Revenue and Profitability - Revenue decreased by 8.2% to RMB 3,908.4 million for the six months ended June 30, 2023, compared to RMB 4,258.7 million for the same period in 2022[7]. - Gross profit increased by 79.7% to RMB 965.1 million for the six months ended June 30, 2023, up from RMB 537.1 million in the prior year[7]. - Net profit for the period was RMB 293.8 million, a turnaround from a net loss of RMB 270.8 million in the same period last year[10]. - Adjusted net profit for the six months ended June 30, 2023, was RMB 331.9 million, compared to an adjusted net loss of RMB 217.0 million in the same period last year[9]. - The company achieved positive operating profit and adjusted net profit for the first time in the first half of 2023[15]. - Operating profit for the six months ended June 30, 2023, was RMB 104,611 thousand, compared to an operating loss of RMB 301,015 thousand in the previous year[89]. - The total comprehensive income for the six months ended June 30, 2023, was RMB 528,113 thousand, compared to RMB 25,928 thousand for the same period in 2022[97]. User Engagement and Growth - Monthly active users for online music services reached 206.7 million, representing a year-on-year growth of 13.7%[15]. - The number of paying users for online music services increased to 41,750.9 thousand, up from 37,613.0 thousand in the previous year[13]. - Average revenue per paying user for online music services rose to RMB 6.8, compared to RMB 6.5 in the prior year[13]. - The daily active users to monthly active users ratio remained above 30%, indicating strong user engagement[15]. - The company focused on enhancing music-oriented content products and improving user experience to drive subscription growth[15]. - Membership subscription revenue increased by 16.7% year-over-year, driven by an expanded member base and improved revenue per paying user[16]. Cost Management and Financial Health - Operating costs decreased by 20.9% to RMB 2,943.2 million, attributed to improved cost control and reduced content service costs[32]. - Research and development expenses decreased by 8.5% to RMB 440.7 million, reflecting better cost management in technology development[36]. - Total operating costs, including sales and marketing expenses, general and administrative expenses, and R&D expenses, amounted to RMB 3,826,375 thousand for the six months ended June 30, 2023, compared to RMB 4,607,650 thousand in 2022, a decrease of approximately 16.9%[117]. - Content service costs for the six months ended June 30, 2023, were RMB 2,399,396 thousand, down from RMB 3,251,129 thousand in 2022, a reduction of about 26.3%[117]. Shareholder Information and Equity - As of June 30, 2023, the major shareholder, NetEase, holds 129,034,168 shares, representing 60.39% of the total shares[57]. - Shining Globe International Limited, controlled by Lei Ding, owns 1,450,300,000 shares, which is 45.0% of NetEase's total shares[55]. - Alibaba Group holds 20,733,975 shares, accounting for 9.70% of the total shares[57]. - The total number of issued shares as of June 30, 2023, is 213,667,126 shares[60]. - The total equity attributable to the company's equity holders increased from RMB 7,495,533 thousand as of June 30, 2022, to RMB 8,221,215 thousand as of June 30, 2023, reflecting a growth of 9.7%[97]. Corporate Governance and Compliance - The company has a commitment to high standards of corporate governance, which is deemed essential for the development of the group and the protection of shareholder interests[75]. - The board believes that the dual role of the chairman and CEO held by Ding Lei enhances the effectiveness and efficiency of strategic planning[76]. - The company will continue to regularly review and monitor its corporate governance practices to ensure compliance with the Corporate Governance Code[77]. - The company has adopted a securities trading policy that is no less stringent than the "Standard Code" outlined in the Listing Rules, ensuring compliance by all directors during the reporting period[78]. Cash Flow and Liquidity - The company's cash and cash equivalents decreased to RMB 2.6 billion as of June 30, 2023, down from RMB 2.9 billion as of December 31, 2022[44]. - Operating activities used net cash of RMB 372.9 million for the six months ended June 30, 2023, compared to a net cash inflow of RMB 782.6 million for the same period in 2022[45]. - The company believes it will meet liquidity needs through funds raised from its global offering and other capital market financing[44]. Stock Options and Incentive Plans - The company has two active equity incentive plans: the 2016 Plan and the 2022 Restricted Share Unit Plan[61]. - The total number of unexercised stock options as of June 30, 2023, was 5,277,325, a decrease of 46.3% from 9,818,500 in the same period of 2022[148]. - The company’s stock incentive plans are designed to align the interests of employees with those of shareholders, thereby enhancing overall performance and shareholder value[141]. - The total employee benefits expense recognized for equity-settled share-based payments was RMB 38,143,000 in the first half of 2023, down 29.1% from RMB 53,810,000 in the same period of 2022[158]. Regulatory and Legal Matters - The company reported a restriction on bank balances amounting to RMB 122,975,000 due to ongoing investigations by local regulatory authorities[168]. - The company has not recorded any provisions related to the ongoing investigations, indicating a cautious approach to potential financial impacts[168].

