China’s Tencent Music Expects a $1B IPO Next Year–It Already Has Double the Paying Users of Spotify

Dec 14, 2017

China's Tencent Music, a streaming and downloading service that has twice as many paying customers as Spotify, is expected to raise at least $1 billion during its IPO next year.

The IPO of Tencent Holdings Ltd.'s @tencent(tctzf) music arm, which is currently valued at $10 billion, is one of the most eagerly awaited initial public offerings of next year, according to Bloomberg. This is good news for investors, who are welcoming any reason to shut down the noise that Spotify (spotify) Ltd. and Apple (aapl) Music may make as they target the Chinese market, given that digital-music sales in mainland China are expected to rise 88% within four years, according to PricewaterhouseCoopers (pricewaterhousecoopers).

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Spread across three separate platforms, Tencent Music already has twice as many paying customers as Spotify. While Spotify has not yet announced plans to expand to the world's second largest economy, when it does, it'll need to catch up quickly to Tencent, who has a "far better understanding of how to make money from traffic is far better than Spotify," according to Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co.

In an interview with Bloomberg, Yao asks: "If you want to make a singer not only sell copies but also have a great way to interact with fans, which company in the world can compete with Tencent?”

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Tencent's advantage is in its ability to leverage from other divisions within the company. Tencent Music benefits from the WeChat messaging app, a video-streaming site, a karaoke app and content-licensing deals with more than 200 international and domestic record companies, as per Bloomberg.

“Tencent Music has a dominant status in China,” said Li Yujie, an analyst with RHB Research Institute Sdn in Hong Kong, to Bloomberg. “It would make sense to spin off the unit, allowing it to create strategic alliances and unlock value for investors. It could be one of the most-anticipated IPOs next year.”

Tencent's streaming and music sales service offers more than 17 million songs to 700 million monthly active users, said Andy Ng, vice president for Tencent Music to Bloomberg. Around 120 million people pay to stream or buy music, compared with Spotify’s 60 million paid users. However, even with the user base China could provide under its belt, Spotify will list on the New York Stock Exchange next year for around 20 billion.

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