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Tencent Music raises $1.1 Bn, after Downsizing the US IPO

China’s music streaming company Tencent Music Entertainment (TME) has raised approximately $1.1 billion through an U.S. IPO, after slashing the price of shares to lower end of the estimated price range of $13 to $15 per share. The company was forced to downsize its IPO size in wake of the prevailing subdued mood in the American capital market.

According to Tencent’s filing with the Hong Kong exchange, Tencent Music sold 41 million American deposit receipts (ADRs). Existing shareholders, on other hand, sold a further 40.9 million shares.

Initial Public Offering

Tencent Music scoops up $1.1 Bn in downsized US IPO.

Although Tencent Music (a spin-out of Tencent Holdings) was forced to downsize its US IPO, it still managed to notch up an impressive valuation of $21.3 Bn. Given that TME was valued at only $12 bn when Spotify was listed earlier this year, the valuation of $21.3 Bn does give a good reason to cheer for Tencent’s management. Spotify’s current market valuation, by the way, hovers around $24 – a tad higher than TME’s present valuation.

TME commands the largest market share in China’s booming music streaming market. It runs assemblage of music streaming services across the world’s most populous nation. Overall, TME claims to have 800 Mn registers users across the country. However, this claim is highly disputed given that the Chinese government itself claims that there are 800 Mn internet users in the nation.

But there is little dispute over the fact that TME is a standalone profitable company. In fact, its profit and revenue numbers dwarf that of Spotify and Apple Music by significant margins. Even though we don’t have the numbers for comparison, most industry experts argue that TME has a better claim to being a profitable company than its more illustrious rivals.

Chinese music giant’s good showing mostly owes to its unique business model, with sale of virtual goods being a major driver of its business. It also cannot be discounted that Tencent’s immensely popular messaging app WeChat has played a critical role in increasing Tencent Music’s outreach.

TME states that there is still lot of scope for growth in the Chinese market. But the one thing that goes against the company is that, unlike Spotify, it is less likely to become a global player. This means that its growth opportunities will continue to be restricted to only China.

 

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