[5 -> 28] Good day, and thank you for standing by. Welcome to the Cloud Music, Inc. first half of 2023 earnings conference call. Please be advised that in the interest of time, the prepared remarks will be conducted in Chinese, and an English version can be found on the company's IR website. After the call, [29 -> 53] The English summary of Q&A and a webcast replay of this conference call will be available on the company's IR website. And now, I would like to hand the call over to Ms. Angela Shi, IR Directo ...

[Performance Summary](index=1&type=section&id=Performance%20Summary) [Financial Summary](index=1&type=section&id=Financial%20Summary) In the first half of 2023, the company turned losses into profits, with gross profit significantly increasing by 79.7% to RMB 965 million and adjusted net profit reaching RMB 332 million, compared to a loss of RMB 217 million in the prior year period, indicating initial success in operational strategy adjustments despite an 8.2% year-on-year decrease in total revenue Financial Highlights | Metric | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 3,908,380 | 4,258,716 | -8.2% | | Gross Profit | 965,147 | 537,113 | +79.7% | | Profit/(Loss) for the Period | 293,750 | (270,810) | N/A | | Adjusted Net Profit/(Loss) | 331,893 | (217,000) | N/A | [Operating Data Summary](index=2&type=section&id=Operating%20Data%20Summary) In the first half of 2023, the company's core operating metrics showed strong performance, with online music service MAU growing 13.7% to 206.7 million users and paying users increasing to 41.75 million, while social entertainment services saw a significant ARPPU decrease despite user growth, reflecting strategic adjustments - Online music service Monthly Active Users (MAU) increased by **13.7%** from 181.9 million in H1 2022 to **206.7 million** in H1 2023[4](index=4&type=chunk)[7](index=7&type=chunk) Operating Metrics | Operating Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | **Online Music Services** | | | | Monthly Paying Users (thousands) | 41,750.9 | 37,613.0 | | Average Revenue Per Monthly Paying User (RMB) | 6.8 | 6.5 | | **Social Entertainment Services** | | | | Monthly Paying Users (thousands) | 1,525.1 | 1,235.4 | | Average Revenue Per Monthly Paying User (RMB) | 199.3 | 329.8 | [Management Discussion and Analysis](index=3&type=section&id=Management%20Discussion%20and%20Analysis) [Business Review and Outlook](index=3&type=section&id=Business%20Review%20and%20Outlook) In the first half of 2023, the company strengthened its music-centric strategy, achieving positive operating profit and adjusted net profit for the first time, driven by steady growth in online music and strategic adjustments in social entertainment, with future plans focusing on deepening the music community, enhancing content, and exploring new monetization opportunities - The company achieved positive operating profit and adjusted net profit for the first time in the first half of 2023, primarily due to optimized operational efficiency and cost structure[7](index=7&type=chunk) - Online music membership subscription revenue increased by **16.7%** year-on-year, driven by an **11.0%** year-on-year expansion in subscriber base and improved average revenue per paying user[8](index=8&type=chunk) - Future plans include cultivating user payment willingness, ensuring healthy development of social entertainment services, enriching the content ecosystem, improving profitability, and exploring multi-terminal layouts and game scenario linkages[8](index=8&type=chunk) [Comprehensive and Differentiated Content Ecosystem](index=5&type=section&id=Comprehensive%20and%20Differentiated%20Content%20Ecosystem) The company has built a comprehensive and differentiated content ecosystem by improving copyright reserves, strengthening the independent musician ecosystem, and developing original content, with its music library reaching 136 million tracks and over 646,000 registered independent musicians by June 2023, while refined content cost control significantly improved gross margin [Enhancing Copyright Content Reserves](index=5&type=section&id=Enhancing%20Copyright%20Content%20Reserves) The company actively collaborates with renowned domestic and international labels to expand content across various genres like pop and K-Pop, extends copyright commercialization through partnerships with downstream channels such as Tmall Genie and Helen's, and has achieved strong sales performance in digital and physical album releases - As of June 30, 2023, the platform has accumulated approximately **136 million** music tracks[9](index=9&type=chunk) - Collaborations with artists and labels like Mayday, Jackson Wang, and South Korean JTBC have expanded copyrighted content, with Hua Chenyu's physical album "Hope" achieving total sales of nearly **RMB 20 million**[10](index=10&type=chunk) [Strengthening the Leading Independent Musician Ecosystem](index=6&type=section&id=Strengthening%20the%20Leading%20Independent%20Musician%20Ecosystem) The company continues to support independent musicians by providing comprehensive assistance from creation tools and promotion to commercial monetization, with over 646,000 registered independent musicians and approximately 2.8 million uploaded tracks by June 2023, utilizing AI tools for creation and enhancing musician income through programs like "Cloud Ladder Plan" - As of June 30, 2023, the platform has over **646,000** registered independent musicians, who have uploaded approximately **2.8 million** music tracks[11](index=11&type=chunk) - Through programs like "Cloud Ladder Plan 