网易云音乐(09899) - 2023 - 中期业绩

Performance Summary Financial Summary 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 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][7] 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 Business Review and Outlook 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] - 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] - 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] Comprehensive and Differentiated Content Ecosystem 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 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] - 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] Strengthening the Leading Independent Musician Ecosystem 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] - 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] Developing Unique Original Music Content 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] Community Ecosystem and Product Innovation 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] - 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] - 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] Financial Review 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] - 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][25] Revenue Analysis 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 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] 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 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] - General and administrative expenses decreased by 7.8% year-on-year to RMB 72.6 million[20] - Research and development expenses decreased by 8.5% year-on-year to RMB 440.7 million[21] Profitability Analysis 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] 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 Condensed Consolidated Statement of Profit or Loss 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 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 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 Basis of Preparation and Accounting Policies 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] - The Group adopted new standards, including amendments to International Accounting Standard 12, but their cumulative impact was not significant[37] Revenue and Segment Information 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] Expenses, Taxation and Earnings Per Share 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] - 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][46] - Basic earnings per share for H1 2023 were RMB 1.39, and diluted earnings per share were RMB 1.38[48][50] Assets, Liabilities and Contingent Liabilities 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][52] - 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][56] - 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] Corporate Governance and Other Information Compliance and Review 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] - 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] Use of Proceeds and Dividends 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] - The Board has resolved not to declare an interim dividend for the reporting period[61]