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Why Tencent Likes The Music Streaming Business

Motek Moyen profile picture
Motek Moyen


  • Spotify’s NYSE IPO filing valued its Chinese partner Tencent Music Entertainment at over $12 billion. Tencent Music Entertainment’s valuation last December was only $10 billion.
  • The December 2017 equity exchange between them led to Spotify owning 9% of Tencent Music Entertainment. In exchange, Tencent received 7.5% stake in Spotify.
  • Spotify’s direct listing at NYSE might give it a valuation of over $23 billion.
  • TME and Spotify's growth can eventually lead to cheaper music licensing fees for streaming.
  • The music streaming business helps reduce Tencent's reliance on video games revenue.

Tencent’s (OTCPK:TCEHY) share swap with Spotify last December proved to be rewarding for the Chinese company. Spotify’s IPO filing valued its recently-acquired 9% stake in Tencent Music Entertainment (TME) at 910 million pounds ($1.25 billion). This consequently gave Tencent Music Entertainment a valuation of over $12 billion.

(Source: Tencent/Spotify)

Two months ago, TME’s valuation was only $10 billion. Aside from the $2 billion increase in TME’s valuation, Tencent’s recently acquired 7.5% stake in Spotify is going to be worth more than $1.7 billion. Spotify’s direct listing at NYSE is projected to result in a $23 billion valuation. This optimism can be attributed partly to the robust 53% Year-over-Year growth in U.S. music streaming revenue. From $2.2 billion in 2016, music streaming in the U.S. generated $3.4 billion in revenue last year. As of October 2017, Spotify had 18.2 million paid subscribers in the U.S.

Furthermore, Spotify’s IPO performance could be a good barometer on TME’s forthcoming IPO. TME could be worth much more than $12 billion. Spotify only has 71 million paying customers. TME already touts 700 million monthly active users with 120 million subscribers who buy or pay for streaming music. TME is so dominant in China’s music streaming that Apple (AAPL) Music only has 3.5 million subscribers in China.

Tencent owns QQ Music, Kuwo, and KuGuo.

(Source: TechNode)

Listing TME publicly could raise $1 billion for Tencent. This money can finance more exclusive music deals for China’s music streaming market. Tencent needs to license more songs to match Spotify’s library. TME currently serves only 17 million songs to its 700 million monthly active users. Spotify offers 35 million songs to its global customers.

After Dominating China, India Is Next

Tencent led a $115 million investment in Gaana. Gaana is a commercial music streaming service provider in

This article was written by

Motek Moyen profile picture
Motek Moyen is a financial analyst, technician, and Adobe multimedia content creator. He studied Mathematics, Commercial Advertising, and Computer Science in the 1990s. He does not trade stocks.

Analyst’s Disclosure: I am/we are long TCEHY, GOOG, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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