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Chinese stocks are soaring after
Alibaba
announced a major share repurchase plan. That includes
Tencent Music
,
which released a lukewarm earnings report overnight.
Tencent Music (ticker: TME) reported a profit of 50 renminbi on revenue of 7.6 billion renminbi, both a touch below the consensus. Sales dropped 8.7% year over year. Normally, those aren’t the kind of earnings that send a stock up 9.9%, as Tencent shares have done this morning. In fact, some analysts seemed to think that the impact would be muted, at best. “We expect a neutral reaction to the largely in-line results,” writes UBS analyst Wei Xiong.
Analysts were also lukewarm about Tencent Music’s future prospects. Citigroup’s Alicia Yap, for instance, lower her target price to $5.30, citing “challenging headwinds ahead,” including ” including increased “competition in paid music subscription …with potential entrance from [a] short-video peer, an ongoing declining trend of social entertainment further weighing on GPM, and clouded visibility on prospects for the live streaming business.” Yap maintained her Neutral rating on the stock.
Benchmark analyst Fawne Jiang points to similar headwinds. “Non-sub music growth could remain muted as TME works through the regulatory headwinds,” she writes. “We are positive on the innovative efforts the Company has been making but understand it may take time for these opportunities to materialize. As such, we decide to stay on the sidelines until we get better visibility.”
So what’s behind the stock’s big gain? For one, shares of Tencent Music, like most Chinese ADRs have gotten wrecked during the past year—its stock was down 85% during the past 12 months—over concerns about delisting in the U.S. and a Chinese crackdown on its tech sector. That’s a lot of bad news priced in by the market.
Then there’s Alibaba. The Chinese internet titan announced it would upsize its buyback plan to $25 billion, and that, coming on the heels of China’s announcement that it would take action to support its stock market and stocks, appears to have helped sentiment toward all Chinese stocks. The
KraneShares CSI China Internet ETF
(KWEB), for instance, has gained 7.3% on Tuesday.
Sometimes, that’s more than enough to send a stock higher.
Write to Ben Levisohn at [email protected]
Source: https://www.barrons.com/articles/tencent-musics-stock-earnings-alibaba-51647967137?siteid=yhoof2&yptr=yahoo