Industry Rating - The report assigns a "Leading" investment rating to the internet industry, indicating an expectation of attractive performance relative to the benchmark index over the next 12 months [16]. Core Insights - The report highlights that consumption policies are driving growth across multiple categories, with a continued positive impact on Q1 performance expected [1][2]. - E-commerce growth is projected to continue, with an estimated GMV growth of 5% for the industry in 2025, driven by expanded subsidy programs and recovery in demand for home appliances [2][12]. - Specific company forecasts include Alibaba's GMV growth of 4%, JD's at 7%, Pinduoduo's at 13%, Kuaishou's at 12%, Douyin's at 25%, and WeChat Video's at 26% for 2025 [2][12]. Summary by Sections Valuation Overview - Alibaba (BABA US) is rated "Buy" with a target price of 165.0, current price at 141.1, and FY25E EPS of 86.3 [1]. - Pinduoduo (PDD US) is rated "Buy" with a target price of 144.0, current price at 122.5, and FY25E EPS of 104.4 [1]. - JD (JD US) is rated "Buy" with a target price of 62.0, current price at 43.2, and FY25E EPS of 35.1 [1]. - Kuaishou (1024 HK) is rated "Buy" with a target price of 54.0, current price at 64.9, and FY25E EPS of 5.0 [1]. - The average P/E ratio for the covered companies is projected at 13.4 for FY25E [1]. E-commerce Performance - The adjusted year-on-year growth for physical e-commerce retail sales in January-February 2025 is 5.0%, compared to 3.8% in December 2024 [2][5]. - The expansion of the trade-in subsidy program for mobile phones has led to a 26% increase in communication equipment sales, while home appliances continue to show double-digit growth at 11% [2][6]. - The report notes a 22% year-on-year increase in express delivery volume in January-February 2025, attributed to e-commerce activities during holidays [10][11]. Company Updates - Alibaba's Taotian is focusing on growth through new product incentives and enhanced merchant support, with measures including high exposure traffic and commission rebates [2]. - Kuaishou's e-commerce data shows a 25% year-on-year increase in active merchants and a significant rise in GMV across various categories [2]. - JD's food delivery service has expanded to 126 cities, with over 300,000 restaurant partners, indicating a strong focus on enhancing retail synergy [2].

Investment Rating - The report maintains an "Overweight" rating for the steel industry, indicating a positive outlook for the sector [28][42]. Core Insights - The report highlights a recovery in demand for steel, with total inventory decreasing and production profits improving, suggesting a stabilization in the market [39][40]. - The introduction of policies aimed at stabilizing the real estate market is expected to benefit various chemical products related to construction, indicating a potential growth area for the chemical industry [30][34]. - The robotics sector is experiencing significant advancements with the launch of the GO-1 model, which enhances the capabilities of embodied intelligence, suggesting a promising future for the robotics industry [13][15]. Summary by Sections Steel Industry - Recent data shows a rise in steel consumption, with a total apparent consumption of 8.53 million tons, an increase of 258,300 tons week-on-week [39]. - The report notes that the production profit for rebar has increased to 307.8 CNY/ton, reflecting a recovery in profitability for steel companies [40]. - The report anticipates that the demand for steel will stabilize as real estate policies take effect, reducing the negative impact previously observed [41]. Chemical Industry - The report emphasizes the government's commitment to stabilizing the real estate market, which is expected to drive demand for various chemical products used in construction [30]. - Specific chemical products such as MDI, soda ash, and titanium dioxide are highlighted as likely beneficiaries of the urban renewal initiatives [32][34]. - The report indicates that the price differentials for key chemical products are at historical lows, suggesting potential for recovery as demand improves [33]. Robotics Industry - The launch of the GO-1 model represents a significant advancement in embodied intelligence, with a reported success rate improvement of 32% compared to previous models [14][15]. - The report suggests that the GO-1 model will facilitate broader applications across various environments and tasks, enhancing the commercial viability of robotics [15]. - Investment opportunities are identified in domestic robotics manufacturers and component suppliers, indicating a growing market for robotics technology [15].