2023," the company optimizes incentive schemes for independent musicians and provides services such as global distribution and automated rights protection[11](index=11&type=chunk) [Developing Unique Original Music Content](index=7&type=section&id=Developing%20Unique%20Original%20Music%20Content) The company strengthens its original music production capabilities, releasing popular singles like "To the Clouds" and "Jingwei," and deepens collaborations with NetEase Games (e.g., "Eggy Party") and external commercial brands to customize promotional songs, continuously expanding industry value - The original music studio successfully launched popular songs like "To the Clouds" and customized promotional tracks for NetEase's game IPs such as "Fantasy Westward Journey" and "Eggy Party," as well as brands like SAIC Volkswagen[12](index=12&type=chunk) [Community Ecosystem and Product Innovation](index=7&type=section&id=Community%20Ecosystem%20and%20Product%20Innovation) The company enhances its differentiated community ecosystem by adding interactive features, expanding consumption scenarios, and optimizing the listening experience, introducing "Comment Square" for user interaction, deepening integration with NetEase games like "Eggy Party" to embed music experiences, and improving audio quality with "Ultra-HD Master" and upgraded vinyl player interfaces - Introduced the new "Comment Square" feature, extending the iconic comment function to encourage interaction among users, musicians, and creators[13](index=13&type=chunk) - Deepened integration with NetEase games "Eggy Party" and "Sky: Children of the Light," embedding the music player into game scenarios and launching joint gift packs, effectively boosting user activity and payment willingness[14](index=14&type=chunk) - Continuously expanded multi-terminal deployment, adding collaborations with in-car systems like Geely and SAIC Audi, and introducing exclusive audio qualities such as "Ultra-HD Master" and "Immersive Surround Sound"[14](index=14&type=chunk) [Financial Review](index=8&type=section&id=Financial%20Review) In the first half of 2023, the company's financial position significantly improved, successfully turning losses into profits, with total revenue of RMB 3.91 billion, down 8.2% year-on-year due to strategic adjustments in social entertainment, but gross profit surged 79.7% to RMB 965 million, with gross margin rising from 12.6% to 24.7%, resulting in a net profit of RMB 294 million and adjusted net profit of RMB 332 million - For the six months ended June 30, 2023, the company recorded a net profit of **RMB 293.8 million**, compared to a net loss of **RMB 270.8 million** in the prior year period[15](index=15&type=chunk) - Adjusted net profit was **RMB 331.9 million**, compared to an adjusted net loss of **RMB 217.0 million** in the prior year period[15](index=15&type=chunk)[25](index=25&type=chunk) [Revenue Analysis](index=9&type=section&id=Revenue%20Analysis) Total revenue decreased by 8.2% year-on-year to RMB 3.91 billion, with online music services revenue growing 13.3% to RMB 2.02 billion driven by increases in both volume and price of membership subscriptions, while social entertainment and other services revenue declined 23.8% year-on-year due to operational strategy adjustments Revenue by Category | Revenue Category | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :--- | :--- | :--- | :--- | | Online Music Services | 2,021.4 | 1,783.7 | +13.3% | | Social Entertainment Services and Others | 1,887.0 | 2,475.0 | -23.8% | | **Total** | **3,908.4** | **4,258.7** | **-8.2%** | [Cost and Gross Profit Analysis](index=9&type=section&id=Cost%20and%20Gross%20Profit%20Analysis) Operating costs significantly decreased by 20.9% year-on-year to RMB 2.94 billion, primarily due to lower content service costs, particularly reduced revenue sharing fees for social entertainment and better control over content licensing fees, leading to a 79.7% year-on-year increase in gross profit to RMB 965 million and a substantial rise in gross margin from 12.6% to 24.7% - Operating costs decreased by **20.9%** from RMB 3.72 billion in the prior year period to **RMB 2.94 billion**[17](index=17&type=chunk) Gross Profit and Margin | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Gross Profit (RMB millions) | 965.1 | 537.1 | | Gross Margin (%) | 24.7% | 12.6% | [Operating Expense Analysis](index=10&type=section&id=Operating%20Expense%20Analysis) During the period, sales and marketing expenses increased by 13.5% year-on-year to RMB 370 million due to increased promotional activities, while general and administrative expenses and research and development expenses decreased by 7.8% and 8.5% year-on-year, respectively, due to reduced employee benefits and cost control - Sales and marketing expenses increased by **13.5%** year-on-year to **RMB 369.8 million**, primarily due to increased promotion and advertising expenses[19](index=19&type=chunk) - General and administrative expenses decreased by **7.8%** year-on-year to **RMB 72.6 million**[20](index=20&type=chunk) - Research and development expenses decreased by **8.5%** year-on-year to **RMB 440.7 million**[21](index=21&type=chunk) [Profitability Analysis](index=10&type=section&id=Profitability%20Analysis) Thanks to a significant increase in gross profit and optimized expense structure, the company successfully turned losses into profits, with net finance income substantially increasing due to higher bank deposit interest, ultimately recording a profit for the period of RMB 294 million, compared to a loss of RMB 271 million in the prior