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Highlights
- Tencent Music gains traction as China's streaming industry evolves.
- Unique position due to significant ownership and strategic buybacks.
- Comparison to global music streaming growth highlights expansive opportunities.
Tencent Music (NYSE:TME) is drawing attention for its notable growth within China’s evolving streaming sector. With 52 percent ownership by tech giant Tencent, Tencent Music is valued at approximately $US18 billion and has a substantial cash reserve of $US4 billion. This substantial backing positions it well in the competitive music streaming landscape, where it has already achieved a 24 percent increase in share value since the start of the year.
A unique aspect of Tencent Music's approach is its strategy of share buybacks, which differs from the norm among Chinese firms. The company recently completed a $US1 billion stock repurchase and is currently in the process of a further $US500 million buyback. Samir Mehta, a senior portfolio manager at J O Hambro Capital Management, highlighted this shift as a positive indication of the company’s strategic focus on shareholder value. This change also reflects a broader shift in the attitudes of some Chinese companies toward adopting global best practices in capital allocation.
China’s music streaming market, with its vast population and increasing digital engagement, presents substantial growth potential. According to Mehta, the trends within China align closely with global music consumption habits, making Tencent Music well-positioned to leverage these favorable conditions. He likens the company’s potential to a hidden gem in the music industry, capable of significant, sustained growth similar to that of global players.
J O Hambro Capital Management, which manages around $38 billion in equities, recently highlighted Tencent Music's performance at the Sohn Conference. This event, known for showcasing promising companies and insights from leading investment professionals, further underscored Tencent Music's standing in the streaming sector. J O Hambro is part of Perpetual, a financial services firm, after it was acquired as part of Pendal’s merger. Ellerston Capital’s Chris Kourtis had earlier discussed Perpetual's role, especially after Perpetual’s goodwill adjustment of $547 million, primarily due to outflows in the J O Hambro segment.
Tencent Music’s trajectory reflects a broader trend within China’s technology sector, where companies are increasingly emphasizing transparency, shareholder value, and strategic growth. This shift suggests the potential for Tencent Music and similar firms to tap into both local and global streaming demand, positioning them as key players in the digital music industry.