Financial Performance - For the year ended December 31, 2024, the company reported revenue of RMB 7,950,146 thousand, representing a 1.1% increase from RMB 7,866,992 thousand in 2023[3] - Gross profit increased by 27.5% to RMB 2,681,512 thousand, up from RMB 2,102,670 thousand in the previous year[3] - Adjusted net profit surged by 107.7% to RMB 1,700,078 thousand, compared to RMB 818,500 thousand in 2023[3] - Online music service revenue increased by 23.1% to RMB 5,354.5 million in 2024, driven by a rise in subscription sales from RMB 3,649.2 million to RMB 4,459.0 million[29] - Operating profit increased significantly to RMB 1,170,847 thousand in 2024 from RMB 330,180 thousand in 2023[52] - Net profit attributable to equity holders for 2024 was RMB 1,561,507 thousand, up from RMB 734,182 thousand in 2023, marking a growth of 113.1%[52] - Basic earnings per share for 2024 was RMB 7.48, compared to RMB 3.49 in 2023, reflecting a 114.3% increase[52] - Total revenue for the year ended December 31, 2024, was RMB 7,950,146,000, a slight increase of 1.06% from RMB 7,866,992,000 in 2023[65] User Engagement and Growth - The company's monthly active users continued to grow, with a daily active users to monthly active users ratio remaining above 30%[8] - Membership subscription revenue increased by 22.2% year-on-year, driven by growth in the membership base[9] - The average listening time for long audio content per user increased by 35.8% year-over-year in 2024, indicating a strong demand for long-form audio[21] - The platform has registered over 773,500 independent musicians, with approximately 4.4 million music tracks uploaded as of December 2024, showcasing significant growth in the independent music ecosystem[17] Content and Innovation - The company plans to deepen collaboration with copyright holders to enhance its content offerings and support independent musicians[12] - Future strategies include increasing user engagement through innovative interactive features and expanding consumption scenarios[14] - The music content library is expected to continue stable growth in both quantity and variety, catering to the interests of younger audiences[12] - The company has expanded its music content supply, focusing on genres like rap, rock, and ACG, and has established strategic partnerships with Modern Sky and other artists, releasing new songs from various popular musicians[15] - The company has implemented personalized content recommendations, improving user engagement and music discovery through enhanced features[23] - The company continues to explore new audio content formats, including podcasts and audiobooks, to diversify its offerings and enhance user engagement[23] Cost Management and Profitability - Gross margin improved from 26.7% in 2023 to 33.7% in 2024, reflecting enhanced profitability[10] - The company aims to optimize profitability through cost management and operational efficiency[14] - Operating costs decreased by 8.6% to RMB 5,268.6 million in 2024, primarily due to a reduction in content service costs[30] - Sales and marketing expenses were reduced by 19.3% to RMB 611.5 million in 2024, reflecting a more cautious promotional strategy[32] - Research and development expenses decreased by 10.2% to RMB 779.7 million in 2024 due to improved utilization of technical resources[34] Financial Position and Assets - The company’s liquidity position showed cash and cash equivalents of RMB 4 billion in 2023 and RMB 3.8 billion in 2024[43] - The debt-to-asset ratio improved to 25.0% in 2024 from 27.3% in 2023[44] - Total assets as of December 31, 2024, amounted to RMB 13,582,249 thousand, an increase from RMB 11,610,551 thousand in 2023[56] - Cash and cash equivalents were RMB 3,795,210 thousand as of December 31, 2024, compared to RMB 4,020,400 thousand in 2023[56] Corporate Governance and Compliance - The company has adopted and complied with all applicable provisions of the Corporate Governance Code for the year ended December 31, 2024[89] - The audit committee reviewed the unaudited consolidated financial statements for the year ended December 31, 2024, and discussed accounting policies and internal controls with the auditors[93] - The company is focused on maintaining compliance with the Listing Rules and the Standard Code for securities trading by directors[106] Miscellaneous - The company did not declare or pay any dividends for the years ended December 31, 2024, and 2023[80] - There were no significant events affecting the company since the end of the reporting period[87] - The company raised approximately HKD 3,160 million (equivalent to approximately RMB 2,584 million) from its global offering completed on December 2, 2021, with no funds utilized as of December 31, 2024[100]

中期 報告 INTERIM REPORT 2024 中期報告 目 錄 | 公司資料 | 2 | | --- | --- | | 財務及業務摘要 | 4 | | 管理層討論與分析 | 5 | | 其他資料 | 15 | | 中期財務資料的審閱報告 | 25 | | 釋義 | 55 | 雲音樂 2024 年中期報告 2 公司資料 董事會 執行董事 丁磊先生 （主席兼首席執行官） 李勇先生 非執行董事 李日強先生 鄭德偉先生 （於2024年2月15日辭任非執行董事） 王冉先生 （於2024年5月23日辭任非執行董事） 獨立非執行董事 盧英傑先生 顧險峰先生 許忠先生 審計委員會 盧英傑先生 （主席） 顧險峰先生 許忠先生 薪酬委員會 許忠先生 （主席） 顧險峰先生 盧英傑先生 提名委員會 顧險峰先生 （主席） 盧英傑先生 許忠先生 公司秘書 黃慧兒女士 授權代表 李勇先生 黃慧兒女士 核數師 羅兵咸永道會計師事務所 執業會計師及註冊公眾利益實體核數師 香港中環 太子大廈22樓 註冊辦事處 P.O. Box 309, Ugland House Grand Cayman KY1-1104 Cayman Islands ...

