Moon Capital Management on Tencent Music Entertainment Group
Thesis
Moon Capital Management bought Tencent Music Entertainment at roughly $8 per share, seeing a dominant subscription-led entertainment platform where the market prices in a shrinking business. Although total monthly active users have declined and its legacy Social Entertainment segment has contracted, paying music subscribers grew from roughly 34 million to 127 million since the IPO, penetration rose from 6% to 24%, and revenue per paying user increased about 5% annually. Music-related revenue has grown around 25% annually and now accounts for more than 80% of the business, while a fragmented Chinese copyright market gives Tencent Music higher margins and stronger negotiating leverage than Spotify. Distribution through the broader Tencent ecosystem, proprietary artist content and live events provide additional growth and monetization paths. The Ximalaya acquisition offers potential integration-driven margin expansion, while a large cash balance, financial investments and aggressive repurchases could increase per-share value. Moon Capital estimates approximately $15 per share by 2029 under a conservative earnings scenario and about $17.60 if buybacks reduce shares by roughly 5% annually.
“Applying a 12x multiple to that earnings power implies a value of approximately $15 per share, nearly 90% above our purchase price”
Key risks
- Soda Music’s rapid growth could intensify competition for listeners and music rights.
- Declining total monthly active users and contraction in the legacy Social Entertainment business could persist.
- Integration of Ximalaya could fail to deliver the expected improvement from its low-single-digit operating margins.
- Slower paid-subscriber growth or weaker monetization could undermine the earnings assumptions.