Tencent Music Entertainment is convincing more people in China to pay for music. In the July-to-September period, the company’s online music subscribers topped 100 million on a quarterly basis for the first time since TME listed in the U.S. in late 2018. That’s still just a fraction of the 594 million monthly active users that TME claims. Because of the size of China’s market, it’s more than Spotify ‘s claim of 574 million monthly active users —across 184 countries and territories. TME’s “music value [is] still underappreciated,” Morgan Stanley analysts led by Alex Poon wrote in a late November report. The analysts’ conversations with TME management revealed expectations that music subscribers will grow by more than 3 million a quarter, to an estimated 150 million in the medium term. “We see room for [TME] music revenue to double and profit to triple in the next three years,” the Morgan Stanley analysts wrote, noting “limited risks from macro and competition.” They raised their price target on TME 10% to $11, implying more than 30% upside from Friday’s close in Tencent Music Entertainment’s American Depositary Receipts. TME’s ADRs are up only 2% for the year so far, while rival Spotify shares have surged almost 130%. Now Spotify has a market capitalization about 150% more than Tencent Music Entertainment’s. TME SPOT YTD mountain Tencent Music Entertainment vs Spotify in 2023. Spotify isn’t available in China, a market notorious for content piracy. But in the past few years, companies have become more vigilant in protecting intellectual property, while consumers are getting in the habit of paying. “The music industry has been the fastest growing entertainment segment in China with 140% revenue growth between 2019 and 2023,” according to Morgan Stanley estimates. That’s far faster than any other entertainment segment the analysts tracked — including video games, which saw revenue grow of 30% since 2019. A live concert craze swept China this year, making…
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