Financial Performance - For the six months ended June 30, 2024, the company reported revenue of RMB 4,070,493 thousand, representing a 4.1% increase compared to RMB 3,908,380 thousand in the same period of 2023[6]. - Gross profit for the same period was RMB 1,425,731 thousand, a significant increase of 47.7% from RMB 965,147 thousand year-over-year[6]. - The company achieved a profit before income tax of RMB 813,578 thousand, marking a substantial increase of 160.8% compared to RMB 311,961 thousand in the previous year[6]. - Net profit for the period was RMB 809,949 thousand, reflecting a remarkable growth of 175.7% from RMB 293,750 thousand in the prior year[6]. - Adjusted net profit, which excludes certain equity settlement items, reached RMB 880,749 thousand, up 165.4% from RMB 331,893 thousand in the same period last year[6]. - Operating profit surged to RMB 599,933,000, a substantial rise from RMB 104,611,000 in 2023, representing an increase of 472.5%[47]. - Basic earnings per share for the first half of 2024 were RMB 3.88, compared to RMB 1.39 in 2023, reflecting a growth of 179.1%[48]. - The company's profit attributable to equity holders for the six months ended June 30, 2024, was RMB 809,832,000, a significant increase from RMB 293,750,000 in the same period of 2023, representing a growth of 175.5%[47]. - Adjusted net profit for the same period was RMB 880,749,000, compared to RMB 331,893,000 in 2023, reflecting a year-over-year increase of 164.5%[47]. - Total revenue for the first half of 2024 reached RMB 4,070,493,000, up from RMB 3,908,380,000 in 2023, marking an increase of 4.1%[47]. Revenue Breakdown - Online music service revenue increased by 26.6% to RMB 2,559.7 million, driven by a rise in subscription sales[30]. - Social entertainment service revenue decreased by 19.9% to RMB 1,510.8 million, reflecting a more cautious operational strategy[31]. - The cost of content services decreased to RMB 2,014,439, down 16% from RMB 2,399,396 in 2023[60]. - Total comprehensive income for the first half of 2024 was RMB 850,054,000, compared to RMB 528,113,000 in 2023, indicating an increase of 60.9%[48]. User Engagement and Content Strategy - Subscription revenue grew by 25.5% year-over-year, driven by an increase in the number of subscribers[12]. - Daily active users to monthly active users ratio remained above 30%, indicating strong user engagement[11]. - The company is focusing on expanding its content library, particularly in niche music genres like rap, to cater to diverse user preferences[12]. - The company expanded its music label library in the first half of 2024, collaborating with major Korean labels like JYP Entertainment and Kakao Entertainment, as well as Chinese labels like KC DIGITAL and Guoran Entertainment[16]. - The platform registered over 732,000 independent musicians by June 2024, with approximately 3.6 million music tracks uploaded, enhancing the support system for emerging musicians, particularly in niche genres like rap[17]. - The average listening time for long audio content per user increased by 49.4% in the first half of 2024, driven by enhanced quality content attracting long audio users and encouraging deeper consumption[20]. - The company focused on producing popular rap tracks and successfully launched several well-received songs, including the Henan dialect rap song "5:20 AM" and the instrumental piece "Farewell Letter" in the first half of 2024[21]. - The company enhanced user experience by optimizing music discovery and listening experiences, contributing to increased user engagement and retention[24]. - The company actively expanded its PGC long audio content reserve, including self-produced audio dramas that resonated well with the young user demographic, proving effective in attracting new users[22]. - The company strengthened partnerships with copyright holders, enhancing the content supply of niche music genres to cater to the preferences of its young audience[15]. - The company implemented product innovations and optimizations in the "NetEase Cloud Music" app, focusing on personalized content recommendations and community engagement, which improved user experience and interaction[23]. Cost Management and Financial Health - Operating costs decreased by 10.1% to RMB 2,644.8 million, primarily due to a reduction in content service costs[32]. - Research and development expenses decreased by 10.2% to RMB 395.6 million, attributed to improved resource