Back on December 12,
Tencent Music (TME 12.82, -0.38, -2.88%) capped off a very weak year-end period for the IPO market
as its 82.0 mln ADS IPO priced at the low end of expectations ($13 vs. $13-$15).
At the time, the hope was that its recognizable name and robust growth rates
would provide a much needed spark for the IPO market. After a few ups and downs
since its debut, investors maintained a cautious approach towards new deals.
Following its disappointing pricing, matters took a turn for the worse as the China-based company’s stock immediately plummeted lower, ultimately sinking to the $12 level a few days after its IPO. Then, after finding a floor at that $12 level, and then vacillating between a $12.00-$12.75 range for a week, the stock sprung to life towards the end of December. From December 24 - December 28, TME shot higher by as much as 19%, and briefly traded above its IPO opening price of $14.10 for the first time since its second day of trading.
Traders who were underwater on the IPO were quick to cash in on that rapid and steep move in the stock when shares gave up a majority of those gains over the first few days of January. And then the roller coaster shifted again with the market surging last Friday, TME was back on the move higher, offering some hope that the reversal higher was still in order.
The stock had been moving higher mainly on optimism revolving around new trade agreements between the U.S. and China, which have provided a boost to the broader markets.
On that topic, today
and tomorrow, U.S. officials will meet with China's Commerce Ministry, and so
far, the headlines have been encouraging. Both China's Vice Premier Liu He and
U.S. Commerce Secretary Wilbur Ross have offered promising commentary,
suggesting that there could be a positive outcome for both countries. Of
course, these are just talking points at this juncture, but, the tone seems to
be more constructive as far as developing a trade strategy that works for both
the U.S. and China.
As far as TME is concerned, the good vibes emanating from China have been drowned out by a set of mixed analyst initiations this morning as the quiet period has expired. Namely, Morgan Stanley initiated the stock with an Equal-Weight, while both Deutsche Bank and Stifel assigned it with a Hold. On the positive side, Goldman Sachs put a Buy rating on the stock and KeyBanc Capital went with an Overweight and $19 target -- representing upside of about 19% from current prices.
that the stock is still trading below its IPO opening price, it is rather
surprising and disappointing that the consensus didn't land more clearly on the
bullish side. Hence, why the stock has failed to gain traction today following
Friday's strong advance.
Looking ahead, the next key event for TME will be its first quarterly report since its IPO. There is not a confirmed date yet for its Q4 earnings report, so, we likely won't see those results for several weeks. TME is coming off an impressive third quarter, though, in which revenue and operating profit soared by 71% and 129%, respectively. Once a date is set, it is possible -- if not likely -- that the stock moves higher ahead of the print as traders position themselves on the prospects of an upside report.