Shares of Tencent Music Entertainment (TME) have fallen 9.2% this week and 63.2% since the all-time high in March. The once high-flying Nasdaq-listed Chinese music streaming company closed at $11.70 on Friday, July 16, after losing $2 billion in market value in five days.
A series of negative news hammered the shares of Tencent Music. On Friday, Morgan Stanley downgraded TME to “equal weight” and lowered its price target from $23 to $14. The move follows news that Chinese regulators are taking a tough stance on Chinese companies listed on US stock exchanges. Although Tencent Music has been saving of a forced sale, the Chinese State Administration of Market Regulation determined Monday that the company must sever its exclusive relationship with record labels.
Tencent Music is in a network of relationships and holdings with the biggest music companies in the world. He has a joint venture with Universal Music Group and an agreement to form a joint record company with Warner Music Group. It also has license agreements with UMG, WMG, Sony Music and independent label rights group Merlin. Additionally, Tencent Holdings, which owns the majority of Tencent Music, is part of an investor consortium that owns 20% of Universal Music Group and about 2% of WMG. There is no indication that Chinese authorities view Tencent Holdings’ holdings as problematic.
Tencent Music has three of the top music streaming apps in China – QQ, Kuguo and Kuwo – and accounted for 77% of the country’s monthly active users as of December 2020, according to Chinese research firm QuestMobile. The company has released 15% revenue growth in 2020 and one 24% year-over-year gain in the first quarter of 2021. Its shares peaked at $23.18 on March 23, valuing the company at $51.8 billion, just below Spotify’s $52.6 billion market cap.
But Tencent Music has been collateral damage in the Archego Capital Management crash in March 2021. Around the same time, Goldman Sachs downgraded TME and cut its 2022 revenue forecast by 10%. Additionally, streaming companies seem to have lost some traction in recent months: Spotify’s share price is down 37.2% since March 23, and Netflix has fallen 10.6% from its 52-week high on January 20. On Friday, the 26 analysts tracked by Refinitiv have a median price target of $21.53 – 83.8% above Friday’s closing price.