year period, and an adjusted net profit of RMB 332 million - Net finance income increased from **RMB 36.7 million** in the prior year period to **RMB 208.6 million**, primarily due to increased interest income from bank deposits[23](index=23&type=chunk) Reconciliation of Net Profit and Adjusted Net Profit | Item (RMB thousands) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Profit/(Loss) for the Period | 293,750 | (270,810) | | Add: Equity-settled share-based payments | 38,143 | 53,810 | | **Adjusted Net Profit/(Loss)** | **331,893** | **(217,000)** | [Condensed Consolidated Financial Statements](index=12&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Statement of Profit or Loss](index=12&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) The statement of profit or loss shows that in the first half of 2023, the company's revenue was RMB 3.91 billion, with a gross profit of RMB 965 million, and after accounting for various expenses, other income and expenses, and taxes, the profit for the period attributable to equity holders of the company was RMB 294 million, marking a turnaround from loss to profit, with basic earnings per share of RMB 1.39 Condensed Consolidated Statement of Profit or Loss | Item (RMB thousands) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Revenue | 3,908,380 | 4,258,716 | | Gross Profit | 965,147 | 537,113 | | Operating Profit/(Loss) | 104,611 | (301,015) | | Profit/(Loss) for the Period | 293,750 | (270,810) | | Basic Earnings/(Loss) Per Share (RMB) | 1.39 | (1.30) | [Condensed Consolidated Statement of Comprehensive Income](index=13&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) The statement of comprehensive income shows that, building on the profit for the period of RMB 294 million, and including other comprehensive income of RMB 234 million from currency translation differences, the total comprehensive income for the period attributable to equity holders of the company was RMB 528 million in the first half of 2023 Condensed Consolidated Statement of Comprehensive Income | Item (RMB thousands) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Profit/(Loss) for the Period | 293,750 | (270,810) | | Other Comprehensive Income | 234,363 | 296,738 | | **Total Comprehensive Income for the Period** | **528,113** | **25,928** | [Condensed Consolidated Statement of Financial Position](index=14&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2023, the company's total assets were RMB 10.96 billion, total liabilities were RMB 2.74 billion, and total equity was RMB 8.22 billion, with assets primarily composed of short-term bank deposits (RMB 6.26 billion) and cash and cash equivalents (RMB 2.61 billion), and liabilities mainly consisting of accrued expenses and other payables (RMB 1.78 billion) and contract liabilities (RMB 800 million) Condensed Consolidated Statement of Financial Position | Item (RMB thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **10,957,620** | **10,891,392** | | Current Assets | 10,613,090 | 10,475,272 | | Non-current Assets | 344,530 | 416,120 | | **Total Liabilities** | **2,736,405** | **3,071,333** | | Current Liabilities | 2,674,156 | 3,010,466 | | Non-current Liabilities | 62,249 | 60,867 | | **Total Equity** | **8,221,215** | **7,820,059** | [Notes to the Financial Statements](index=16&type=section&id=Notes%20to%20the%20Financial%20Statements) [Basis of Preparation and Accounting Policies](index=16&type=section&id=Basis%20of%20Preparation%20and%20Accounting%20Policies) This interim financial information is prepared in accordance with International Accounting Standard 34, with accounting policies largely consistent with the 2022 financial statements, and while certain new and amended standards, such as amendments to IAS 12, were adopted during the period, their impact on the financial position was not significant, and new accounting policies for inventories were added - The interim financial information is prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"[35](index=35&type=chunk) - The Group adopted new standards, including amendments to International Accounting Standard 12, but their cumulative impact was not significant[37](index=37&type=chunk) [Revenue and Segment Information](index=18&type=section&id=Revenue%20and%20Segment%20Information) The company's revenue primarily derives from online music services (RMB 2.02 billion) and social entertainment services and others (RMB 1.89 billion), with revenue recognized over time and at a point in time being comparable in scale, and management views the Group's business as a single operating and management segment, with the vast majority of revenue and non-current assets originating from China Revenue Classification | Revenue Category (RMB thousands) | H1 2023 | | :--- | :--- | | **By Type of Goods or Services** | | | Online Music Services | 2,021,417 | | Social Entertainment Services and Others | 1,886,963 | | **By Timing of Revenue Recognition** | | | At a point in time | 1,947,634 | | Over time | 1,960,746 | - The primary operating decision-makers consider the Group's business to be operated and managed as a single segment, thus no separate segment information is presented[43](index=43&type=chunk) [Expenses, Taxation and Earnings Per Share](index=19&type=section&id=Expenses%2C%20Taxation%20and%20Earnings%20Per%20Share) During the period, content service costs were the largest expenditure item at RMB 2.40 billion, while income tax expense was RMB 18.2 million, mainly due to increased withholding tax on finance income, and based on a net profit of RMB 294 million and a weighted