After delay, Tencent division becomes fourth Chinese IPO to raise at least $1 billion in the U.S. this year
Tencent Music Entertainment Group on Wednesday completed one of the biggest initial public offerings in the U.S. this year, but it almost didn’t happen.
The music-streaming arm of Chinese tech giant Tencent Holdings Ltd.0700, -3.08% announced in October that it was postponing IPO plans amid choppiness in the markets, but it managed to complete a short December road show that allowed for an offering before 2018 expired. The IPO raised about $1.1 billion for the company and selling shareholders.
American depository shares of Tencent Music TME, -3.50%made their debut on the New York Stock Exchange on Wednesday, after pricing at $13 a share the night before. Shares opened at $14 and closed at the same price after staying close to it for the entire session, trading in a range from $13.75 to $14.75. At the closing price, Tencent Music’s market value was $18.65 billion, according to FactSet.
The IPO is the likely cap to a big year for Chinese IPOs, joining Pinduoduo Inc.PDD, -0.31%Nio Inc.NIO, +2.79% and iQiyi Inc.IQ, -0.60% in bringing in at least $1 billion. Stock performance has been mixed, however: The average performance for Chinese stocks that debuted this year was down nearly 13% as of Dec. 6, while U.S.-based IPOs are up 12% on average, according to Dealogic.
Tencent Music draws comparisons to Spotify Technology SA SPOT, -2.27% , which went public this year through a direct listing and also completed a share swap with Tencent Music. Spotify has recorded a string of losses, however, while Tencent Music has been profitable on an annual basis since 2016.
The Chinese music giant grew revenue at a 29.6% clip in the first nine months of 2018, marking a slight acceleration from its 28.4% pace in the year-earlier period. Tencent Music has 655 million mobile monthly active users for its online music service, though only 24.9 million of them actually paid for the product. In contrast, nearly half of Spotify’s 191 million MAUs are in the paid tier.
“While this could serve as evidence for growth potential, [Tencent Music] will have to demonstrate a sustained ability to convert active users to paying users,” wrote Rohit Kulkarni, the managing director for private investment research at online pre-IPO marketplace SharesPost.
Tencent Music noted in a Securities and Exchange Commission filing that one way it monetizes its user base is by letting listeners pay to send virtual gifts to performers and other users. “User demand for this service may decrease substantially,” the company said in the risk-factors section of its pre-IPO filing.
Kulkarni is upbeat about other areas of Tencent Music’s business, including the company’s popular karaoke app in addition to its streaming app. This “highly diversified revenue stream and business model” should play well with investors, he told MarketWatch.
Indexes moved higher on Tencent Music’s first day of trading. The Dow Jones industrials DJIA, +0.29% rose 0.6%, the S&P 500 index SPX, -0.02% advanced 0.5% and the Nasdaq Composite Index COMP, -0.39% climbed 1%.