Kuke Music (KUKE) Shares Plunge 37.29% as Controversial Naxos Acquisition Financing Triggers Dilution Fears

Kuke Music (KUKE) shares plummeted 37.29% on September 26, marking a seven-day decline of 53.46% and falling to their lowest level since March 2025. The stock experienced an intraday drop of 40.68%, driven by a controversial financing structure for its recent acquisition of Naxos Music Group, a major classical music publisher. The deal, valued at $106.35 million, involved issuing 661.39 million new Class A shares at a 30% discount to the 60-day average price, triggering immediate shareholder dilution and eroding equity value. Investors interpreted the move as a signal of financial instability, with the lack of cash reserves or debt financing exacerbating concerns about liquidity and governance.

The acquisition’s structure included a 24-month lock-up period for shares issued to Desun Holding, the entity facilitating the Naxos purchase. While this restriction limits short-term selling pressure, it ties the value of these shares to Kuke’s uncertain financial trajectory over the next two years. Analysts highlighted that the dilution, combined with Kuke’s ongoing struggles to meet NYSE compliance standards, amplified market skepticism. The company had previously faced regulatory scrutiny for declining revenues and negative profitability, further undermining confidence in its ability to execute the acquisition’s strategic vision.

Compounding these challenges, historical tensions between Kuke and Naxos resurfaced. In 2024, Naxos had sued Kuke for unpaid obligations from a prior distribution agreement, raising questions about the company’s operational risk management. Despite resolving the legal dispute before the 2025 deal, the precedent cast doubt on the long-term viability of the acquisition. Technical indicators also reinforced bearish sentiment, with the RSI and MACD signaling a deepening downtrend. Trading volume spiked sharply on September 26, underscoring investor fear and the lack of a clear path to value creation.

While Kuke framed the acquisition as a strategic expansion into global classical music markets, investors prioritized short-term financial risks over long-term synergies. The integration of Naxos’s catalog with Kuke’s existing platforms in music education and smart technology remains unproven, and the proposed “Music LEGO Engine” initiative—aimed at modularizing classical music copyrights—has yet to demonstrate tangible progress. Broader industry challenges, including competition from streaming giants and shifting consumer preferences in China, further cloud the outlook. For the stock to recover, Kuke must address liquidity constraints, demonstrate operational efficiency, and deliver concrete results from its high-stakes acquisition.