Entertainment stock to watch: Tencent Music Entertainment Group – ADR (NYSE: TME)

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Tencent Music Entertainment Group – ADR (NYSE: TME) stock rose over 0.8% (as of 12:10 pm GMT-4; Source: Google finance) after a weak start as it reported the slowest increase in a widely-watched metric for growth since its debut. As of June 30, 2019, the combined balance of the Company’s cash, cash equivalents and term deposits amounted to RMB19.90 billion (US$2.90 billion), compared to RMB18.10 billion as of March 31, 2019. The increase in cash and cash equivalents was primarily due to cash flow generated from operations of RMB1.89 billion (US$275 million). The Company’s cash and cash equivalents balance was also affected by the change in the exchange rate of RMB to USD at different balance sheet dates.

The monthly average revenue per user from its social entertainment services rose 16.5% to 130.2 yuan ($18.45), the slowest growth since it went public in December last year. The company, controlled by Chinese tech giant Tencent Holdings Ltd , reported net income of 928 million yuan ($131.49 million) for the quarter ended June 30 compared with 903 million yuan a year earlier. TME in the second quarter of FY 19 has reported the adjusted earnings per American depositary share of 0.67 yuan, beating the analysts’ estimates for the adjusted earnings per American depositary share of 0.61 yuan. The company had reported the adjusted revenue growth of 31 percent to 5.90 billion yuan in the second quarter of FY 19, missing the analysts’ estimates for revenue of 5.95 billion yuan, according to IBES data from Refinitiv.

Moreover, the operating profit increased by 7.0% to RMB1.09 billion (US$158 million) in the second quarter of 2019 from RMB1.01 billion in the same period of 2018. Gross profit for the second quarter of 2019 increased by 8.1% to RMB1.94 billion (US$283 million) from RMB1.80 billion in the same period of 2018. Gross margin was 32.9% for the second quarter of 2019.

Meanwhile, Tencent Music’s parent Tencent Holdings is planning to buy a 10% stake in Universal Music Group (UMG) from Vivendi, resulting in a valuation of $34 billion for UMG. If the deal is closed, Tencent Music would be the biggest beneficiary which also gives it an edge over its rival Spotify, which spends money on royalties. Sony and Warner Music already own stakes in Tencent Music. It’s worth noting that Tencent Holdings apart from Tencent Music has invested in Spotify, and Gaana based in India.

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