NetEase Inc NTES

HANGZHOU, China, Aug. 22, 2024 /PRNewswire/ -- Cloud Music Inc. (HKEX: 9899, "NetEase Cloud Music" or the "Company"), a leading interactive music streaming service provider in China, today announced its financial results for the first half of 2024 ended June 30, 2024.

Summary of Key Financial Metrics 
(RMB in thousands, unless otherwise stated)

First Half 2024 Key Financial Highlights

• Revenue was RMB4.1 billion, an increase of 4.1% compared with RMB3.9 billion for the same period of 2023.
  • Online music services:
    • Revenue from online music services was RMB2.6 billion, an increase of 26.6% compared with RMB2.0 billion for the same period of 2023.
    • Revenue from sales of membership subscriptions increased to RMB2.1 billion, driven by an increase in monthly paying users of online music services.
  • Social entertainment services and others:
    • Revenue from social entertainment services and others was RMB1.5 billion, compared with RMB1.9 billion for the same period of 2023.
• Gross profit was RMB1,425.7 million, an increase of 47.7% compared with RMB965.1 million for the same period of 2023.
• Gross margin improved to 35.0 % from 24.7% for the same period of 2023, owing to our increased business scale, strong monetisation of our core online music business that lead to ongoing operating leverage, as well as a one-off adjustment of certain copyright costs that boosted the gross margin by approximately 2.6 percentage points for the first half of 2024.
• Net profit was RMB809.9 million, compared with net profit of RMB293.8 million for the same period of 2023.
• Adjusted net profit was RMB880.7 million, compared with adjusted net profit of RMB331.9 million for the same period of 2023.

Note:
(1) Adjusted net profit is defined as profit for the period attributable to the equity holders of the Company adjusted by adding back equity-settled share-based payments as appropriate.

Business Overview

Coming into 2024, we remained steadfast in prioritizing development in our core music business and fostering a long-lived, thriving community. We continued to propel quality development across our music-centric ecosystem, strengthening our music-centric monetisation, resulting in improved profitability. Our appeal to users was enhanced due to our premium offering enhancements, such as improving our content ecosystem and personalized distribution, adding innovative features, and strengthening community attributes. These successful efforts, including a recent comprehensive upgrade of the "NetEase Cloud Music" app, helped us further augment our unique community and deepen user engagement. Combined with advanced membership privileges offered, we delivered solid growth in our subscription-based memberships, driving monetisation momentum from our core online music business.

During the first half of 2024, we continued to engage users across our leading music-inspired community. Our total user base remained largely stable, with a DAU/MAU ratio (daily active user/monthly active user ratio) consistently staying above 30%. Our growing online music subscriber group is particularly well-engaged on our platform. Along with our unique music- inspired community, personalised recommendation is one of our key focuses and the primary goal of our recent product upgrade is to reinforce these long-term differentiations. In our app's new version, we further improved users' music discovery and consumption via enhanced personalised recommendations and innovative features for a premium listening experience. Additionally, we continued to cultivate our music-centric community centred around our iconic Comments section, leading to increased community content generation and consumption, as well as more user interactions amid a revitalized community atmosphere. These efforts have resulted in improved user engagement, i.e., average time spent listening to music within our mobile app.

In the first half of 2024, we continually broadened our content offerings for our diverse audience. With the addition of major Korean music labels like JYP Entertainment and Kakao Entertainment, we continued rounding out our copyrighted content library. Combined with our strong support for independent artists and enhancements to our in-house music offering, we have created a differentiated content ecosystem. In addition to top-tier music content, we are fuelling growth in our signature music genres, such as hip-hop, through initiatives across copyrighted content collaboration, independent music cultivation, and in-house music production.

We worked diligently to strengthen our music-centric monetisation capabilities during the first half of 2024, achieving solid growth momentum year-over-year. Our revenue from subscription- based memberships continued its healthy upward trend with a 25.5% year-over-year growth, driven by an increase in the number of subscribers. We successfully introduced premium offerings, such as expanded content and innovative features, broadened membership privileges (including various IP-themed music players and a new interpersonal feature, etc.) and joint programs with external partners, as well as innovative promotional campaigns. Notably, membership retention rates, time spent and activity ratios were all improved across our expanding, high-quality subscriber base. In addition to subscriptions, we strengthened our advertising commercialisation capabilities during the period, supported by enhanced operational efficiency and optimized algorithms for performance- based ads, as well as more diverse advertisement formats and initiatives. Our exploration of ad- supported models also began contributing to our ad revenue growth.

