Tencent Music · as a cash machine

What you take out of it, discounted at your hurdle

Intrinsic value is the present value of the cash you can take out of a business. This model follows the customer's money down to the owner's cash, then discounts the cash you pull out over the years you hold, at your hurdle rate. No terminal growth — you take your money after a number of years and that is the whole value.

1 · Customers → revenue

Monthly active userspeople who open the app each month m

Paying ratioshare who subscribe %

ARPPUpaid per subscriber, per month RMB

Ads & otheras a share of subscription revenue %

2 · Revenue → the owner's cash

Owner cash marginfree cash flow ÷ revenue — what actually lands in your pocket %

Shares (ADS) m

3 · The cash machine, run by you

Hurdle ratethe return you demand, used to discount %

Years you holdhow many years you take cash before walking away yr

Growth of owner cashhow fast the cash you take grows each year %

Net cash & depositscash already in the company, yours today at face value RMB m

Exchange rateRMB per US dollar RMB/$

Value per ADS — cash taken out, discounted

—

RMB per ADS

owner cash over your holding years, plus cash already in the business

How the cash flows to you

From the customer down to what you would take out each year.

Paying users—

Subscription revenue—

Ads & other—

Total revenue—

Owner cash now (FCF)—

Owner cash per ADS, now—

Owner cash per ADS, year 1—

Value of your holding years—

+ Net cash per ADS—

Value per ADS—

Sensitivity — value per ADS (RMB)

Hurdle rate across, growth of owner cash down.