utilization[37]. - Financial net income increased to RMB 214.4 million from RMB 208.6 million, due to a continuous increase in deposit amounts[40]. - Tax expenses decreased significantly from RMB 18.2 million in 2023 to RMB 3.6 million in 2024, mainly due to reduced withholding tax on interest income[41]. - Cash and cash equivalents decreased to RMB 2,560,079,000 from RMB 4,020,400,000 at the end of 2023, a decline of 36.3%[50]. - The company's total equity attributable to equity holders increased to RMB 9,309,325,000 from RMB 8,440,902,000, reflecting a growth of 10.3%[52]. - Total assets as of June 30, 2024, amounted to RMB 12,448,703,000, an increase from RMB 11,610,551,000 at the end of 2023, representing a growth of 7.2%[50]. Corporate Governance and Compliance - The company has adopted and complied with all applicable provisions of the Corporate Governance Code, with the exception of the separation of roles between the Chairman and CEO, which is currently held by Mr. Ding Lei[76]. - The interim financial results for the six months ended June 30, 2024, have been reviewed by the audit committee and are unaudited, with no disagreements on accounting treatment between the board and the audit committee[77]. - The company will continue to regularly review and monitor its corporate governance practices to ensure compliance with the Corporate Governance Code[76]. - The audit committee consists of three independent non-executive directors, ensuring oversight of financial reporting and internal controls[77]. - The company will reassess the separation of roles between the Chairman and CEO in the future, considering the overall situation of the group[76]. - The company did not declare or pay any dividends for the six months ended June 30, 2024, and 2023[69]. - The board has decided not to declare an interim dividend for the reporting period[80]. - The company has not purchased, sold, or redeemed any of its listed securities during the reporting period[78]. - The interim results announcement will be published on the Hong Kong Stock Exchange website and the company's website, with timely distribution to shareholders upon request[81]. - The company expects to utilize the remaining net proceeds from the global offering within the next 30 months[79].

Financial Performance - Revenue decreased by 12.5% from RMB 8,992,221,000 in 2022 to RMB 7,866,992,000 in 2023[5] - Gross profit increased by 62.6% from RMB 1,293,118,000 in 2022 to RMB 2,102,670,000 in 2023[5] - Adjusted net profit for 2023 was RMB 818,500,000, compared to an adjusted net loss of RMB 114,573,000 in 2022[7] - Net profit for 2023 was RMB 734.2 million, a significant turnaround from a net loss of RMB 221.5 million in 2022[42] - The company achieved an adjusted net profit of RMB 818.5 million in 2023, marking its first annual profit compared to an adjusted net loss of RMB 114.6 million in 2022[12] - The company's revenue decreased by 12.5% from RMB 8,992.2 million in 2022 to RMB 7,867.0 million in 2023[31] - Operating costs decreased by 25.1% from RMB 7,699.1 million in 2022 to RMB 5,764.3 million in 2023, primarily due to reduced content service costs[33] - Financial income increased significantly from RMB 183.1 million in 2022 to RMB 437.9 million in 2023, attributed to rising interest rates on fixed deposits[40] User Engagement and Growth - Monthly active users for online music services increased to 205.9 million in 2023 from 189.4 million in 2022[9] - Paid subscribers for online music services rose to 44.12 million in 2023 from 38.27 million in 2022[9] - Monthly ARPU (Average Revenue Per User) for online music services increased from RMB 6.6 in 2022 to RMB 6.9 in 2023[9] - The total number of monthly active users reached 205.9 million, representing an 8.7% year-over-year growth, attributed to enhanced user experience and differentiated premium content[13] - The platform's daily active users to monthly active users ratio remained above 30%, indicating strong user engagement[14] - The company’s long audio content consumption increased by 70.9% compared to the previous year, indicating significant growth in user engagement[23] Product and Service Development - The company plans to enhance user engagement through differentiated products and innovative features[11] - The company expanded its music library to approximately 149 million songs by the end of 2023, focusing on diverse music genres to meet user preferences[16] - The company launched the "Cloud Ladder Plan 2023 