We further improved our profitability during the first half of 2024, primarily driven by the benefits of economies of scale. Our gross margin increased to 35.0% for the first half of 2024, considerably improved from 24.7% for the same period of 2023, owing to our increased business scale, strong monetisation of our core online music business that led to ongoing improvement of operating leverage, as well as a one-off adjustment of certain copyright costs that boosted the gross profit margin by approximately 2.6 percentage points for the first half of 2024. Consequently, we achieved a net profit of RMB809.9 million for the first half of 2024, compared with a net profit of RMB293.8 million for the same period of 2023. Excluding the impact of equity-settled share- based payments, we achieved an adjusted net profit of RMB880.7 million for the first half of 2024, compared with an adjusted net profit of RMB331.9 million for the same period of 2023.

Going forward, we will remain committed to bringing more high-quality music to our users, cultivating our community, enhancing user experience, and strengthening our operating capabilities. Our strategic blueprint calls for the following actions:

• Further diversify and enhance our differentiated content offerings, with greater efficiency. We plan to deepen our collaboration with copyright holders and strengthen our capabilities in independent artist incubation and in-house music production, focusing on our signature music genres;
  
  
• Nurture our music-oriented community ecosystem and explore innovative inter-person interaction via enhancements to our comprehensive product offerings, including embedding more interactive features into our products and broadening communicative scenarios and ecology;
  
  
• Cultivate our users' willingness to pay and subscribe to premium offerings by improving user experience, deepening user engagement, enhancing membership privileges and broadening consumption scenarios; and
  
  
• Improve profitability through continued enhancement of economies of scale, and enhanced operating efficiency.

Comprehensive and differentiated content ecosystem

We are further enriching our content library, including both licensed music and original music. We continually update our diverse music selection to meet the evolving needs of our users, particularly younger users who have varied tastes and a desire to discover new music. In addition to top-tier music works, we especially focus on promoting our signature music genres, particularly hip-hop.

Enhancing partnerships with copyright holders

Throughout the period, we have remained dedicated to broadening our collaboration with music copyright holders, rounding out our Korean music content library. We have consistently demonstrated our commitment to fostering strong partnerships with music labels, ultimately benefiting both copyright holders and music enthusiasts.

• Expansive catalogue of music labels. We expanded our catalogue of music labels during the first half of 2024, including new partnerships with major Korean labels including JYP Entertainment and Kakao Entertainment, as well as Chinese music labels such as KC DIGITAL and Guoran Entertainment, etc.
  
  
• In-depth collaborations with our copyright partners. We created and launched an innovative, exclusive tab page for Taylor Swift's new album "THE TORTURED POETS DEPARTMENT: THE ANTHOLOGY," successfully promoting its sales. The album achieved over 100 million streams on our platform in just 19 days after its release. Regarding physical albums, we extended our collaborative efforts with copyright holders on content distribution and commercialization, focusing on supporting mid-tier artists. For instance, Shi Kai's album "Counting Stars All Night" has achieved over RMB10 million in sales on our platform.
  
  
• Amplifying offerings in signature music genres. We actively broadened our content library to appeal to the preferences of younger audiences on our platform. Music genres such as hip-hop, rock and Japanese ACG have surged in popularity on our platform. Throughout the period, we further expanded our content library in those signature genres, adding music content from influential rappers such as Pharaoh（法老）and KeyNG（杨和苏）, popular rock group Penicillin（盘尼西林）, as well as J-Pop music from Vap Japan and B-zone (known for iconic anime OSTs like "Detective Conan," "Slam Dunk," and "Dragon Ball GT").

Strengthening our leading independent artists' ecosystem

We continuously enhance our support system for independent artists, offering them comprehensive assistance throughout their music industry journey. This includes support from creation to promotion and financial aid. As of June 2024, our platform had over 732,000 registered independent artists who contributed around 3.6 million music tracks to our library. We are dedicated to supporting emerging musicians, especially in our signature genres like hip-hop, to help them advance their music careers and ultimately enhance the original music ecosystem on our platform.

• Supporting musicians in content creation. We support a diverse range of music talent throughout the creative process that help them achieve their creative potential. We have made our all-in-one AI music creation tool, NetEase Tianyin, accessible to both independent musicians and individual users. Not only does it make musicians' production process more efficient but also makes music creation more accessible overall, empowering more music lovers to become musicians. For NetEase Cloud Music X Studio, our AI-based voice synthesis software developed in partnership with Xiaoice, we integrated top IP Luo Tianyi and introduced five new natural singing voices including ethnic and bel canto singing styles, enabling musicians to find the appropriate voice for their unique projects and helping them express their creative ideas.
  
