What will be next for Tencent Music stock ahead of Q1 2022 results?

When will Tencent Music release Q1 2022 results?

Tencent Music is expected to report its first quarter results after the U.S. markets close on Monday, May 16.

Overview of Tencent Music’s first quarter results

Tencent Music operates leading music and audio entertainment platforms in China, including QQ Music, Kugou Music, Kuwo Music and WeSing, but has a broader social element built around likes, followings and sharing which is driven by a host of other features ranging from live streaming to video. and karaoke services.

The company is expected to see the total number of monthly active users using its online music services continue to fall in the quarter amid increased competition for free services from other platforms, but the number of them paying subscriptions continues to grow and is expected to reach 80 million in the first quarter and that’s what Tencent Music is focusing on.

Meanwhile, things remain much tougher for the social entertainment side of the business, where MAUs and paying users are expected to continue to decline. This too is due to more intense competition.

(Millions)

Q1 2021

Q4 2021

Q1 2022E

MAU online music

615

615

609.6

– Paid users

60.9

76.2

80

MAU Social Entertainment

224

175

171.9

– Paid users

11.3

9

8.8

User numbers will be a focus for investors this week as fears grow over the future of streaming services as some major platforms, spanning netflix at Facebooksuffered their first loss of subscribers in 2022 and others that have managed to continue growing their user base have done so at a slower pace than investors have grown accustomed to in recent years.

The situation is slightly different in China to the west as Covid-19 continues to cause chaos in the country amid its zero-tolerance approach to the virus. Lockdowns have boosted online entertainment stocks in the past, but overall they are likely to cause a volatile and disruptive image for Tencent Music and others. Additionally, the regulatory overhaul that has plagued internet stocks in China in recent years has also impacted user growth.

Although the vast majority of Tencent Music’s MAUs use its music service, the social entertainment business is the company’s main revenue driver, so current user trends are cause for concern. Tencent Music has the three most popular music streaming apps in China, but it lacks the same presence in the social media space where it faces fierce competition from an array of rivals including TikTok and Sina Weibo.

Tencent Music has expanded its sales channels and invested in high-quality content to encourage more people to switch to its premium music service. This includes bringing more independent artists to the platform, acting as a “home” for hit songs used in marketing activities and producing its own original content. It has also invested in long-form audio like podcasts and continues to host more live performances by artists to become a central hub for China’s music industry.

During this time, he said he was “working to increase our competitiveness ‘in the social entertainment space’ through ongoing product innovations and by building additional verticals in social entertainment such as streaming audio. direct, international expansion and virtual interactive product offerings”.

We might hear more in the update about Tencent Music’s plans in the metaverse after announcing that it will “try a lot of things” in this fast-moving space that aims to merge the offline and online worlds. He said he was working on a metaverse music app that could launch before the end of 2022, which could add a potential new catalyst for the company in the future.

Wall Street expects revenue to fall for a second consecutive quarter and fall more than 14% year-on-year to RMB6.7 billion. The company is expected to post a 19% increase in subscription revenue to $2.02 billion, but that shouldn’t be enough to counter a 1.5% decline in music service sales and a significantly steep decline in its social entertainment services.

Profitability is also squeezed as its gross margin continues to shrink. Analysts estimate that will tighten to 27.5% in the first quarter from 28.8% in the previous quarter and 31.5% a year earlier. This compression is caused by a lower overall proportion of social entertainment users paying for its services and because a greater proportion of total revenue comes from its music services, which have a lower margin.

Overall, lower revenue and lower profitability are expected to cause net income to plunge more than 34% year-on-year to $642.8 million in the first quarter.

Notably, Tencent Music said in March that it plans to pursue a secondary listing in Hong Kong through a direct listing. It will not offer any new shares as part of the listing and said it will “provide our shareholders with greater liquidity and greater protection in an evolving regulatory environment”.

What’s next for TME stocks?

The stock has lost more than 87% of its value since hitting new all-time highs just over a year ago and is trading today at $3.89.

Shares have fallen since rebounding from the all-time low of $2.95 last month, and that should be seen as the stock’s bottom. The RSI sank into oversold territory and pulled buyers back into the market when this low was reached, reinforcing any view it may have to avoid opening the door to unfamiliar territory and new lows.

The sellers were found to come back into the market when the stock price hit the 50-day moving average over the past year. A sustained move above $4.50 is needed to build confidence that it can find higher ground and target $5.20, which has proven to be a tough resistance level on several occasions since late. February and in line with the 100-day moving average. From there, he can target the 200-day moving average at $5.44, in line with the high reached in early February.

Notably, the 21 brokers that cover the stock believe there is greater upside potential with an average target price of $6.88 around 77% above the stock’s current price and back to lows. observed last January.

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