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TME - Tencent Music Entertainment


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Interesting (but brief) report from Kerrisdale here: https://www.kerrisdalecap.com/wp-content/uploads/2021/03/Tencent-Music-Entertainment-TME.pdf

TME was significantly impacted by the Archegos liquidation, shares are now $20 vs. ~$32 before this whole drama started. Company just announced a $1 billion share repurchase. Has anybody done any work on the name / have any perspectives?

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No, I have not done much work. I briefly looked at it when they were buying a stake in UMG from my Vivendi Holding. It seemed to me that Vivendi was the way better stock back then.

 

Just looking at the chart, TME started to become a parabolic chart in January around $20 and is now back to where it was, so I don’t think one is getting a real discount here. It just seems to me that the excess from the pyramiding scheme has been removed. I actually think DISCK and VIAC are in the same boat.

Edited by Spekulatius
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Yup, yup. Well put Spek. I dont even really think one need look at the fundamentals any more than a few minutes because the chart tells the story. These are ok/good businesses that face big question marks. They went up a lot and then went down a lot and the share price movement caught the attention of a lot of people. But I dont think they are any more or less attractive now than they were before all the funky stuff started. If you weren't a buyer back then I dont know why one would be now. 

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It popped on my radar too because of Archegos saga. Pony Ma/Tencent do have a strong pedigree on execution and Tencent still owns 55% odd stake here which should be a big plus. Spotify is the second largest shareholder at 8%. Institutions own another 20-30% leaving a rather narrow float for a large cap (not that common). Buybacks (they just announced one) are really unusual at this stage of a story (they've barely monetised 8-9% of their massive MAUs while being a clear leader in audio genre in China). Their holdings in other media entities (Warner, Universal, Spotify) is an interesting way of dissuading these entities from aggressively courting competition in China. Paying MAUs are growing 40%+ y/y so they seem to be doing okay. The rise of Clubhouse (or Spaces) and Podcasts clearly signal a coming rise of long form audio content everywhere so this business can also benefit from that trend through their own recent acquisitions. Their margins are materially superior to that of Spotify, their MAUs are 2-3x as many, their untapped MAUs are 4-5x that of Spotify (that can change as Spotify scales globally while TME remains restricted to China). I don't like it enough to buy it here but its a worthy follow and I'll be keeping an eye. The multiple at <6x EV/revenues isn't rich for the potential it has. 

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