  
• Exploring and improving the exposure of musicians and their work. We leverage our internal and external resources to boost the presence of musicians and their high-quality work. For example, we officially launched Live Cover, an innovative feature within the music player interface offering musicians a new channel for promoting their content and themselves. Our region-oriented music promotions include our renowned "City Tour Guide" （城市云游指南）special planning series, for which we released Northeast Special Edition and launched an online plus offline event in Guizhou, and our Project Cornerstone（石头计划）city flash mob activities to provide musicians with more offline performance opportunities. In addition, we joined hands with the CCTV program "Music on the Journey (《乐在旅途》)" to showcase local original musicians on the CCTV stage.
  
  
• Helping musicians realise commercial value. Our platform's diverse monetisation approaches and upgraded support initiatives are designed to help musicians improve their financial yields. In April 2024, we rolled out the latest phase of our musician support project, "Project Cloud Ladder 2024"（云梯计划2024第一期）, which further bolsters financial backing for musicians by offering a more attractive financial settlement mechanism along with broadened scope of incentives. Furthermore, we continuously strengthened support for musicians of different identities. We recently implemented the second phase of a revenue- sharing program for music arrangers, providing financial aid through royalties for both arrangers and beatmakers.

Developing and promoting differentiated in-house music

Drawing on our expertise in music, wide and varied user base, and in-depth user insights, our multiple in-house studios focused on creating unique music content to further enrich our content matrix, catering to the diverse needs of various audiences.

• Crafting high-quality music content tailored to a variety of needs, with a focus on signature genre. In the first half of 2024, our in-house studios successfully produced and popularised multiple hit songs, represented by《紫荆花盛开》. We focused on our signature music genres, such as hip-hop, and produced multiple popular hip-hop song tracks, including a Henan Dialect rap song "5:20 AM" (《5:20 AM》), as well as "Xie Tian Xie Di" (《谢天谢帝》), "Ren Shang Ren" (《人上人》), and "Hai Shi Hui Xiang Ni" (《还是会想你》). Additionally, our in-house produced work "Farewell Letter" (《诀别书》), a purely instrumental music with a farewell theme, has gained popularity both within and outside the instrumental music community.
  
  
• Growing off-site exposure and popularity. Our in-house music works have been featured across the country at various prominent events and on TV shows in China. These include the CCTV 2024 Spring Festival Gala（央视春晚）, Henan TV's 2024 Lantern Festival Gala（河南卫视元宵晚会）, Beijing TV's New Year's Eve Special（北京卫视跨年之夜）, Henan TV's May 1st Gala（河南卫视五一晚会）, as well as popular variety shows.
  
  
• Expanding our offline public broadcasting collaborations, focusing on brands and scenarios that appeal to young people on our platform. For instance, we have partnered with Wanda Plaza, Blueglass Yogurt, Manner Coffee, and the Wanding micro department store brand, covering nearly 6,000 stores in total, all aimed at promoting our in-house music and increasing brand awareness among students and white-collar workers.

Diversified audio-based content offerings

In addition to music tracks, we have been actively expanding the long-form audio offerings on our platform. In the first half of 2024, the average listening time per user of long-form audio on our platform increased significantly by 49.4%, driven by our enhanced high-quality content that further engages long-form audio users and encourages more extensive consumption.

• PUGC/UGC – podcast. With our podcasts' focus on music-inspired content, they offer music fans an enjoyable way to discover quality and lesser-known songs, thereby increasing user engagement and music consumption.
  
  
• PGC – audio books & radio dramas. We have been expanding our PGC long-form audio content library in a cost-efficient manner, particularly by increasing our pool of self-produced content. For instance, our self-produced radio drama "The Villain Wants to be Saved" (《恶人想要抢救一下》), adapted from the popular Chinese anime of the same name, resonates with the platform's young user base. This has proven to be an effective strategy in attracting new users and increasing user engagement on our platform.

Community ecosystem and product innovation

Throughout the first half of 2024, we continued innovating products, enhancing features, and revitalising our differentiated community. During the period, we made significant progress in product innovation, particularly with the comprehensive upgrade of the "NetEase Cloud Music" app conducted from early 2024, which focused on several key areas: enhancing personalised content recommendations, improving traffic allocation across different content verticals, and actively fostering our music-centric community centred around music comments. Our efforts have helped to elevate the user experience, increase music's resonance with our user community and boost music interaction.

Optimising users' music discovery and listening experience

• Music content discovery and distribution. In our recent main app upgrade, we effectively strengthened the app's personalised recommendations functionality, including enhancing the overall app framework and content distribution strategy and optimising content recommendation features such as daily recommendations and Private DJ. These initiatives have amplified the efficiency and coverage of content recommendations, resulting in a more personalized music discovery experience.
  
