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Tencent Music (TME) to Post Q1 Earnings: What's in Store?

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Tencent Music Entertainment Group TME is set to report first-quarter 2021 results on May 17.

The Zacks Consensus Estimate for first-quarter 2021 revenues is pegged at $1.19 billion, indicating an increase of 33.4% year over year.

Moreover, the consensus mark for earnings has remained steady at 11 cents over the past 30 days, indicating an increase of 22.2% year over year.

Notably, the company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 7.7%.

Let’s see how things have shaped up prior to this announcement.

Tencent Music Entertainment Group Sponsored ADR Price and EPS Surprise

Tencent Music Entertainment Group Sponsored ADR Price and EPS Surprise
Tencent Music Entertainment Group Sponsored ADR Price and EPS Surprise

Tencent Music Entertainment Group Sponsored ADR price-eps-surprise | Tencent Music Entertainment Group Sponsored ADR Quote

Factors to Consider

Tencent Music’s top line in the to-be-reported quarter is expected to have benefited from steady growth in revenues from online music services and sales of subscription packages.

Higher user subscriptions supplemented by growth in revenues from advertising services and sales of digital music albums is expected to have aided the company’s online music services in the to-be-reported quarter. Advertising services recorded over 100% year-over-year growth in the fourth quarter of 2020.

Additionally, growth in paying users and improved paid user retention rate is expected to have boosted subscription growth. In fourth-quarter 2020, online music paying users reached 56 million, increasing by 40.4% year over year.

Tencent Music’s expanding music library through new partnerships with global music labels is expected to have been a key catalyst.

In March 2021, the company extended its multi-year strategic licensing agreement with Warner Recorded Music upon its future expiration. As part of the extension, Tencent Music also agreed to establish a new joint venture record label in China as well as expand the partnership to a wider range, including the usage of WRM's content across its music and entertainment platforms, as well as developing new opportunities in music-for-business solutions and connected devices.

Moreover, Tencent Music’s strategy to produce more in-house content and its launch of live-streamed video talk shows and long-form audio content such as radio shows is expected to have aided growth in subscriber base in the to-be-reported quarter.

However, continued investments related to promotion and marketing, and higher content and revenue sharing fees are expected to have kept margins under pressure in first-quarter 2021.

Key Developments in Q1

During the to-be reported quarter, Tencent Music announced that that a consortium (comprising the company and other investors) which is led by Tencent Holdings Limited TCEHY has completed the acquisition of an additional 10% equity stake in Universal Music Group from its parent company, Vivendi SA VIVHY.

The deal is expected to aid in expanding Tencent Music’s global footprint, with more access to artists in the United States, whereas Universal Music will get access to the Asia Market, including the hugely popular Korean Pop (K-Pop) stars.

Moreover, in the first quarter of 2021, it entered into a definitive agreement to acquire 100% equity interest of Shenzhen Lanren Online Technology Co, Ltd, a well-established audio platform in China, for a total consideration of RMB2.7 billion, primarily payable in cash.

What Our Model Indicates

Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Tencent Music Entertainment Group has an Earnings ESP of -16.6% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a company worth considering, as per our model, it has the right combination of elements to beat on earnings this reporting cycle:

Ralph Lauren Corporation RL has an Earnings ESP of +6.25% and is Zacks #1 Ranked. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Tencent Music Entertainment Group Sponsored ADR (TME) : Free Stock Analysis Report

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