Tencent Music, the music streaming arm of Chinese tech behemoth Tencent Holdings (TCEHY - Free Report) , will price its U.S. initial public offering at $13 per share, the low end of its range, according to a source cited by The Wall Street Journal.
The Tencent spin-off will likely raise around $1.1 billion, making it one of the largest U.S. IPOs by a Chinese company this year. Video streaming site iQiyi (IQ - Free Report) raised $2.4 billion on its debut, while online retailer Pinduoduo (PDD - Free Report) generated about $1.6 billion from its offering.
The sheer magnitude of Tencent Music’s IPO will likely garner attention from investors, but the muted listing reflects uncertainty in the music streaming industry as well as for Chinese tech stocks and the company itself.
The music streaming giant draws plenty of comparisons to Spotify (SPOT), the world’s largest music streaming platform by way of paid members. Spotify shares have lost roughly 9% since debuting on the New York Stock Exchange in an unusual direct listing this April, underscoring concerns about profitability and royalty fees in the business.
Nevertheless, Tencent Music, unlike its Swedish competitor, is profitable. The Chinese company is not only able to cash in on its streaming apps—QQ Music, Kugou, and Kuwo—but also its popular karaoke app, WeSing, which generates commission revenue through the exchange of digital gifts.
Still, Tencent Music is preparing to IPO at the same time that it is facing legal questions from one of its early investors, Hanwei Guo. The respected Chinese investor is accusing Tencent Music of misinformation and intimidation in an effort to force a sale of his stake in the company.
Meanwhile, nearly all of China’s top tech stocks have been battered by trade war fears and concerns about an economic slowdown in the country.
Shares of Tencent Music’s parent company have dropped more than 22% over the past year. E-commerce behemoth Alibaba (BABA - Free Report) , which owns competitor AliMusic, has shed 13% in that time, while search leader Baidu (BIDU - Free Report) is down about 23%.
Tencent Music’s profitability and strategic advantages might explain why it is forging on with its plans to hold an IPO despite these uncertainties, but one can only speculate that its low-end pricing will soften some of the hype around the soon-to-be stock.
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