Unusual Options Activity In Tencent Music Entertainment

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Warner Music Group Corp. is an American multinational entertainment and record label conglomerate that has been in business for 80 years. After nine years being private, last month, Warner Music Group Corp. WMG went public at an initial public offering of $25 a share. At the time, the deal was the biggest IPO year to date. Warner Music is the parent of record labels for Atlantic Records, Warner Records and Elektra Records and represents artists such as Ed Sheeran, Bruno Mars, Cardi B, Twenty One Pilots, Lizzo and Katy Perry. But artist such as David Bowie, Madonna and Jay-Z put Warner Music on the map.

Because of physical record sales continue to go down and the success of Spotify and Apple Music, Warner Music saw an opportunity. Jony Ives thinks Warner Music is a pure-play way to play streaming and that nobody beats their catalog of music.

Goldman Sachs sees global paid subscriptions rising 6% to 1.22 billion in 2030, due to the fast adoption of streaming. But Goldman thinks, record labels, that have about a 50% royalty rates, will be the biggest winners with streaming share of recorded music revenue rising to 86% in 2030 from 56% in 2019.

With just one month of market trading behind it, WMG hasn’t got a long history for analysts to review – but it does have that playbook, and JPM analyst Alexia Quadrani is suitably impressed.

Quadrani writes, “As the only pure play music content company, WMG is well-positioned to benefit from the ongoing growth in paid music streaming globally. We believe WMG shares will maintain a premium valuation over the average of our large-cap media universe due to its higher growth profile, and our outlook reflects our confidence in the growth of streaming and WMG’s execution.”

To this end, Quadrani rates WMG a Buy and suggests a $40 price target, which implies a robust upside of 36%.

Source

Goldman Sachs sees global paid subscriptions rising 6% to 1.22 billion in 2030, due to the fast adoption of streaming. But Goldman thinks, record labels that have about a 50% royalty rates, will be the biggest winners with streaming share of recorded music revenue rising to 86% in 2030 from 56% in 2019.

So why was there unusual options activity in Tencent Music and not Warner Music?

Tencent Music Entertainment released their first quarter results back in May and posting sales that missed Wall Street expectation. But their user base did climb 50% year over year to the tune of 42.7 million with anaverage revenue per paying user (ARPPU) rising 13%. And online music subscription revenue did climb 70% year over year to hit $170 million.

And one interesting note is Tencent, China’s largest social media company, acquired a 10% stake in the Class A shares of Warner Music Group Corp., a bet on the industry longer term.

Yesterday, I noticed unusual options activity in Tencent Music Entertainment. The Smart Money bought over 30,000 call options at the $19 strike price at expire on 8/21.

Now I did mention in one of my post yesterday that on Monday, China’s Securities Times ran a front-page editorial that fostering a “healthy” bull market after the pandemic is now more important to the economy than ever.

So maybe all China stocks in general are getting bid up. However, Tencent Music, I have to pass on as price is nearing the weekly supply at $17.75.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

Posted Using LeoFinance



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