Tencent Music (TME) Q3 Earnings: Time You Sell?

in EARNINGS/INVESTING IDEAS by

Tencent Music Entertainment Group (NYSE:TME) is scheduled to report Q3 earnings results on November 11, 2019 after market close. The company is expected to report earnings of $0.09/share on revenue of $893.9 million. The consensus earnings per share (EPS) of $0.09/share is based on a poll of 11 analysts. The revenue forecast of $893.9 million based on a poll of 13 analysts.

Tencent Music Entertainment (TME) business model is different from streaming giants like Spotify since TME relies heavily on social entertainment products for earnings.

Tencent Music Revenue Margins

The company’s apps, including QQ Music, Kugou, and Kuwo, have more than 700 million active users and 120 million paying subscribers. As of late however, the TME’s services have seen significant deceleration in growth while profit margins have largely remained flat.

Earnings Call Trends

Management has meet analyst expectations historically, exceeding earnings guidance over the last 3 tracked quarters.

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2019 $0.09 $0.10 12.4% Beat
Q1, 2019 $0.10 $0.11 7.5% Beat
Q4, 2018 $0.08 $0.08 3.6% Beat

What are your expectations from Tencent Music Entertainment for this earnings this quarter? Let us know in the comments!

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Before” column shows the closing stock price on the day before the earnings report, and the “Price After” column shows the stock price at the end of the trading day after the earnings report.

After the last earnings report for the period ending June 30, 2019, the stock price did not react much to the update. Despite meeting analyst expectations, after the May update, the stock price fell almost 10%, suggesting management guidance will be an essential variable in tomorrow’s call.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-12 $14.45 $14.54 0.6% Increase
2019-05-13 $16.59 $15.01 -9.5% Decline
2019-03-19 $19.11 $16.66 -12.8% Decline

Fundamentals And Technical Analysis

Tencent Music Entertainment is currently trading at $14/share, up 2.9% for the day. The company is trading at approximately 70.1% of its 52 week high of $19.97/share.

The company’s stock price is down -3.1% since the last earnings report and down -0.8% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 56.34 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a rich price-to-earnings (P/E) multiple of 80.0x and a forward P/E multiple of 35.3x.

Tencent Music Entertainment’s current share price also implies a price-to-book (P/B) multiple of 3.9x. The following table summarizes some other key fundamental ratios:

Data as of November 10, 2019
Metric Value
Last Fiscal Period FY2019.Q2
Period End Date June 30, 2019
Stock Price (Current) $14
P/E Ratio 80.0x
P/E Ratio (Fwd) 35.3x
PEG Ratio 1.0
Total Debt to Capital (%) 0.1%
Levered Free Cash Flow $6.259 billion
Enterprise Value / EBITDA 38.5x

Company Profile: Tencent Music Entertainment Group

Tencent Music Entertainment Group is a large-cap stock with a market capitalization of $22.892 billion and a total enterprise value of $20.024 billion. The company operates in the Communication Services sector and Entertainment industry.

Tencent Music Entertainment Group operates online music entertainment platforms that provides music streaming, online karaoke, and live streaming services in the People’s Republic of China. It offers QQ Music, Kugou Music, and Kuwo Music that enable users to discover and listen to music in personalized ways; and WeSing, which enables users to have fun by singing and interacting with friends, sharing their singing performances with friends, and discovering songs that others have sung.

The company also operates Kugou Live and Kuwo Live that provides an interactive online stage for performers and users to showcase their talent and engage with those interested in their performance. In addition, it sells music-related merchandise, including Kugou M1 headsets, smart speakers, WeSing karaoke microphones, and Hi-Fi systems; and offers online music event ticketing services, as well as services to smart device and automobile makers to build and operate music services on devices and vehicles.

The company was incorporated in 2012 and was formerly known as China Music Corporation. TME headquartered in Shenzhen, China and is a subsidiary of Tencent Holdings Limited.

Expertise: financial technology, analyzing market trends. Brian is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian’s background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors. Brian can be reached at brian@finbox.io or at +1 (516) 778-6257.

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