average of approximately 211 million outstanding shares, basic earnings per share were calculated at RMB 1.39 - Content service costs, primarily including content licensing fees and revenue sharing fees, were the largest expense item, totaling **RMB 2.399 billion**[44](index=44&type=chunk) - Income tax expense was **RMB 18.2 million**, mainly due to increased withholding tax on finance income, with some of the Group's Chinese subsidiaries enjoying a **15%** preferential tax rate for high-tech enterprises[45](index=45&type=chunk)[46](index=46&type=chunk) - Basic earnings per share for H1 2023 were **RMB 1.39**, and diluted earnings per share were **RMB 1.38**[48](index=48&type=chunk)[50](index=50&type=chunk) [Assets, Liabilities and Contingent Liabilities](index=21&type=section&id=Assets%2C%20Liabilities%20and%20Contingent%20Liabilities) As of June 30, 2023, net accounts receivable amounted to RMB 679 million, with the vast majority aged within 3 months, and restricted cash totaled RMB 152 million, of which RMB 123 million was frozen due to cooperation with regulatory investigations into certain third-party activities, constituting a contingent liability for which management believes the Group's business complies with regulations in all material aspects and has not made any provision - Net accounts receivable amounted to **RMB 679 million**, of which **RMB 659 million** (approximately **97%**) were aged within **3 months**[51](index=51&type=chunk)[52](index=52&type=chunk) - The Group had **RMB 123 million** in restricted bank balances due to cooperation with local regulatory authorities' investigations into certain activities conducted by individuals through the platform[54](index=54&type=chunk)[56](index=56&type=chunk) - As the investigation is ongoing, management believes it is not practicable to predict the outcome or assess the financial impact, and therefore no provision has been recorded for this matter[56](index=56&type=chunk) [Corporate Governance and Other Information](index=23&type=section&id=Corporate%20Governance%20and%20Other%20Information) [Compliance and Review](index=23&type=section&id=Compliance%20and%20Review) During the reporting period, the company complied with most provisions of the Corporate Governance Code, with a deviation where the Chairman and CEO roles are held by the same person (Mr. Ding Lei), which the Board believes ensures leadership consistency and decision-making efficiency, and the interim results, though unaudited, have been reviewed by the company's auditor, PricewaterhouseCoopers - The company deviates from Corporate Governance Code provision C.2.1, as the roles of Chairman and Chief Executive Officer are both held by Mr. Ding Lei, which the Board believes ensures leadership consistency and decision-making efficiency[58](index=58&type=chunk) - The interim results are unaudited but have been reviewed by the company's auditor, PricewaterhouseCoopers, in accordance with International Standard on Review Engagements 2410[59](index=59&type=chunk) [Use of Proceeds and Dividends](index=24&type=section&id=Use%20of%20Proceeds%20and%20Dividends) As of June 30, 2023, the net proceeds of HKD 3.16 billion from the company's 2021 global offering remain unutilized, held as short-term bank deposits, and are expected to be used within the next 6 to 42 months, with the Board having decided not to declare an interim dividend for the reporting period - As of June 30, 2023, the net proceeds of **HKD 3.16 billion** from the 2021 global offering remain unutilized and are expected to be used within the next **6 to 42 months**[60](index=60&type=chunk) - The Board has resolved not to declare an interim dividend for the reporting period[61](index=61&type=chunk)

Financial Performance - Revenue increased by 28.5% from RMB 6,997,622,000 in 2021 to RMB 8,992,221,000 in 2022[5] - Gross profit surged by 806.3% from RMB 142,674,000 in 2021 to RMB 1,293,118,000 in 2022[5] - Net loss decreased by 89.2% from RMB 2,056,092,000 in 2021 to RMB 221,494,000 in 2022[5] - Adjusted net loss reduced by 89.0% from RMB 1,043,712,000 in 2021 to RMB 114,573,000 in 2022[7] - In 2022, the total revenue of the company increased by 28.5% year-on-year, driven primarily by the growth in subscription members and social entertainment services[15] - The adjusted net loss narrowed from RMB 1 billion in 2021 to RMB 100 million in 2022, with positive operating cash flow achieved in 2022[16] - The company recorded revenue of RMB 8.99 billion and gross profit of RMB 1.29 billion for the year 2022, with a net loss of RMB 2.22 billion compared to RMB 20.56 billion in 2021[27] - The adjusted net loss decreased by 89.0% from RMB 1 billion in 2021 to RMB 0.11 billion in 2022, primarily due to increased net revenue and improved cost control[27] User Engagement and Growth - Monthly active users for online music services reached 189.4 million in 2022, up from 182.6 million in 2021[10] - Monthly paying users for online music services increased to 38,267.1 thousand in 2022 from 28,940.4 thousand in 2021[11] - The paid user conversion rate improved from 15.8% in 2021 to 20.2% in 2022, supported by enhanced user experience and expanded membership benefits[15] - Daily active users spent an average of 78.9 minutes per day listening to music on the platform, an increase from 78.2 minutes in 2021[21] - 33.4% of music plays on the platform were generated from recommendations, indicating strong user engagement and platform stickiness[21] Revenue Streams - Online music service revenue rose by 12.4% from RMB 3,290.0 million in 2021 to RMB 3,698.8 million in 