Tencent Music Entertainment

Overview Key strengths Key risks Highly strategic subsidiary of Tencent Holdings Ltd. Stringent regulatory oversight over social entertainment platforms. Largest online music entertainment platform in China. Stiff competition from other entertainment platforms for users and screentime. Minimal leverage with healthy cash flow, especially from the stable music subscription business. Soft consumer sentiment weighs on social entertainment business. TME will concentrate on its online music business and continue to transition away from its social entertainment segment. Such a transition is likely to increase TME?s cash flow stability and predictability, given the recurring nature of its music subscription revenue. We see room for the online music business to grow further, driven by a number of incentives and nudges. These include moving additional

...Tencent Music Entertainment (TME) should manage steady earnings growth even as its social entertainment business shrinks. TME will concentrate on its online music business and continue to transition away from its social entertainment segment. Such a transition is likely to increase TME's cash flow stability and predictability, given the recurring nature of its music subscription revenue. We see room for the online music business to grow further, driven by a number of incentives and nudges. These include moving additional music library behind paywalls, reducing subscription discounts, and additional membership options such as internet of things (IoT) subscriptions. TME's lower paying ratio relative to overseas peers such as Spotify indicate there is more room for subscriber growth....

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