Tencent
Music
Entertainment
is
convincing
more
people
in
China
to
pay
for
music.
In
the
July-to-September
period,
the
company’s
online
music
subscribers
topped
100
million
on
a
quarterly
basis
for
the
first
time
since
TME
listed
in
the
U.S.
in
late
2018.
That’s
still
just
a
fraction
of
the
594
million
monthly
active
users
that
TME
claims.
Because
of
the
size
of
China’s
market,
it’s
more
than
Spotify
‘s
claim
of
574
million
monthly
active
users
—across
184
countries
and
territories.
TME’s
“music
value
[is]
still
underappreciated,”
Morgan
Stanley
analysts
led
by
Alex
Poon
wrote
in
a
late
November
report.
The
analysts’
conversations
with
TME
management
revealed
expectations
that
music
subscribers
will
grow
by
more
than
3
million
a
quarter,
to
an
estimated
150
million
in
the
medium
term.
“We
see
room
for
[TME]
music
revenue
to
double
and
profit
to
triple
in
the
next
three
years,”
the
Morgan
Stanley
analysts
wrote,
noting
“limited
risks
from
macro
and
competition.”
They
raised
their
price
target
on
TME
10%
to
$11,
implying
more
than
30%
upside
from
Friday’s
close
in
Tencent
Music
Entertainment’s
American
Depositary
Receipts.
TME’s
ADRs
are
up
only
2%
for
the
year
so
far,
while
rival
Spotify
shares
have
surged
almost
130%.
Now
Spotify
has
a
market
capitalization
about
150%
more
than
Tencent
Music
Entertainment’s.
TME
SPOT
YTD
mountain
Tencent
Music
Entertainment
vs
Spotify
in
2023.
Spotify
isn’t
available
in
China,
a
market
notorious
for
content
piracy.
But
in
the
past
few
years,
companies
have
become
more
vigilant
in
protecting
intellectual
property,
while
consumers
are
getting
in
the
habit
of
paying.
“The
music
industry
has
been
the
fastest
growing
entertainment
segment
in
China
with
140%
revenue
growth
between
2019
and
2023,”
according
to
Morgan
Stanley
estimates.
That’s
far
faster
than
any
other
entertainment
segment
the
analysts
tracked
—
including
video
games,
which
saw
revenue
grow
of
30%
since
2019.
A
live
concert
craze
swept
China
this
year,
making
tickets
tough
to
get.
In
the
first
quarter
alone,
TME
said
it
hosted
29
online
and
offline
concerts.
For
listeners
at
home
or
on
the
go,
TME’s
apps
include
QQ
Music
and
Kugou
Music.
JPMorgan
is
so
excited
about
Tencent
Music
Entertainment
it
recently
upgraded
its
recommendation
to
overweight
from
neutral,
with
a
new
price
target
of
$10
a
share.
TME
is
“re-emerging
as
a
double-digit
earnings
compounder,”
JPMorgan
internet
analyst
Alex
Yao
wrote
in
a
mid-November
report.
Gross
profit
margin
of
the
online
music
segment
rose
to
the
mid-30%
range
in
the
third
quarter,
versus
Spotify’s
25%
over
the
past
12
months,
according
to
JPMorgan
estimates.
TME
is
also
moving
away
from
its
business
in
social
entertainment,
such
as
livestreaming
and
karaoke.
“Online
music
has
overtaken
social
entertainment
as
the
profit
driver
in
3Q23,
leading
to
a
stronger-than-expected
profit
growth
recovery
in
2024,”
JPMorgan’s
Yao
wrote.
In
the
third
quarter,
TME’s
revenue
from
social
entertainment
and
other
services
fell
by
49%
to
the
equivalent
of
$276
million
from
the
same
period
a
year
ago.
Revenue
from
music
subscriptions
is
estimated
to
rise
38%
in
2023
versus
2022,
Morgan
Stanley
estimates.
TME
earlier
this
year
also
launched
a
program
to
help
new
artists
grow
their
audiences
and
boost
revenue.
Tencent
Music
Entertainment
said
in
a
first
quarter
release
it
had
helped
260
musicians
reach
their
first
million
streams.
It
did
not
provide
an
update
in
the
third
quarter.
—
CNBC’s
Michael
Bloom
contributed
to
this
report.
Correction:
This
story
has
been
updated
to
address
an
editing
error
and
clarify
that
the
stock
in
question
is
Tencent
Music
Entertainment
or
TME.
