Investment management company Bireme Capital recently released its third-quarter 2022 investor letter. A copy of the same can be downloaded here. In the third quarter, the fund outperformed and was up 2.5% net of fees compared to a -4.9% decline for the S&P 500 Index. Since inception, the strategy returned 22.7% net annually compared to a 12.0% annual return for the S&P 500 Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Bireme Capital highlighted stocks like Tencent Music Entertainment Group (NYSE:TME) in its Q3 2022 investor letter. Headquartered in Shenzhen, China, Tencent Music Entertainment Group (NYSE:TME) is an online music entertainment platform. On November 7, 2022, Tencent Music Entertainment Group (NYSE:TME) stock closed at $3.9700 per share. One-month return of Tencent Music Entertainment Group (NYSE:TME) was 0.25% and its shares lost 50.06% of their value over the last 52 weeks. Tencent Music Entertainment Group (NYSE:TME) has a market capitalization of $6.729 billion.
Bireme Capital made the following comment about Tencent Music Entertainment Group (NYSE:TME) in its Q3 2022 investor letter:
“We made a few material trades in the quarter. First, we sold our stake in Tencent Music Entertainment Group (NYSE:TME), which we wrote about in our “CIO Corner” newsletter.
We sold our stake primarily because of the massive underperformance of TME’s “Social Entertainment” segment. That portion of the business, which operates primarily through a group karaoke app called WeSing, lost 27% of its users during the year that we owned the stock. This seems to have been caused primarily by competition from other streaming platforms, such as TikTok (Douyin in China), a risk which we underestimated. Since this segment produces essentially all of TME’s profits, the loss of users had a dramatic impact on our valuation of the business.
Secondarily, we had expected growth of Average Revenue Per User (ARPU) in their music subscription business, in which TME has 70% share in China. Despite this near monopoly, competition from upstart NetEase Cloud Music has been fierce. Over the last year, NetEase gained material market share by offering discounts of 15-20% off the standard 8 RMB monthly price. TME has been forced to respond in kind, and TME’s ARPU fell 11% YoY in the second quarter.
With users falling dramatically in Social Entertainment and ARPU growth in question in Online Music, there was simply nothing left to support our original bullish stance on the stock. Even the fall from $6 at the end of 2021 to $4 per share in July was not enough to compensate for this change in our assessed value, so we sold our position.”
Dolby, Music
Tencent Music Entertainment Group (NYSE:TME) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held Tencent Music Entertainment Group (NYSE:TME) at the end of the second quarter, which was 20 in the previous quarter.
We discussed Tencent Music Entertainment Group (NYSE:TME) in another article and shared the best Chinese stocks to invest in. In addition, please check out our hedge fund investor letters Q3 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
