Tencent Music Shares Gain on Earnings as Music Stocks Hit Overall High

May 17, 2024 - Music

Tencent Music Entertainment (TME) stock rose 15.7% to $15.43 after the release of its first-quarter earnings on Monday (May 13), which showed net profit rising 28% to $212 million as music subscription revenue surpassed $500 million and the company’s subscribers rose by 7 million to 113 million. Online music revenue climbed 43% to $693 million, helping offset a nearly 50% decrease in social entertainment revenues to $244 million.

Numerous analysts upped their price targets for TME this week following the company’s earnings release. Jefferies raised TME to $15.40 from $12.00. Mizuho raised its price target to $15.00 from $13.00. HSBC also raised TME to $15.00 from $13.00. 

Another Chinese music streaming company, Cloud Music, jumped 11.7% to 105.00 HKD this week after it announced a licensing deal with Kakao Entertainment for distribution in China. Kakao has over 50 “star” artists and 70,000 tracks, according to a press release announcing the pact. Cloud Music has not announced a date for its first-quarter earnings release. 

Shares of TME have risen 97.6% over the last 52 weeks and gained 71.3% in 2024. The company (which trades on the NYSE and Hong Kong Stock Exchange) and Cloud Music (which trades on the Hong Kong Stock Exchange) are part of an upswing in Chinese stocks in 2024. After falling in January, the Shanghai Composite Index is up 15.5% since Feb. 2 — far better than the gains of the FTSE 100 (10.6%), S&P 500 (7.0%) and Nasdaq composite (6.8%) over that period.

TME has come a long way since being targeted by government regulators in 2021 for anticompetitive behavior. Its shares traded below $5 for much of 2022 and dropped as low as $3.14 in October of that year. 

The 20-company Billboard Global Music Index rose 3.3% to a record 1,847.64, topping the previous high mark of 1,841.66 for the week ended April 5. While there were an equal number of winners and losers, the three top performers had double-digit gains — Cumulus Media was up 18% — while the worst-performing stock, Sphere Entertainment Co., fell 8.1%. Most of the index’s most valuable companies posted gains this week: Spotify increased 2.8% to $302.84, Universal Music Group rose 2.6% to 28.74 euros ($31.31) and Warner Music Group gained 1.3% to $32.04. 

Music stocks bested numerous indexes. In the United States, the Nasdaq composite rose 2.1% to 16,685.97 and the S&P 500 gained 1.5% to 5,303.27. In the United Kingdom, the FTSE 100 declined 0.2% to 8,420.26. South Korea’s KOSPI Composite Index dropped 0.1% to 2,724.62. 

B. Riley resumed coverage of Reservoir Media on Thursday (May 16) with a “buy” rating and an $11 price target. Reservoir shares rose 0.2% to $8.40 this week. The company will release first-quarter earnings on May 30.

Elsewhere, iHeartMedia dropped 6.2% to $1.21 this week. Guggenheim lowered its price target to $3 from $5 following the radio company’s earnings release on May 9, which prompted the stock to fall 36% last week. While Guggenheim maintained its “buy” rating, it dropped its price target to account for “headwinds at the core broadcast business,” analysts wrote in a May 15 note to investors. 

Sphere Entertainment Co. dropped 8.1% to $36.07, bringing its year-to-date gain to 6.1%. The company announced Monday that it bought out the remaining shares of Holoplot GmbH, the German company that provided the 3D audio technology for the Sphere in Las Vegas. 

Outside of the Billboard Global Music Index, JYP Entertainment fell 13.4% to 60,000 won ($44.30) following the company’s release of first-quarter earnings after the markets closed on May 10. Revenue increased 15.6% to 136.5 billion won ($100.8 million) but operating profit declined 20% to 33.6 billion won ($24.8 million) and net profit fell 26.3% to 31.4 billion won ($23.2 million). Operating profit and net profit declined due to increases in artist fees, labor costs and commissions at JYP Three Sixty, the company’s businesses that produce merchandise and license artists’ intellectual property. 

Another non-index stock, Sony Corp., rose 11.1% to $83.74 following its fiscal fourth-quarter earnings release Tuesday (May 14). Driven by subscription streaming growth and aided by foreign exchange, Sony Music’s yen-denominated revenues jumped 23.5% to $2.85 billion in the quarter and the music division was the parent company’s largest contributor of operating income. 

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