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Tencent Music Stock Tumbles on Beijing Crackdown Concerns

Tencent Music Entertainment beats earnings expectations, but analysts express concern about China's ongoing crackdown on internet companies.

Tencent Music Entertainment  (TME) - Get Tencent Music Entertainment Group Sponsored ADR Class A Report tumbled Tuesday amid analysts' concerns over China's widening crackdown on internet companies whose shares are listed in the U.S. and other markets outside of China.

Shares of Tencent Music, which touched an all-time low on Tuesday, were falling nearly 11% to $7.96 on Tuesday.

Other Chinese tech companies, including Baidu  (BIDU) - Get Baidu, Inc. Sponsored ADR Class A Report and Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report, were also falling.

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Tencent Music's second-quarter earnings beat Wall Street's expectations but fell short on revenue.

Macquarie analyst Ellie Jiang downgraded Tencent Music to underperform from neutral, according to Bloomberg.

Citi analysts, who have a buy rating and a $24 share price target on the stock, said quarterly net adds were slightly ahead of the company’s guidance, but “we wonder if recent govt decision pertaining to exclusive music licensing arrangement will have any potential impact on future subscriber growth.”

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In addition, Jefferies analysts, who have buy rating on the stock, said the results were mostly in line with expectations, but “social entertainment revenue faces pressures on macro headwinds, competition and product adjustments."

Beijing has been looking to rein in internet and technology companies that it feels have circumvented rules and regulations.

In July, China's antitrust regulator ordered Tencent to give up its exclusive music licensing rights and fined the company for anti-competitive behavior.

Tencent's executive chairman, Cussion Pang, said in the company's earnings release that "we would like to reiterate that TME sincerely accepts the decision issued in July by the regulator pertaining to exclusive music licensing arrangements."

Pang added that "we expect some impact to our business operations as a result of this decision."

Earlier this month, Tencent Music said it would further curb minors' access to its flagship video game after a state media article  described online games as "spiritual opium".

Tencent Music's social entertainment services business, which includes karaoke platforms where users can live stream concerts, posted a 7.4% rise in revenue 

Frank Zhao, a Beijing-based independent music industry analyst, told Reuters that Tencent Music made most of its income from social entertainment such as online karaoke and livestreaming businesses.