Tencent Music Entertainment (NYSE: TME), the top music streaming company in China, went public in late 2018 and its stock currently trades nearly 20% above its IPO price. Back in June, I explained why investors favored Spotify over Tencent Music: Spotify generated stronger growth in revenue and paid users, operated a simpler business model that didn't rely on live videos, and faced fewer regulatory challenges than Tencent Music. Tencent Music's recent second-quarter earnings report didn't bring back the bulls.
China's Tencent Holdings <0700.HK> will be under pressure to address concerns on the impact of a U.S. ban on WeChat-related transactions and outline its plans to mitigate any fallout as it reports second-quarter results on Wednesday. The ban, to take effect in September and the latest salvo in a worsening U.S.-China standoff, has cast a shadow over Tencent that aims to eventually get about half its gaming revenue from overseas, versus 23% as of last year. The United States would be key to such a plan as it is the No.2 gaming market after China.
The strong performance comes amid a growing rift between Beijing and Washington that has overshadowed Chinese firms in the United States. Asked whether TME had a plan to deal with a recommendation from President Donald Trump's administration over auditing U.S.-listed Chinese firms, Chief Strategy Officer Tony Yip told analysts in a briefing that it was "premature" to speculate over a potential delisting. Controlled by Chinese tech giant Tencent Holdings Ltd, TME's capitalisation on the New York market is about $26 billion.