2022, driven by a significant increase in subscription sales[28] - Social entertainment services and other revenue surged by 42.8% from RMB 3,707.6 million in 2021 to RMB 5,293.4 million in 2022[29] Cost Management and Profitability - The gross margin increased significantly from 2.0% in 2021 to 14.4% in 2022, attributed to economies of scale and optimized cost structure[16] - Operating costs increased by 12.3% from RMB 6,854.9 million in 2021 to RMB 7,699.1 million in 2022, primarily due to rising content service costs[30] Research and Development - Research and development expenses amounted to RMB 1.01 billion, representing 11.3% of total revenue for 2022[26] - Research and development expenses increased by 16.3% from RMB 869.1 million in 2021 to RMB 1,011.1 million in 2022, reflecting investments in innovation and platform optimization[34] Strategic Initiatives - The company aims to convert more users to paying subscribers and enhance monetization capabilities[10] - Plans for 2023 include enhancing community engagement through interactive features and optimizing user experience to increase subscription willingness[16] - The company will continue to explore commercialization opportunities and expand listening scenarios through multi-terminal layouts and potential gamification initiatives[16] Content and Partnerships - The content library expanded to over 116 million music tracks by the end of 2022, including collaborations with major music labels[17] - The company aims to deepen partnerships with copyright holders to enhance its content offerings, including a recent agreement with Believe Music[18] - The company has provided services to over 611,000 registered independent musicians, contributing approximately 2.6 million music tracks to its content library[18] Corporate Governance and Management - The board includes independent directors with diverse backgrounds, enhancing governance and strategic oversight, such as Mr. Gu and Mr. Xu, who have academic and professional expertise[118][119] - The management team includes Mr. Ding as the CEO and Mr. Zhang as the Vice President of Commercialization and Marketing, who joined in November 2022, bringing experience from NetEase and Tencent[120] - The company has a strong focus on product development, with Mr. Zhang and Mr. Zhang serving as Vice Presidents for commercialization and product management, respectively, indicating a commitment to innovation[120] Risk Management - The company acknowledges that risk management is crucial for operational success, facing significant risks from overall market conditions and regulatory changes in the Chinese internet, music, live streaming, and online telecommunications industries[171] - The company has implemented a comprehensive risk management policy to identify, assess, and monitor key risks related to strategic objectives, including financial reporting and compliance risks[171] Shareholder Relations - The company emphasizes effective communication with shareholders to enhance investor relations and understanding of business performance and strategy[180] - The company has established multiple channels for ongoing dialogue with shareholders, including annual reports, interim reports, and quarterly reports[180] Compliance and Ethics - The company has adopted a whistleblowing policy for employees to report misconduct confidentially to the internal audit department[175] - The company has implemented anti-corruption policies and conducts ongoing training to foster a culture of integrity[175]

Financial Performance - Revenue increased by 33.8% to RMB 4,258.7 million for the six months ended June 30, 2022, compared to RMB 3,183.7 million for the same period in 2021[9] - Gross profit turned positive at RMB 537.1 million for the six months ended June 30, 2022, compared to a gross loss of RMB 12.9 million for the same period in 2021[10] - Loss before income tax decreased by 93.0% to RMB 266.8 million for the six months ended June 30, 2022, from RMB 3,807.0 million in the same period of 2021[9] - Adjusted net loss reduced by 59.3% to RMB 217.0 million for the six months ended June 30, 2022, compared to RMB 533.0 million for the same period in 2021[11] - The loss for the period decreased by 92.9% from RMB 3.8 billion for the six months ended June 30, 2021, to RMB 270.8 million for the same period in 2022[36] - The net loss attributable to equity holders for H1 2022 was RMB 270,810 thousand, a significant improvement from a net loss of RMB 3,809,147 thousand in H1 2021[95] User Metrics - Monthly active users for online music services decreased to 181.9 million as of June 30, 2022, from 184.5 million in the same period of 2021[14] - Monthly paying users for online music services increased to 37.6 million as of June 30, 2022, from 26.1 million in the same period of 2021[15] - Monthly paying users for social entertainment services increased to 1.2 million as of June 30, 2022, from 496.4 thousand in the same period of 2021[15] - Users spent an average of 80.6 minutes per day listening to music on the platform, up from 76.9 minutes in the first half of 2021[19] - 31.4% of music plays came from platform recommendations as of June 30, 2022, an increase from 30.5% a year earlier[19] Revenue Breakdown - Online music service revenue rose by 11.2% from RMB 1.604 billion to RMB 1.784 billion, driven by a significant increase in subscription sales[26] - Social entertainment services and other revenue surged by 56.7% from RMB 1.579 billion to RMB 2.475 billion, with monthly paying users increasing from 496.4 thousand to 1.2 million[26] - Total revenue increased