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Tencent Music Entertainment Group ADR TME

Morningstar Rating
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Stock XNYS Rating as of
$12.42 −0.12 (0.92%)
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As of Cboe BZX Real-Time Price Open
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Company Report

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Tencent Music Earnings: Tuning Into Growth and Shareholder Returns; Shares Undervalued

Ivan Su

Narrow-moat Tencent Music’s fourth-quarter 2023 earnings were broadly in line with our expectations. We roll forward our model and modestly lift our fair value estimate to USD 13 per ADR (HKD 51 per share) from USD 12.50 (HKD 49.10). We also lower our Morningstar Uncertainty Rating to High from Very High, reflecting increased clarity in the competitive environment and the company's ongoing improvements in profitability.. We view the music streaming company’s shares as undervalued, trading at a 13% discount to our fair value estimate. We believe the market continues to underestimate the size of Tencent’s Music long-term subscriber base and the opportunity to lift subscription prices further.

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Price vs Fair Value

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TME is trading within a range we consider fairly valued.
Price
$11.76
Fair Value
$66.00
Uncertainty
High
1-Star Price
$71.28
5-Star Price
$8.80
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Compared with Spotify, TME has plenty of room for subscriber growth that should come about as it moves more music content behind the paywall.

Bears

The removal of exclusive content sourcing deals will enable competitors to bridge the music content gap and grab market share from TME.

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News

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Trading Information

Previous Close Price
$12.54
Day Range
$12.25–12.51
52-Week Range
$5.76–12.62
Bid/Ask
$12.42 / $12.43
Market Cap
$21.30 Bil
Volume/Avg
35,084 / 8.1 Mil

Key Statistics

Price/Earnings (Normalized)
21.72
Price/Sales
4.54
Dividend Yield (Trailing)
—
Dividend Yield (Forward)
—
Total Yield
0.78%

Company Profile

TME is the largest online music service provider in China. It was founded in 2016 with the business combination of QQ Music (founded in 2005), Kuwo Music (founded in 2005) and Kugou Music (founded in 2004) streaming platforms. Tencent is the largest shareholder of TME with over 50% shares and over 90% voting rights held. TME also provides social entertainment services, including music live audio/video broadcasts and online concert services through the three platforms mentioned above, and online karaoke through an independent platform WeSing.
Sector
Communication Services
Industry
Internet Content & Information
Stock Style Box
Large Core
Total Number of Employees
5,185
Website
https://www.tencentmusic.com

Competitors

Valuation

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Metric
TME
SPOT
09899
Price/Earnings (Normalized)
 21.72386.0419.24
Price/Book Value
 2.4315.672.11
Price/Sales
 4.543.692.23
Price/Cash Flow
 17.1998.3125.01
Price/Earnings
TME
SPOT
09899

Financial Strength

Metric
TME
SPOT
09899
Quick Ratio
 2.221.383.71
Current Ratio
 2.491.423.97
Interest Coverage
 41.27−2.1456.71
Quick Ratio
TME
SPOT
09899

Profitability

Metric
TME
SPOT
09899
Return on Assets (Normalized)
 8.71%3.49%4.11%
Return on Equity (Normalized)
 11.80%11.24%5.56%
Return on Invested Capital (Normalized)
 9.06%5.13%1.39%
Return on Assets
TME
SPOT
09899
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