Tencent Music Entertainment Group is preparing for potentially the largest technology initial public offering in 2018, following right after Spotify Technology SA unorthodox IPO launch, according to the Wall Street Journal.
China’s internet giant Tencent Holdings Ltd. owns approximately a 50 percent stake in Tencent Music. Tencent Music was created in mid-2016 after Tencent Holdings bought a stake in China Music Corp.
Sources said that Tencent Music is expected to list in the U.S., but the decision is not finalized yet. The IPO launch is expected to generate billions in proceeds, while setting a valuation potentially over $25 billion.
The WSJ reported that the $25 billion valuation was the company’s value in recent private transactions. That was a sharp jump from its $12.5 billion value late last year when Spotify bought a 9 percent stake in the company as part of a share swap.
If Tencent Music lists at that approximate valuation, it would place the company as the fourth largest U.S. -listed tech IPO. This does not include Spotify because it listed its shares publicly on the New York Stock Exchange through a direct listing, meaning the company did not raise any capital.
Investors may be cautious of Tencent Music especially after what happened Spotify listed its share publicly earlier in April, but Tencent Music plans to list itself with a traditional IPO.
Spotify quickly saw its shares plummet from its IPO value shortly after many analysts expressed their doubts. Many analysts were unsure about how Spotify would profit, primarily due to its tendency to offer large payouts to many labels and artists to provide a larger database for it users.
Spotify reported has been reporting consistent net losses, but says it will begin to monetize its service through subscriptions and advertising, which could potentially be a stand-alone growth opportunity.
Tencent Music and Spotify could both virtually operate very similarly because they are in the same industry, but Tencent Music has a much larger user base, even though they are predominately from China. Tencent Music reported nearly 700 million monthly active users across all of its platforms, including QQ Music. Spotify reported 157 million users at the end of 2017, but only 71 million users were paying for the service.
Tencent Music is expected to launch its IPO in the second half of 2018. The company is expected to interview potential underwriting banks over the next month, said the sources.