  
• Enhancing the basic listening experience. During the Reporting Period, we optimized the vinyl playback experience, leading to improved user stickiness. Our efforts included upgrading the encyclopaedia and the lyrics consumption experience, as well as releasing new music player interface series, including full-screen cover, Forbidden City style, music comment style, Artist series, IP-themed player in collaboration with NetEase games, and Farmer Bob, among others. These trendy IP-themed music players not only offer users a fresh experience, but also opened up more monetization opportunities.

Fostering music-inspired community resonance and connections

During the first half of 2024, we actively nurtured our unique music-inspired community attributes, by amplifying the value of our iconic Comments section across various app scenarios, diversifying UGC content formats and categories, enhancing algorithms and operational activities, and much more. These efforts led to a better community experience for both users and UGC creators, which is crucial in maintaining and improving our strong user activity and stickiness.

• Community consumption and interaction. We continuously amplify the value of comments through product, operational, and algorithmic optimizations. Our initiatives include featuring hot comments on the vinyl player, introducing a new player interface that displays selected comments on the cover page, and refining our comment distribution system. Additionally, we have diversified the "Moments Square（动态广场）" section's content with popular music comments and a new user-generated format combining text and images. These efforts have led to a notable increase in user engagement with community content and interactions.
  
  
• Community content generation. We initiated efforts to increase user participation in creating UGC within our community. For example, we enhanced operational activities by coordinating comments with new song releases and popular topics to engage users in sharing their thoughts and feelings in the Comments section. Additionally, we curated various operational activities in the "Moments Square（动态广场）" section centred around specific topics.

Expanding music consumption and communicative scenarios

• Expanding collaboration with the NetEase franchise. We recently partnered with NetEase's online education division, beginning with a collaboration on Youdao Dictionary. This partnership combines our expertise in music content with online learning, integrating music consumption with specific English word searches to offer users a unique integrated experience.
  
  
• IoT layouts. We continued optimizing our functionality that lets users easily switch between different terminals like mobile, PC, TV, and in-car scenarios, effectively addressing diverse user needs and improving user experience. We also officially launched an initiative enabling regular vinyl membership subscribers to access content on IoT terminals. These efforts help us improve overall user activity and engagement across multiple terminals and scenarios.

Conference Call

The Company's management will host an earnings conference call at 7:00 p.m. Beijing/Hong Kong Time on Thursday, August 22, 2024 (7:00 a.m. U.S. Eastern Time on the same day). Details for the conference call are as follows:

Event Title: Cloud Music Inc. First Half 2024 Earnings Conference Call
Registration Link: https://s1.c-conf.com/diamondpass/10040870-8sjfhy.html

All participants must use the link provided above to complete the online registration process in advance of the conference call. Upon registering, each participant will receive a set of dial-in numbers, an event passcode, and a personal access PIN, which will be used to join the conference call.

A replay of the call will be accessible by phone at the following numbers and entering PIN: 10040870. The replay will be available through August 29, 2024.

Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.music.163.com.

About Cloud Music Inc.

Launched in 2013 by NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), Cloud Music Inc. (HKEX: 9899) is a well-known online music platform featuring a vibrant content community. Dedicated to providing an elevated user experience, Cloud Music Inc. provides precise, personalised recommendations, promotes user interaction and creates a strong social community. Its focus on discovering and promoting emerging musicians has made Cloud Music Inc. a destination of choice for exploring new and independent music among music enthusiasts in China. The platform has been recognised as the most popular entertainment app among China's vibrant Generation Z community.

Please see http://ir.music.163.com/ for more information.

Forward Looking Statements

This press release contains forward-looking statements relating to the business outlook, estimates of financial performance, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in the future. Underlying these forward-looking statements are a lot of risks and uncertainties. In light of the risks and uncertainties, the inclusion of forward-looking statements in this press release should not be regarded as representations by the Board or the Company that the plans and objectives will be achieved, and investors should not place undue reliance on such statements.

Non-IFRS Measure

To supplement our consolidated results, which are prepared and presented in accordance with International Financial Reporting Standards ("IFRS"), our Company uses adjusted net loss as an additional financial measure, which is not required by, or presented in accordance with, IFRS. We believe that this measure facilitates comparisons of operating performance from period to period and company to company by eliminating the potential impact of items that our management does not consider to be indicative of our Group's operating performance, such as certain non-cash items. The use of this non-IFRS measure has limitations as an analytical tool, and shareholders and potential investors of our Company should not consider them in isolation from, as a substitute for, analysis of, or superior to, our Group's results of operations or financial condition as reported under IFRS. In addition, this non-IFRS financial measure may be defined differently from similar terms used by other companies, and may not be comparable to other similarly titled measures used by other companies. Our presentation of this non-IFRS measure should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

Investor Enquiries:

Angela Xu
Cloud Music Inc.
music.ir@service.netease.com

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SOURCE NetEase Cloud Music