by 33.8% year-on-year in the first half of 2022, despite challenging industry conditions[17] - Revenue recognized at a point in time was RMB 2,525,548 thousand for the six months ended June 30, 2022, compared to RMB 1,705,639 thousand in the previous year, indicating a growth of approximately 48.2%[87] - Revenue recognized over time was RMB 1,733,168 thousand for the six months ended June 30, 2022, up from RMB 1,478,035 thousand in the same period of 2021, marking an increase of about 17.3%[87] Cost and Expenses - Operating costs increased by 16.4% to RMB 3.7 billion, primarily due to rising content service costs[27] - Research and development expenses rose by 14.6% to RMB 481.5 million, attributed to higher employee-related costs and technology development expenses[31] - Total operating costs, including sales and marketing expenses, general and administrative expenses, and R&D expenses, amounted to RMB 4,607,650 thousand in H1 2022, compared to RMB 3,902,029 thousand in H1 2021, reflecting an 18.1% increase[89] - Content service costs increased to RMB 3,251,129 thousand in H1 2022 from RMB 2,759,391 thousand in H1 2021, representing a growth of 17.8%[89] Cash Flow and Liquidity - Cash and cash equivalents increased to RMB 1.86 billion as of June 30, 2022, from RMB 476.149 million as of June 30, 2021[41] - Operating cash flow for the six months ended June 30, 2022, was RMB 782.551 million, compared to a cash outflow of RMB 748.015 million for the same period in 2021[41] - The company’s cash needs are primarily funded through cash flows from financing and investments, with a significant reliance on external financing[40] - The company plans to utilize funds raised from its global offering and other capital market financing to meet liquidity needs in the future[40] Shareholder Information - Shining Globe International Limited holds 128,364,668 shares of the company, representing 61.35% of the total issued shares as of June 30, 2022[51] - The company has a total of 209,245,601 issued shares as of June 30, 2022[52] - The company’s major shareholder, Mr. Ding Lei, holds 44.2% of the shares, amounting to 1,450,300,000 shares[47] - Alibaba Group holds 20,733,975 shares, representing 9.91% of the total shares[51] - GIC Private Limited holds 13,923,356 shares, which is 6.65% of the total shares[51] Employee and Compensation - Total employee compensation cost for the six months ended June 30, 2022, was RMB 573.7 million, up from RMB 550.3 million for the same period in 2021[42] - As of June 30, 2022, the company had 1,526 employees, an increase from 1,192 employees as of June 30, 2021[42] - The company has a stock incentive plan that allows for the issuance of up to 15,000,000 Class A ordinary shares, aimed at attracting and retaining outstanding performers[112] Corporate Governance - The company has complied with the corporate governance code and has no reported violations of the standard code during the reporting period[58] - The board believes that the dual role of the chairman and CEO enhances strategic planning and decision-making efficiency[58] Future Outlook - The company aims to convert more users to paying subscribers and enhance monetization capabilities[14] - The company aims to enhance user engagement and monetization through innovative product offerings and improved user experience[18] - The company continues to explore market expansion opportunities and new product development, although specific details were not provided in the content[134]

User Engagement and Community Building - Cloud Village Inc. reported significant user engagement with a community of several hundred million users, enhancing emotional connections through music[7]. - The company emphasized innovation in music discovery through features like playlists, AI recommendations, and personalized FM, aiming to increase user engagement and satisfaction[6]. - Cloud Village Inc. is committed to supporting original music creators, providing a platform for better visibility and interaction, which is crucial for the music industry's growth[8]. - The company aims to expand its market presence and explore deeper emotional connections with users, indicating a strategic focus on user experience and community building[9]. - The company aims to enhance user engagement by transforming users from passive listeners to active creators[11]. - The company plans to support music creators and expand its global reach, positioning itself as a pioneer in C-Pop[12]. - The introduction of the "Sheet Music Archive" feature in November 2021 provided access to over one million pages of licensed sheet music, enhancing user engagement and content diversity[26]. - The "Beat Trading Zone" launched in December 2021 facilitates transactions between beat producers and music creators, enriching the content ecosystem[26]. - The "Music Creator Voice" feature allows artists to post voice messages in the comments section of their new tracks, enhancing interaction with audiences[26]. - The "Music Jar" feature enables users to send customized video content to friends, promoting user-generated content and engagement[26]. - User-generated content on the platform increased from 25% at the end of 2020 to 27% by the end of 2021, with music playback from platform recommendations rising from 28% to 32%[24]. - The company aims to enhance user experience and deepen engagement through innovative products and content, while exploring social networking innovations[24]. - The company aims to further develop its community by providing personalized music content and encouraging user-generated content, with