There have been multiple reports that Chinese streaming service Tencent Music is getting set to file for an Initial Public Offering (IPO) very soon. An even bigger story is the pegged valuation is in the neighborhood of $25 billion, which would make it the 4th largest U.S. listed tech stock ever, just a little behind Spotify’s $29.5 billion valuation at its first trade after its listing last month.
Even though Tencent is relatively unknown to the average music consumer here in the States, the prospect of U.S. listing is getting investors attention primarily because it’s owned by Tencent Holdings, which currently has a market cap value in excess of US $500 billion on the Hong Kong Stock Exchange.
While Tencent Music is the leader in music distribution in China with some 700 million active users (!), it recently swapped 10% of its stock with Spotify, launched a new label (Liquid State) with Sony Music, and led a $115 funding round for Indian streaming company Gaana, so it’s been very proactive in the music space of late.
The big question here is why Tencent would even want to IPO in the U.S. Yes, it will raise a boatload of money, but for what purpose? Parent Tencent Holdings already has some deep pockets, so raising money just because it’s a good time in the market doesn’t seem to wash.
My thought is that this is the first step in the eventual purchase of Spotify, which would give Tencent not only a full North American footprint but also entry into many other countries where the streaming giant doesn’t yet have a presence. This would mean instant access to all those regions through a market leader that’s somewhat ripe for the plucking under the right circumstances. The only problem is that only a giant company like Amazon (often rumored as a possible suitor for Spotify) or Google or Tencent could afford it. Should this IPO happen, this may be the first step down that road.