Tencent Music stock (TME) dipped by more than 12 percent on the day, despite the fact that the Shenzhen-headquartered streaming company reported solid revenue growth and announced a new Warner Music licensing deal earlier this week.
When the market closed today, Tencent Music stock was worth $20.36 per share – a decline of 12.17 percent from yesterday’s closing value and a roughly $11-per-share falloff from Tuesday’s high. Building upon the point, Wednesday brought with it an approximately 20 percent value reduction for Tencent Music stock.
The exact causes of the stock-price tumble remain unclear, and as mentioned, Tencent Music kicked off this week by unveiling a new licensing deal with Warner Music (as well as the establishment of a jointly owned record label) and detailing what appeared to be a strong financial performance during Q4 2020.
Specifically, Tencent Music said that it had experienced 40.4 percent year-over-year growth in paid subscribers during last year’s final three months, for an even 56 million premium accounts. Additionally, the publicly traded company, which operates QQ Music, Kugou Music, and Kuwo Music, relayed that its quarterly revenue grew by 14.3 percent YoY, with streaming platforms themselves having generated 29 percent more ($423 million) than in Q4 2019.
Tencent Music stock downgrades from financial professionals may have contributed to the per-share price decrease, however. Shortly after the earnings report’s release, investment bank China Renaissance expressed the opinion that TME’s relatively large present value – for reference, the stock was worth less than $10 per share at this time last year – already reflects the ongoing subscribership and revenue growth.
Goldman Sachs echoed the sentiment when explaining its own downgrade of Tencent Music stock – though it bears noting that HSBC set a higher TME target price, $35 per share, after the release of the earnings report. Interestingly, Benzinga Insights reported on Tuesday that Tencent Music stock had seen “unusual options activity,” and these bullish options might have affected TME’s gain and, in turn, amplified recent days’ losses.
Lastly, in terms of what could have resulted in TME’s dip, a number of other Chinese tech companies have joined Tencent Music in parting with a substantial portion of their stock value, after Bloomberg reported that “China’s government has proposed establishing a joint venture with local technology giants that would oversee the lucrative data they collect from hundreds of millions of consumers.”
Of course, Chinese government officials would presumably move quickly to target Tencent, one of the largest conglomerates in the country and in the world, if such a “joint venture” was established. iQIYI stock (IQ on NASDAQ) started this week at close to $28 per share and rested at $20.08 per share when the market closed today – a price that reflects a 13.34 percent dip on the day.
Compounding these information-sharing concerns, the Securities and Exchange Commission (SEC) took steps this week to enforce the Holding Foreign Companies Accountable Act (HFCA Act), which will more closely scrutinize China-based companies’ finances, potentially delisting the businesses from stateside exchanges if they fail to comply with U.S. accounting and financial-reporting standards.