Why Tencent Music’s share price fell
ViacomCBS became the center of the story after seeking to raise $ 3 billion through a public offering to profit from its stock price, which rose from $ 12 to over $ 100 the year before. . News of the offer, which arrived on March 22, sent shares to $ 90 the next day. When the offer was priced at just $ 85 a share and some influential analysts downgraded the stock, a sell caused ViacomCBS’s stock price to drop 52% over the next four days. Tencent Music quickly became collateral damage.
The decline in ViacomCBS’s share price led to margin calls – demands to put more money into a margin account when its value drops – which Archegos was unable to meet, resulting in Goldman Sachs, Morgan Stanley and other banks to quickly liquidate Archegos’ $ 20 billion. actions to cover their losses. Unfortunately for Tencent Music, Archegos was a major shareholder in TME and banks flooded the TME stock market on March 24. Goldman Sachs single-handedly liquidated $ 6.6 billion from three Chinese companies in Archegos’ portfolio – Tencent Music, Baidu and Vipshop Holdings – in large block transactions, according to Bloomberg News, and an additional $ 2 billion in April, CNBC reported.
Tencent Music’s status as a Chinese music streaming service has not helped its stocks bounce back, despite efforts to right the ship. After the March 24 fall, TME announced on March 28 that it would repurchase up to $ 1 billion of its shares – a move that would show confidence and help stabilize its price. (Vipshop and GSX Techedu also announced repurchase plans that day.) Tencent Music could benefit in the long term from buying its shares at a discount, but the announcement moved its share price.
The collapse of the Archegos was “the same old song and dance,” to quote an Aerosmith classic, for investment firms laden with dangerous financial instruments. In this case, Archegos used derivatives called “total return swaps” which allow the investor to pay fees to banks in exchange for the return of a stock or bond without actually owning it. (The term “swaps” entered the traditional lexicon after the overuse of “credit default swaps” by Wall Street banks contributed to the 2008 housing crisis that led to a global recession.) Archegos is “the best example of parallel trading ”, Charles Geisst, a Wall Street historian, Told the New York Times, noting that the company is “indicative of the loose regulatory environment in recent years.”
Financial analysts whose job it is to price TME’s stock prices are not moved by the austere investor sentiment. Of the 23 analysts who follow TME, six have “buy” recommendations and 17 have either “outperformed” (a signal to give TME extra weight in a portfolio) or “hold,” according to Refinitiv. The median analyst target price is $ 29.42, 65% above Monday’s closing price. Even the lowest estimate of $ 20.04, Refinitiv says, is $ 3 above Tuesday’s closing price.
The slowdown in TME could be a correction in investor enthusiasm for streaming companies in general. Spotify shares have been skyrocketing since 2020 and hit $ 365.99 on February 19, giving the company a market cap of $ 69.8 billion. But its stock price quickly fell to $ 250.38 on March 29, wiping out $ 22.1 billion from Spotify’s market value, before climbing back to $ 292.02 on April 16. Netflix was also flying high through 2020, rising to $ 594.34 on January 20 from $ 431 a year ago. Additionally, on Tuesday Netflix posted disappointing first quarter results and reported a slowdown in subscriber additions, pushing shares down 10.5% after hours – 17.2% below its 2021 high. .
This may be a case of the vaccine blues; stocks that were flying high because the pandemic pushed consumers towards media streaming have moved closer to Earth.
Other stocks affected by the implosion of Archegos are also suffering from a prolonged slowdown. Baidu is 20.2% below its March 23 close price and remains 0.3% below its March 26 close price. Vipshop lost 31.6% of its value in the week of the sale and has fallen 12.9% since then. ViacomCBS closed Tuesday at $ 37.92, with a market cap of $ 36.7 billion lower since the saga began. For their part, Archegos’ lenders will collectively suffer a blow estimated at $ 10 billion, according to JP Morgan. Swiss credit warned it will take a loss of $ 4.4 billion and Nomura revealed it will lose about $ 2 billion.
Who would have thought that Archegos, a company with just $ 10 billion under management, could do so much damage?
Tencent Music did not respond to Billboardrequest for comment from.