Phase 1" at the beginning of 2023, optimizing revenue support for musicians with a more attractive settlement mechanism[21] - In September 2023, the company introduced the "Cloud Ladder Plan 2023 Phase 2" and a new "Appreciation" feature, enhancing interaction between musicians and fans, providing new monetization avenues for independent musicians[21] - The company introduced the "Private DJ" feature, combining music recommendations with personalized music introductions, enhancing user experience[25] - The company has developed AI-assisted tools for music creation, making the process more efficient and accessible for musicians[21] - The company has diversified its audio content offerings, including user-generated podcasts and professional content like audiobooks and radio dramas[23] Financial Management and Liquidity - The cash and cash equivalents increased to RMB 4.02 billion as of December 31, 2023, up from RMB 2.91 billion in 2022, indicating improved liquidity[45] - Operating cash inflow before changes in working capital was RMB 487.4 million in 2023, a recovery from an outflow of RMB 239.5 million in 2022[45] - The company reported a net cash increase of RMB 1.11 billion for the year, reflecting strong cash flow management[45] - The company aims to mitigate potential liquidity risks associated with a significant decrease in user numbers for online music and/or social entertainment services[45] Corporate Governance - The company is committed to maintaining compliance with the Hong Kong Stock Exchange regulations through its corporate governance practices[140] - The board includes independent directors with diverse expertise, such as Mr. Gu Xianfeng, a tenured professor at Stony Brook University[136] - The company has established a compensation committee to assist the board in formulating remuneration policies for directors and senior management[85] - The company has implemented a strict securities trading policy for directors and related insiders, confirming compliance during the reporting period[178] - The company has established three committees (audit, remuneration, and nomination) to oversee specific aspects of its affairs, each with a defined written scope of authority[191] Strategic Partnerships and Collaborations - The company successfully collaborated with top artists, achieving outstanding sales performance for albums, including a digital album by Eason Chan that ranked first across all music streaming platforms in China[18] - The company expanded its collaboration with NetEase games, embedding music players into popular game scenarios, enhancing user interaction with music[27] - The company provides services to NetEase Group, including traffic directing services for products and services published on its platform[108] Employee and Shareholder Information - The company employed 1,359 employees as of December 31, 2023, down from 1,540 employees in 2022[75] - The total employee compensation cost for the year was RMB 1,154.0 million, a decrease from RMB 1,203.2 million in the 2022 fiscal year[76] - The company has two active equity incentive plans: the 2016 Plan and the 2022 Restricted Share Unit Plan[151] - The purpose of the equity incentive plans is to link employee interests with shareholder returns and enhance business success[152] Risks and Compliance - The company faces significant uncertainty regarding the sustainability of its current corporate structure and operations due to the Foreign Investment Law[91] - Risks associated with the company's contractual arrangements include potential penalties from the Chinese government if agreements are deemed non-compliant with regulations[90] - The company relies on contractual arrangements with its VIE and its shareholders to conduct business in China, which may not be as effective as direct equity ownership[90]