a commitment to supporting independent musicians[29]. - The company accumulated 3.1 billion user-generated content playlists on its platform, showcasing a unique community culture that enhances user engagement[28]. Financial Performance - Financial performance details were not provided in the extracted content, but the emphasis on user growth and community suggests a positive outlook for future revenue generation[5]. - The company's revenue increased by 42.9% from RMB 4,895.7 million in 2020 to RMB 6,997.6 million in 2021[14]. - Gross profit improved from a loss of RMB 595.3 million in 2020 to a profit of RMB 142.7 million in 2021, marking a significant turnaround[14]. - The net loss for the year decreased by 30.3% from RMB 2,951.5 million in 2020 to RMB 2,056.1 million in 2021[14]. - Adjusted net loss reduced by 33.4% from RMB 1,568.0 million in 2020 to RMB 1,043.7 million in 2021[16]. - Total revenue for 2021 grew by 42.9% year-on-year to RMB 6,997.6 million, with a positive gross margin of 2.0% achieved[24]. - Social entertainment services and other revenue surged by 63.1% from RMB 2,300 million in 2020 to RMB 3,700 million in 2021, largely driven by rapid growth in live streaming services[34]. - The adjusted net loss for the year ended December 31, 2021, was RMB 1,043,712 thousand, a decrease from RMB 1,567,989 thousand in 2020, representing a 33.3% improvement[44]. User Metrics - Monthly active users for online music services reached 182.6 million in 2021, up from 180.5 million in 2020[20]. - The number of monthly paying users for online music services increased significantly from 15.96 million in 2020 to 28.94 million in 2021[21]. - Monthly active users for the online music service increased from 180.5 million in 2020 to 182.6 million in 2021, with a daily active user to monthly active user ratio maintained above 30%[24]. - The number of monthly active users for online music services grew from 180.5 million in 2020 to 182.6 million in 2021, while the number of paying users increased from 16.0 million to 28.9 million[34]. Expenses and Investments - Research and development expenses increased by 50.8% from RMB 576.5 million in 2020 to RMB 869.1 million in 2021, driven by higher employee benefits and technology development costs[39]. - Sales and marketing expenses rose by 31.8% from RMB 327.3 million in 2020 to RMB 431.3 million in 2021, primarily due to increased promotional costs for music-related social entertainment products[37]. - The total employee compensation cost for the reporting period was RMB 1,120.7 million, compared to RMB 646.6 million in 2020, reflecting a substantial increase[67]. Corporate Governance - The board of directors includes executive, non-executive, and independent non-executive members, with specific appointments effective from May 25, 2021, and the listing date[49]. - The company emphasizes its commitment to corporate governance through the establishment of various committees, including audit and compensation committees[100]. - The independent non-executive directors confirmed their independence in accordance with the Listing Rules, ensuring compliance with governance standards[131]. - The board is responsible for reviewing the company's corporate governance policies and ensuring compliance with legal and regulatory requirements[143]. Risk Management and Compliance - The company acknowledges the importance of risk management and has adopted a comprehensive risk management policy to identify and monitor key risks related to its strategic objectives[149]. - The company has implemented strict internal procedures to ensure compliance with rapidly evolving laws and regulations in the internet industry[150]. - The company has identified risk areas and developed risk response strategies through management interviews and surveys during the reporting period[165]. Employee Engagement and Welfare - The company has a total of 1,503 full-time employees, with a focus on diversity and equal opportunity in hiring practices[188]. - The company emphasizes a competitive compensation system, participating in industry salary surveys to ensure attractive remuneration for employees[189]. - The company provides a range of non-salary benefits, including health meals, holiday gifts, and housing loan assistance, to create a supportive work environment[192]. - The company has established a comprehensive performance management system to enhance employee motivation and potential[190]. - The company actively promotes employee communication and feedback through platforms like Yi Wang and Zao Yi Shi[197]. - The company has developed a talent training system that covers all levels of employees, from interns to management[194]. Environmental, Social, and Governance (ESG) Initiatives - The company published its first Environmental, Social, and Governance (ESG) report, focusing on management practices and performance in these areas[158]. - The report covers the period from January 1, 2021, to December 31, 2021, with some content extending to previous years or into 2022[159]. - The company has established an ESG coordination working group in 2021 to enhance the board's oversight of ESG matters[171]. - The company engaged in targeted anti-corruption training for different employee groups, including management and procurement staff, to prevent bribery and corruption[167]. - The company maintained a zero incidence of corruption lawsuits during the reporting period[167]. - The company has identified 20 ESG issues relevant to its operations, narrowing them down to 9 highly important topics to guide future ESG strategy[179].