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Jefferies raised its price target on Tencent Music Entertainment Group (NYSE:TME) to $22.00 from $17.00 on Monday, while maintaining a Buy rating on the Chinese music streaming company. According to InvestingPro analysis, the Chinese digital entertainment sector shows strong momentum, with several key players trading near their 52-week highs.
The research firm cited the online music sector’s improved earnings visibility compared to other entertainment subsectors, particularly highlighting subscription revenue’s growth potential for Tencent (HK:0700) Music.
Jefferies noted that companies like Tencent Music and NetEase (NASDAQ:NTES) Cloud Music have "ample room to grow" their subscription businesses due to low average revenue per paying user (ARPPU) and steady subscriber growth.
The firm categorized entertainment as a "defensive sector with catalysts ahead," expecting multiple growth drivers for the online games sector in the second half of the year despite high comparison bases from last year for major gaming companies.
Jefferies’ analysis extends beyond Tencent Music to other Chinese digital entertainment companies, noting Kuaishou’s attractive valuation and Bilibili (NASDAQ:BILI)’s improving fundamentals backed by "strong content and community ecosystem with Gen Z."
In other recent news, NetEase Inc. reported first-quarter earnings and revenue that exceeded analyst expectations. The company achieved an adjusted earnings per share of RMB17.51 ($2.41), surpassing the consensus estimate of RMB13.89. Revenue increased by 7.4% year-over-year to RMB28.8 billion ($4.0 billion), outperforming projections of RMB28.51 billion. NetEase’s core games and related services segment experienced a 12.1% revenue increase, driven by successful titles like Identity V and new releases such as Where Winds Meet and Marvel Rivals. Additionally, the company’s intelligent learning unit, Youdao (NYSE:DAO), reported a 6.7% decline in revenue but reached a record high in first-quarter operating profit.
Analysts have adjusted their price targets for NetEase, reflecting the company’s strong financial performance and strategic positioning. Jefferies raised its price target to $155 from $131, maintaining a Buy rating, and highlighted the significant growth potential in NetEase Cloud Music’s subscription revenue. CFRA analyst Ahmad Halim increased the price target to $130 from $110, citing the company’s improving earnings visibility and disciplined cost management. Both firms emphasized NetEase’s ability to expand global game monetization and maintain a valuation premium. These developments underline NetEase’s robust financial standing and its potential for continued growth in the competitive gaming sector.
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