Tencent Music Confirms US IPO, Spotify Could Net $2.7B

Chinese internet giant Tencent confirmed it is spinning off its music unit with a US IPO. Details of the offering, which Tencent revealed in a Hong Kong stock exchange filing, are being finalized, but Spotify is a big winner.

A Tencent Music (TME) US IPO is seen as likely to raise more than $1 billion, at a valuation estimated to be as high as $30 billion.

Tencent Music controls some of the most popular streaming music services in China, including QQ Music, KuGou and Kuwo. It does not compete with Spotify there, but the two will become rivals as both companies look to expand across Southeast Asia.Tencent Music currently serves about 700 million monthly users with about 25 million paying subscribers. 

Spotify Could Gain Billions, Increased Investor Confidence

Late last year, Tencent and Spotify did a stock swap, taking an estimated 9% non-controlling interest in the other. In a filing at the time, Spotify told investors, “Spotify believes the Tencent Transactions allow Spotify to invest in the long term potential of the music market in China and, in turn, TME to invest in the long term potential of the music market outside of China.”

In addition to opening up potential new opportunities for both companies, the stock deal aligned two of the worlds top streaming services music streaming services in future licensing negotiations with labels and music publishers.

If Tencent Music were to successfully IPO at a $30 billion valuation, Spotify's share of TME could be worth as much as $2.7 billion. A successful TME IPO could also further bolster investor confidence in Spotify and its yet-turn-a-profit business model.