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What Tencent Music’s $1.1B IPO Says About China’s Market Downturn

The Tencent logo seen displayed on a smart phone. AccordingThe Tencent logo seen displayed on a smart phone. According
The IPO of Tencent Music, China's answer to Spotify, priced at $13 a share with a $21.3 billion valuation. Chinese stocks are down in 2018.SOPA Images LightRocket via Getty Images

Chinese music-streaming service Tencent Music priced its IPO shares late Tuesday at $13 per American depository share. The price came in at the low end of the expected range of $13 to $15 per ADS, signaling the continued sense of caution surrounding Chinese stocks.

Like Spotify, the Stockholm-based music app that listed its shares on the New York Stock Exchange in April, Tencent Music is tapping into investor interest in digital music. Its service has 800 million monthly users. The company doesn’t say in its prospectus how many daily users it has, but notes that they spent an average of 70 minutes a day listening to music.

Among those users, however, only 25 million of them are paid subscribers. Revenue in the first nine months of 2018 rose 84% to $2 billion. Net profit rose 245% to $394 million.

IPOs of fast growing, profitable companies with plenty of runway ahead are usually in demand on Wall Street. But U.S.-China trade tensions and an accompanying bear market for Chinese stocks have left investors wary of China-based companies for now. The Shanghai Stock Exchange Composite Index is down 23% in 2018, compared with a 2% decline in the S&P 500 Index.

Tencent Music’s IPO will raise $1.1 billion in proceeds, a large enough figure to rank it among the largest of 2018. Other offerings, such as Spotify’s $9.3 billion direct offering and IPOs from China’s IQIYI and home-monitoring service ADT, raised more capital, but Tencent Music’s offering is larger than 2018 tech IPOs such as DocuSign and Dropbox.

At $13 per ADS, Tencent Music will be valued at $21.3 billion, below the $25 billion-to-$30 billion range underwriters were looking for earlier in the fall, the Wall Street Journal said. Tencent Music will trade on the NYSE under the ticker TME.