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Why Tencent Music Surged 19.9% in July

By Billy Duberstein – Aug 10, 2020 at 10:00AM

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The company received analyst upgrades and inked a big new partnership with a popular Japanese film studio.

What happened

Shares of Tencent Music Entertainment Group (TME 7.61%) rose 19.9% in July, according to data from S&P Global Market Intelligence.

Why the rally? A few things: First, the stock received an analyst upgrade on the last day of June, then inked a high-profile partnership with a leading Japanese anime studio to start the month. The first week of July also saw a leading Chinese paper call on Chinese citizens to buy Chinese stocks. While Tencent Music is officially listed in the U.S., it is, for all intents and purposes, a Chinese stock, and it appreciated on the heels of the endorsement.

Young woman  makes a music video using  her phone on a stand with a microphone next to it.

Image source: Getty Images.

So what

On June 30, analysts at UBS upgraded the stock to "buy," giving the company a $17 price target, while noting that competitive concerns are fading for this dominant Chinese music streamer and that monetization is improving.

Then on July 1, the company announced a strategic partnership with CoMix Wave Films (CWF), a leading Japanese anime movie studio. The partnership gives TME access to 17 popular animated film soundtracks, which should help differentiate its offering and attract customers in the near-term. Meanwhile, coordinating with CWF on future cross-marketing endeavors should lead to future possibilities as well.

Finally, on July 6, the China Securities Journal ran a front-page editorial encouraging investors about the, "wealth effect of the capital markets" and the prospect for a "healthy bull market." That boosted all Chinese stocks and added to Tencent Music's beginning-of-the-month surge as well.

Now what

Tencent Music releases its second-quarter earnings today, Aug. 10, at 8 p.m. Eastern time and 8 a.m. Beijing time. Analysts are expecting $987.1 million in revenue and earnings per share of $0.09. Look for Tencent Music, with its dominant market share in China's music streaming market, to capitalize on the stay-at-home digital economy in China.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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