China’s Tencent Holdings Ltd. (TCEHY), the world’s largest online gaming company, is in talks to invest $200 million in Warner Music Group, according to a Wall Street Journal report.
The move comes ahead of the record company’s initial public offering slated for the coming week. Tencent is among a number of other potential institutions that could serve as anchor investors, to help shore up more than $1 billion toward a fundraising goal of as much as $1.8 billion. The offering is expected to value Warner Music at $11.7 billion to $13.3 billion.
Warner Music is planning to price its IPO on June 2 and it should start trading the following day on Nasdaq.
Last week, Tencent announced a five-year plan to invest 500 billion yuan ($70 billion) in technology infrastructure. The investment will focus on cloud computing, artificial intelligence and cybersecurity, as well as blockchain, servers, big data centers, supercomputer centers, internet of things operating systems, 5G networks and quantum computing.
Tencent shares have soared 28% since mid-March as stay-at-home orders boosted demand for its online gaming products. The stock advanced 4% to $54.32 on Friday.
Five-star analyst Jason Helfstein at Oppenheimer who has a Buy rating on the company with a $58 price target believes that despite being the world’s largest online gaming company, Tencent continues to take market share due to innovation.
“There is still ample runway for its burgeoning advertising business with the largest online audience in China,” Helfstein wrote in a note to investors. “We see great potential in the company’s new initiatives: mini programs, cloud, and video. The success of any of these would add significant value to the company’s overall ecosystem.”
Notably all six analysts covering Tencent stock are bullish on its outlook, giving it a firm Strong Buy consensus. Meanwhile the $60.50 average analyst price target indicates 11% upside potential from current levels. (See Tencent Holdings stock analysis on TipRanks).
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