The Chinese music streaming service Tencent Music debuted with an impressively initial public offering of $14.10. However, music tech investors seem to have come back down to earth. Instead, they have reduced its value to a more modest level.
The Chinese music streaming service Tencent Music raised $1.1 billion last week. In fact, this was one of the largest U.S. public offerings of the year. In fact, the stock had a hot start, it gained almost 10% in its first day of trading. However, it quickly fell considerably. On Friday, the stock was trading at only $12.81 per share.
Even if the price had risen, many music tech investors might have felt that Tencent Music still didn’t live up to expectations. Previously, the company had an estimated potential valuation of more than $30 billion. In fact, the company is still valued at just over $21 billion. Equally important, Tencent music is expected to have a major influence on the U.S. music scene. That still might happen down the road. However, the fact that the IPO was scaled back shows that expectations around music tech have been somewhat tempered.
Comparisons with Spotify
Much of that has to do with the fact that the market is taking a beating these days. This is especially the case in the tech sector. However, it is also related to the performance of Spotify. Spotify shares closed at an all-time low of $125.55 on Thursday. Furthermore, on Friday, they didn’t improve much. In fact, compared to its direct offering in April at $165.90, prices were far below.
However, all things considered, investors re-gaining realism in the tech market sector may also have caused the price decrease. In many ways, it seems ludicrous that Spotify could even be valued at over $30 billion. This is because the company has not yet turned a profit. Relatively speaking, Tencent is profitable.
Equally important, Spotify doesn’t have a presence in China. In fact,
due to government geo-blocking, the service can’t even be accessed in China. That eliminates probably the largest market in the world for the current streaming leader, at least for now.
Of interest is that Tencent Music holds a 7.5% stake in Spotify. Therefore, there is some corporate synergy that may come into play in the future. Currently, the time isn’t right. However, one shouldn’t rule out Tencent as a potential buyer of Spotify at some point in the future, even if it seems unlikely at the moment.
Tencent Music IPO Potential
The fact of the matter is that Tencent’s potential is greater than any other streaming service. While Tencent Music claims to have 800 million monthly users already, those numbers seem fudged. This is because
Getting Chinese subscribers to pay for music is particularly difficult in a culture that takes free music for granted. This is because China has allowed piracy to go relatively unchecked for decades. Still, Tencent has managed to do that thanks to a wide variety of services. These include the social WeChat and the WeSing virtual karaoke app, as well as other social entertainment options.
The fact that Tencent still chose to do its IPO in a downturn environment, says a lot. It shows that the company was okay with a moderate return. It also indicates that the company is run well. It’s executive’s are looking far beyond the next quarter.