On Friday, Bernstein SocGen Group maintained its Outperform rating and $13.00 price target on Tencent Music Entertainment Group (NYSE:TME), a $19.1 billion market cap entertainment giant that has delivered a strong 35% return year-to-date. According to InvestingPro analysis, the stock appears undervalued relative to its Fair Value, supporting the firm's optimistic outlook.
The firm's optimism is bolstered by the upcoming introduction of a new artist-fan interaction service on TME's QQ Music platform, slated for launch in the first quarter of 2025. This service, known as Bubble, is the result of a partnership between TME and Dear U (KQ:376300), a subsidiary of SM Entertainment.
Bubble is designed to enable fans to communicate directly with artists, offering them exclusive content and messages. The service has already seen success in Korea for its ability to drive fan engagement. The partnership could potentially include access to artists from JYP Entertainment, which also owns Dear U, bringing popular acts such as Aespa, NCT, and TWICE closer to their fans.
The new service is expected to complement TME's existing SVIP offerings, enhancing the platform's appeal to fans seeking a more intimate connection with their favorite artists. InvestingPro data reveals TME's strong financial position with a healthy current ratio of 2.26 and minimal debt-to-equity of just 0.06, providing ample resources for expansion. The expansion of Bubble into TME's other music apps, Kuwo and Kugou, is also on the horizon, promising to broaden the service's impact.
The collaboration with Dear U marks a significant step in TME's strategy to innovate and improve user experience, potentially strengthening its position in the competitive music streaming landscape. The anticipated integration of Bubble into TME's suite of applications reflects the company's commitment to leveraging partnerships to deliver unique value to its user base.
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In other recent news, Tencent Music Entertainment Group reported significant developments in its financial performance. The company's third-quarter earnings for 2024 showed a 7% year-over-year increase in total revenues, reaching RMB 7 billion. The growth was largely driven by online music services revenue, which surged by 20% to RMB 5.5 billion, largely due to a similar rise in music subscription revenues. Adjusted net profit and IFRS net profit also saw substantial growth, with increases of 35% and 29% respectively.
Bernstein SocGen Group maintained its positive stance on Tencent Music, reaffirming an Outperform rating with a price target of $14.00. This rating indicates that the firm believes Tencent Music's stock is expected to perform better than the average return of the sector over a specified period. Meanwhile, Citi adjusted its price target for Tencent Music, reducing it to $14.50 from the previous $15.00, while maintaining a Buy rating on the company's shares.
In terms of future expectations, Tencent Music's management is committed to pursuing high-quality growth into 2025. This strategy focuses on a balance between increasing the number of new subscribers and average revenue per user, along with a gradual improvement in gross profit margin and net profit.
The company anticipates a normalization in the social entertainment revenue trend, which combined with balanced growth, is expected to drive an acceleration in top-line and profit growth for 2025.
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