Financial Performance - Total revenue for the year ended December 31, 2023, was RMB 7,866,992 thousand, a decrease of 12.5% compared to RMB 8,992,221 thousand in 2022[2] - Adjusted net profit for 2023 was RMB 818,500 thousand, marking the first annual profit compared to an adjusted net loss of RMB 114,573 thousand in 2022[2] - The company recorded revenue of RMB 7,867.0 million and gross profit of RMB 2,102.7 million, with a significant gross profit increase of RMB 809.6 million due to improved cost control, resulting in a net profit of RMB 734.2 million in 2023 compared to a net loss of RMB 221.5 million in 2022[17] - Profit for the year was RMB 734.2 million in 2023, compared to a loss of RMB 221.5 million in 2022[25] - Adjusted net profit for the year was RMB 818.5 million in 2023, compared to a loss of RMB 114.6 million in 2022[26] User Engagement and Growth - Monthly active users for online music services reached 205.9 million, an increase of 8.7% from 189.4 million in 2022[4] - The number of monthly paying users for online music services rose to 44,120 thousand, up from 38,267.1 thousand in the previous year[5] - Daily active users to monthly active users ratio remains above 30% in 2023, indicating strong user engagement[7] - Long audio content consumption increased significantly by 70.9% in 2023 compared to the previous year, indicating a growing user engagement with audio offerings[12] Revenue Streams - Online music service revenue increased to RMB 4,350,913 thousand in 2023 from RMB 3,698,781 thousand in 2022, reflecting a growth of approximately 17.7%[41] - Subscription revenue grew by 20.2% year-on-year, primarily due to an increase in subscriber numbers and steady improvement in revenue per paying user[6] - Revenue from social entertainment services decreased by 33.6% year-on-year due to operational strategy adjustments[7] - Social entertainment services and others revenue decreased to RMB 3,516,079 thousand in 2023 from RMB 5,293,440 thousand in 2022, a decline of about 33.5%[41] Cost Management - Operating costs decreased by 25.1% from RMB 7,699.1 million in 2022 to RMB 5,764.3 million in 2023, primarily due to a reduction in content service costs[19] - Content service costs decreased to RMB 4,598,724 thousand in 2023 from RMB 6,711,646 thousand in 2022, a reduction of approximately 31.4%[43] - Total operating costs, including sales, marketing, general, administrative, and R&D expenses, amounted to RMB 7,556,358 thousand in 2023, down from RMB 9,516,435 thousand in 2022, representing a decrease of about 20.5%[43] Corporate Governance - The company has adopted and complied with all applicable provisions of the Corporate Governance Code as of December 31, 2023, with some deviations noted[58] - The audit committee, consisting of three independent non-executive directors, has reviewed the unaudited consolidated financial statements for the year ended December 31, 2023[61] - The company has confirmed compliance with the Standard Code for securities transactions by directors and relevant insiders for the year ended December 31, 2023[59] - The board believes that the dual role of the chairman and CEO held by Ding Lei ensures effective and efficient strategic planning[58] Cash and Assets - Cash and cash equivalents increased from RMB 2.9 billion in 2022 to RMB 4.0 billion in 2023, primarily used for operational needs and capital expenditures[27] - Total assets increased to RMB 11,610,551 thousand in 2023 from RMB 10,891,392 thousand in 2022, representing a growth of approximately 6.6%[33] - Total liabilities increased to RMB 3,169,649 thousand in 2023 from RMB 3,071,333 thousand in 2022, an increase of approximately 3.2%[36] Music Content and Innovation - The platform has accumulated approximately 149 million music tracks by the end of 2023, expanding its content library significantly[8] - The company launched the "Cloud Ladder Plan 2023" to optimize revenue support for musicians, enhancing the attractiveness of the revenue settlement mechanism[10] - AI-assisted tools have been introduced to facilitate music creation, including the launch of the NetEase Tianyin platform for music composition and arrangement[10] - The company plans to deepen cooperation with copyright holders and enhance its ability to incubate independent musicians and produce original music[7] Marketing and Promotion - Sales and marketing expenses rose by 19.5% to RMB 758.2 million in 2023, attributed to increased promotional and advertising costs to enhance brand influence and user scale[21] - The company launched several successful self-produced music projects, including popular songs and thematic music initiatives, enhancing its content matrix[11] - The introduction of the "Private DJ" feature enhanced personalized music recommendations, contributing to improved user experience and engagement[14] Financial Ratios and Metrics - The debt-to-asset ratio was 27.3% as of December 31, 2023, down from 28.2% in 2022[28] - Basic earnings per share increased to RMB 3.49 in 2023 from a loss of RMB (1.06) in 2022[50]

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)