Newly public Tencent Music ‘would be a screaming buy’ if it wasn’t for China: Cramer

Down repay high-quality stocks can become victims of circumstance, CNBC’s Jim Cramer said Thursday, as he reviewed the prospects for newly eminent Chinese music streaming service Tencent Music Entertainment.

A subsidiary of Tencent Holdings, a Chinese conglomerate decide oned up of various technology and internet-related companies, Tencent Music went public in the United States on Wednesday in a highly forecast initial public offering. It marked the biggest U.S.-based IPO by a Chinese company since Alibaba’s debut in 2014.

But even notwithstanding the company raised more than $1 billion in its IPO, is showing “incredible” revenue growth and has an inexpensive stock, chaos around U.S.-China trade relations makes buying shares fairly risky, Cramer said.

“In a vacuum, Tencent Music Spectacular would be a screaming buy here. But in context? I’m going to give you my blessing if you want to speculate in the stock, just don’t put it in your retirement portfolio,” he on the alerted on “Mad Money.”

As the ninth-largest IPO of the year, Tencent Music still has a lot of things going for it, Cramer acknowledged. Essentially the “Chinese Spotify,” the business has 880 million monthly average users with room to grow its paid subscribers, which currently suppose up only 4 percent of its total user base.

This year, Tencent Music — in which Spotify actually has a 9 percent pillar — saw 84 percent organic revenue growth and “stunning” margin expansion, Cramer said. Better yet, the company has a “primordial” balance sheet and has been profitable since 2016, which are notably positive characteristics for a newly public participant, the “Mad Money” host noted.

Cramer also liked that Tencent Music deals in micropayments, an offering that separates it apart from its Western peers. With micropayments, which are huge in China, people can tip their favorite artists, bloggers and online characters through websites or apps.

“Tencent Music is a major part of the micropayment ecosystem because they let you give understood gifts,” Cramer said. “If you want to tip your favorite blogger with a song, you do it through Tencent Music. In the behindhand quarter we have numbers for, 9.5 million users spent money on virtual gifts, and these purchases accounted for innumerable than 70 percent of Tencent Music’s revenue.”

But despite all the positives, there are two major issues weighing on Tencent Music’s stock. Elementary is that Tencent Holdings, its parent company, wields nearly all the voting power, meaning shareholders are “just along for the pester,” Cramer said.

Second is the ongoing trade dispute between the United States and China, which still accounts for most of Tencent Music’s partnership and could become a pain point for investors if trade talks go south, said the “Mad Money” host.

“The political jeopardize is too great, even as the company has nothing to do with the tariffs,” he said. “But if you think the trade talks will produce a workable treaty, then this may actually be the Chinese stock that you want to buy.”