Original title: Tencent Music vs. Spotify, which one is more worth investing in? Source: Financial Industry Website
Subscription streaming services are one of the growing trends in recent years. Apple Music and Spotify believe in music streaming platforms familiar to Hong Kong people, yet the leaders in the mainland China market are not these two brands, but Tencent Music, which was spun off by stock leader Tencent. Compared to Spotify and Tencent Music, which one is more worth investing in?
1. Comparing the performance of the 2017 to 2019 earnings multiplex growth
Data source: Morningstar.com
Comparing the business growth capacity from 2017 to 2019, Tencent Music clearly outperformed Spotify. This can be attributed to Tencent Music's focus on China. This is a market that parent company Tencent is very familiar with. Its WeChat subsidiary has almost penetrated the Chinese population, giving the group a home advantage in the core market. Furthermore, Tencent Music made major acquisitions in the past and gained control of the two music subscription platforms that were closely behind in the ranking at the time, which greatly increased Tencent's market share. Spotify is involved in many markets but is inaccurate. Mature markets continue to face rivals with a strong ecological base, such as Apple Music, competing for share. Naturally, the growth rate is not as good as Tencent.
Winner: Tencent Music
2. Profitability comparison
Data source: Morningstar.com
In terms of profitability, Tencent Music also excels. The average gross margin for the past 3 years is over 10 percentage points higher than Spotify, reflecting Tencent Music's advantage in focusing on and penetrating the Chinese market. Since it has gained a huge share, it faces less competition, and the risk that its pricing power will be weakened is low. In addition, Spotify is involved in many markets, but it is not precise, and its scale advantage cannot be achieved. Currently, it has not entered a stable harvest period; instead, Tencent Music, which has won most of the Chinese market share, already enjoys economies of scale, operating costs are sufficient to be effectively spread out, and the operating profit margin is far richer than Spotify's.
Winner: Tencent Music
3. Investment return comparison
Data source: Morningstar.com
To compare which companies are better at using shareholders' capital, the return on equity is the most worth referring to. Since Spotify has recorded losses over the past year, the return on equity is still negative, that is, the company's operations have not brought any return to shareholders. Therefore, the return on equity achieved by Tencent Music, which is superior in terms of track record and profitability growth, is also more attractive than Spotify.
Looking ahead, the competition faced by Spotify in many markets is unlikely to cool down, yet Tencent Music is expected to maintain its monopoly position in the Chinese market and maintain a superior return on equity.
Winner: Tencent Music
epilogue
Combining the above 3 points, if you want to choose between the two, Tencent Music's investment value is more attractive.