Citi analysts upgraded Tencent Music Entertainment Group (NYSE:TME) to Buy rating from Neutral, increasing their price target to $13 from $9. The analysts highlighted that Tencent Music’s Q4/23 earnings surpassed expectations with a 7.2% year-over-year decrease in total revenue to RMB 6.89 billion and a 12.5% increase in adjusted net profit to RMB 1.68 billion. As a consequence, the company’s shares surged more than 6% yesterday.

These figures outperformed both Citi’s and consensus estimates, driven by stronger online music revenue from higher subscriber additions and average revenue per paying user (ARPPU), better advertising revenue, improved gross margin, and lower-than-anticipated general and administrative expenses.

Looking into Q1/24 and the full year, management expressed optimism about continued growth in music subscriber numbers and ARPPU, promising advertising revenue, and further gross margin expansion.

The analysts believe Tencent Music’s stable subscription music business, along with its expanding music value chain, ramp-up of long-form audio, and diversified use cases, supports a strong growth outlook.

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