Chinese providers of services such as online music streaming, video games and news seem to perform well. The Chinese Ministry of Industry and Information Technology reported these companies saw their profits increase at an annual rate of 18.3% over the first seven months of the year to reach approximately $76.5 billion.
Tencent Music Entertainment Group (TME, Financial) is one of the companies that is well-positioned to capitalize on the strong tailwind from this sector of the Chinese e-commerce market, which sees more and more people, especially the younger generation, follow their favorite artists on the internet. Tencent's total revenue accounts for a significant portion of the total domestic market of online music, video games and news.
Based in Shenzhen, Tencent Music is a leader in the online music and audio entertainment industry in mainland China, with its popular apps to enjoy, share music and interact with other streamng services such as QQ Music, Kugou Music, Kuwo Music and WeSing.
On its platform, which is equipped with music, audio, karaoke and live streaming services, users can listen to music, watch music videos, sing and socialize with other music fans.
In the second quarter, helped by strong momentum in online music monetization and higher monthly average revenue per paying user of social entertainment services, total revenue increased by 264% year over year to $1.24 billion.
Total sales missed expectations by $10 million, but Tencent posted adjusted earnings of 10 cents per share, topping analysts' estimates of 9 cents.
The balance sheet looks robust as $22.3 billion in cash on hand and short-term investments exceeds the total debt of $5.4 billion by a wide margin. The interest coverage ratio of 33 indicates the company doesn’t have any problems paying the interest expenses on the outstanding debt. Financially speaking, the company is well supported to continue with its growth strategy. Tencent Music Entertainment Group works to develop audio, music and video services as well as multimedia technologies that will lead to a higher number of music fans using its entertainment services and spend more time on the platform.
For full-year 2021, analysts expect the company will post earnings of $2.28 per share (up 395.7% year over year) on projected total revenue of $32.07 billion (up 606.3% year over year).
The stock doesn’t look expensive as the share price of $9.46, as of early trading on Tuesday, is below the 50-day moving average of $9.74 and the 200-day moving average of $16.53.
The stock has a market cap of $15.11 billion for a 52-week range of $7.03 to $32.24, a price-earnings ratio of 28.62 versus the industry median of 26.46 and a price-sales ratio of 3.12 versus the industry median of 4.39.
Tencent Music Entertainment Group does not pay dividends.
Wall Street issued a median recommendation rating of overweight with an average target price of $12.81.
