IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> as measured by users and revenue in China. The cornerstone product is NetEase Cloud Music that delivers diverse music and music-inspired content and provides interactive community features. Founded by <a href="https://www.smartkarma.com/entities/netease-inc-adr" target="_blank" data-smartkarma-citation="entities:17203:1" rel="noopener">NetEase Inc (NTES US)</a>, NetEase Cloud Music, has been operating as a stand-alone business since October 2016. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-initiation-musical-shares" target="_blank" data-smartkarma-citation="insights:52266" rel="noopener">Cloud Village (NetEase Music) IPO Initiation: Musical Shares</a>, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  <div class="content-highlight">In this note, we examine the 1Q21 results and the recent developments disclosed in the PHIP. While Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. With investors understandably wary of Chinese IPOs due to China’s regulatory onslaught, Cloud Village has the potential to entice investors to give Chinese IPOs a renewed look.   </div>

Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) as measured by users and revenue in China. The cornerstone product is NetEase Cloud Music that delivers diverse music and music-inspired content and provides interactive community features. Founded by NetEase Inc (NTES US), NetEase Cloud Music, has been operating as a stand-alone business since October 2016. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. In Cloud Village (NetEase Music) IPO Initiation: Musical Shares, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  In this note, we examine the 1Q21 results and the recent developments disclosed in the PHIP. While Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. With investors understandably wary of Chinese IPOs due to China’s regulatory onslaught, Cloud Village has the potential to entice investors to give Chinese IPOs a renewed look.   

Cloud Village (NetEase Music) IPO: Play List

MD, Blue Lotus Research Institute

Gu Jun, CFA

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total revenue growth rate of Tencent Music will gradually slow down in the following years, and the proportion of online music service revenue will continue to decline, while the proportion of social entertainment service revenue will gradually increase and become the major driving factor for Tencent Music growth. Among them, the increase of the ARPU of social entertainment services and paying ratio of online music services are the key indicators of the future revenue growth; the paying ratio of social entertainment service still has a certain growth space; The ARPU value of online music service is hard to improve because it is limited by the low level of the whole domestic online music industry. Based on the above analysis, our initial valuation of Tencent Music is about USD 28.3 bn.

Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total revenue growth rate of Tencent Music will gradually slow down in the following years, and the proportion of online music service revenue will continue to decline, while the proportion of social entertainment service revenue will gradually increase and become the major driving factor for Tencent Music growth. Among them, the increase of the ARPU of social entertainment services and paying ratio of online music services are the key indicators of the future revenue growth; the paying ratio of social entertainment service still has a certain growth space; The ARPU value of online music service is hard to improve because it is limited by the low level of the whole domestic online music industry. Based on the above analysis, our initial valuation of Tencent Music is about USD 28.3 bn.

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

One of the key areas of pushback for the <a href="https://www.smartkarma.com/entities/27255" target="_blank" data-smartkarma-citation="entities:27255:1">Tencent Music Entertainment (TME US)</a> IPO stems from worries about recent IPO <a href="https://www.smartkarma.com/entities/26772" target="_blank" data-smartkarma-citation="entities:26772:1">Spotify (SPOT US)</a> and its cautious 3Q18 profit guidance, while recent short-seller reports may have impacted <a href="https://www.smartkarma.com/entities/26075" target="_blank" data-smartkarma-citation="entities:26075:1">Momo Inc (MOMO US)</a> and may be driving some investor reticence. Moreover, there are concerns about Tencent's premium EV/sales valuation. In this note, we dig into the first and third elements (Momo reports later today which should provide an update on recent operational trends). Key points below.1. Continued strong operational trends at Tencent Music vs. Spotify2. TME valuation - a cheap PEG ratio while EV/sales metrics understate growth - <a href="https://www.smartkarma.com/entities/27250" target="_blank" data-smartkarma-citation="entities:27250:1">Pinduoduo (PDD US)</a> comes to mindMore details below.

One of the key areas of pushback for the Tencent Music Entertainment (TME US) IPO stems from worries about recent IPO Spotify (SPOT US) and its cautious 3Q18 profit guidance, while recent short-seller reports may have impacted Momo Inc (MOMO US) and may be driving some investor reticence. Moreover, there are concerns about Tencent's premium EV/sales valuation. In this note, we dig into the first and third elements (Momo reports later today which should provide an update on recent operational trends). Key points below.1. Continued strong operational trends at Tencent Music vs. Spotify2. TME valuation - a cheap PEG ratio while EV/sales metrics understate growth - Pinduoduo (PDD US) comes to mindMore details below. 

Tencent Music: Will TME Avoid the Fate of Its Troubled Streaming Peers?

Tencent Music（TME）: We Think It Is Worth USD 28.3 Bn --(1)

Tencent Music released its F1 IPO prospectus today with the intention of raising $1bn USD. We note the following points:
Strong revenue, margins, cash generation and ARPU
Dominant market share with limited competition and supplier power
Tencent music relies on the ‘fan economy’ rather than subscriptions for earnings

Tencent Music released its F1 IPO prospectus today with the intention of raising $1bn USD. We note the following points:
Strong revenue, margins, cash generation and ARPU
Dominant market share with limited competition and supplier power
Tencent music relies on the ‘fan economy’ rather than subscriptions for earnings

Tencent Music IPO Preview: A Better Version of Spotify?

United States

Pandora Media Inc. provides radio services through the internet. The Company offers radio stations available to stream on computers and mobile phones. Pandora's services allow users to search on their favorite artists, genres, and songs while Pandora selects "stations" that match or are similar to their search.

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Pandora Media (P US)

Cloud Village (NetEase Music) IPO: Play List

With investors understandably wary of Chinese IPOs due to China’s regulatory onslaught, Cloud Village has the potential to entice investors to give...

Arun George

Tencent Music (TME) IPO (2)

Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total...

Blue Lotus Research Institute

Tencent Music: Will TME Avoid the Fate of Its Troubled Streaming Peers?

One of the key areas of pushback for the Tencent Music Entertainment (TME US) IPO stems from worries about recent IPO Spotify (SPOT US) and...

Rickin Thakrar

Tencent Music（TME）: We Think It Is Worth USD 28.3 Bn --(1)

Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total...

Blue Lotus Research Institute

Tencent Music IPO Preview: A Better Version of Spotify?

Tencent Music released its F1 IPO prospectus today with the intention of raising $1bn USD. We note the following points: Strong revenue, margins,...

Rickin Thakrar

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