Tencent Music Stock Posts Double-Digit Drop Amid Regulatory Concerns

Tencent Music (TME) stock fell more than 12% on the day, despite the Shenzhen-based streaming company posting solid revenue growth and announcing a new licensing deal with Warner Music earlier this week.

At market close today, Tencent Music stock was worth $20.36 per share, down 12.17% from yesterday’s closing value and down about $11 per share. from Tuesday’s high. Building on that point, Wednesday saw a roughly 20% writedown for Tencent Music stock.

The exact causes of the stock price plunge remain unclear and, as mentioned, Tencent Music kicked off this week by unveiling a new licensing deal with Warner Music (along with the formation of a co-owned record label) and detailing what appeared to be a strong financial performance in the fourth quarter of 2020.

Specifically, Tencent Music said it saw a 40.4% year-over-year growth in paid subscribers in the last three months of last year, for even 56 million premium accounts. Additionally, the listed company, which operates QQ Music, Kugou Music and Kuwo Music, reported that its quarterly revenue grew 14.3% year-on-year, with the streaming platforms themselves generating 29% more. ($423 million) than in the fourth quarter of 2019.

However, downgrades of Tencent Music shares by financial professionals may have contributed to the lower price per share. Shortly after the earnings report was released, investment bank China Renaissance expressed the opinion that TME’s relatively large current value — for reference, the stock was worth less than $10 a share this time last year — already reflects continued growth in subscriptions and revenue.

Goldman Sachs echoed the sentiment by explaining his own downgrade shares of Tencent Music – although it should be noted that HSBC set a higher TME target price of $35 per share after the earnings report was released. Interestingly, Benzinga Insights announced tuesday that Tencent Music stock had seen “unusual options activity”, and these bullish options could have affected TME’s gain and, in turn, amplified the losses of the past few days.

Finally, in terms of what could have led to TME’s decline, a number of other Chinese tech companies joined Tencent Music in parting with a substantial portion of their stock value, after Bloomberg reported that “the Chinese government has offered to form a joint venture with local tech giants that would oversee the lucrative data they collect from hundreds of millions of consumers.”

Of course, Chinese government officials would likely move quickly to target Tencent, one of the largest conglomerates in the country and the world, should such a “joint venture” be established. iQIYI (IQ on NASDAQ) stock started this week at nearly $28 per share and rested at $20.08 per share at market close today – a price that reflects a decline of 13, 34% on the day.

To compound these information sharing issues, the Securities and Exchange Commission (SEC) taken action this week to enforce Foreign Company Liability for Detention Act (HFCA law), which will take a closer look at the finances of China-based companies, potentially delisting companies from US stock exchanges if they fail to comply with US accounting and financial reporting standards.