Tencent Music Entertainment Group (TME) delivered mixed fourth-quarter results, with earnings beating and revenue missing estimates. Shares fell 8.1% during intraday trading and continued its downward spiral during the extended trading session falling 2.8%, following the news.
China-based Tencent Music is a music streaming services platform. In Q4, the company’s online music paying users leaped 36.1% year-over-year to a record 76.2 million, but online music mobile monthly active users (MAUs) declined 1.1% year-over-year.
However, compared to the prior-year period, its social entertainment segment witnessed a huge downfall in both paying users of 16.7% and mobile MAUs of 21.5%.
Government overhaul, U.S. – China trade tensions, the ongoing Russia-Ukraine warm coupled with stiff competition and fears of delisting have all weighed down on the company’s share performance. The TME stock has lost almost 85% over the past year and 32% year-to-date.
The company also announced plans to pursue its secondary listing on the Main Board of the Hong Kong stock exchange “to provide our shareholders with greater liquidity and protection amid an evolving regulatory environment.” TME is undertaking a listing by way of introduction, which means no additional shares will be issued leading to a dilution of equity.
Mixed Q4 Results
TME’s quarterly revenue of $1.19 billion fell short of analyst estimates of $1.23 billion. What’s worse, it even declined 8.7% compared to the prior-year period.
On a positive note, TME’s Q4 adjusted earnings came in one cent higher than analyst estimates at $0.08 per American Depositary Shares (ADS). However, the figure was lower than the Q4FY20 figure of $0.12 per ADS.
In Q4, TME’s online music services revenue jumped 4.3% year-over-year, and revenue from music subscriptions came in at $306 million, mainly from an increase in paying users.
For the full year fiscal 2021, TME’s adjusted earnings stood at $0.39 per share and revenue advanced 9.6% annually to $4.90 billion.
Executive Comments
Happy with the company’s results, Executive Chairman of TME, Cussion Pang, said, “While fourth quarter social entertainment revenues moderated amid increasing competition and changing macro environment, our subscription revenues sustained strong growth. We added 5.0 million net paying users by continuing to provide high-quality music content, an exceptional streaming experience, and diverse, industry-leading platform features.”
Analysts’ View
Responding to TME’s results, Morgan Stanley analyst Alex Poon lowered the price target on the TME stock to $5 (7.5% upside potential) from $6, but maintained a Hold rating.
Overall, the stock has a Hold rating with five Holds and one Sell. The average Tencent Music Entertainment price target of $5.72 implies 23% upside potential to current levels.
