proprietary technology. Going into 2019, we will continue executing relentlessly our mission to use technology to elevate the role of music in people's lives."