Core Viewpoint - NetEase Cloud Music is a leading online music streaming platform in China, focusing on young users and leveraging a strong UGC community and original content to create a unique content barrier [1][2] Company Overview - NetEase Cloud Music's core business includes online music services, social entertainment services, and innovative value-added services [1] - The company is primarily controlled by NetEase Group, which holds approximately 60% of the shares, while GIC holds over 6% as the second-largest institutional shareholder [1] Competitive Landscape - The market is characterized by a duopoly between NetEase Cloud Music and Tencent Music, with Tencent holding a 66% market share and NetEase approximately 27% [2] - NetEase Cloud Music targets young users, with about 90% of its active users being post-90s generation [2] - The return of music copyrights to NetEase Cloud Music post-2021 has strengthened its competitive position [2] Financial Analysis - In 2024, NetEase Cloud Music's revenue is projected to be 7.95 billion yuan, a year-on-year increase of 1%, primarily due to a decline in social entertainment services [3] - Online music services account for 67% of the company's revenue, with 5.35 billion yuan expected from this segment, reflecting a 23% year-on-year growth [3] - Subscription revenue is anticipated to reach 4.46 billion yuan in 2024, up 22% year-on-year, driven by an increase in paying users [3] - The paid user penetration rate is expected to be 25.2%, an increase of 3.8 percentage points year-on-year [3] Profitability and Cost Structure - The adjusted profit for 2024 is projected at 1.7 billion yuan, a significant increase of 108% year-on-year [4] - The gross margin is expected to be 34%, up 7 percentage points year-on-year, due to improved copyright cost management [4] - Sales, management, and R&D expense ratios are projected to be 7.7%, 2.3%, and 9.8%, respectively, with potential for further optimization [4] Future Outlook - Revenue forecasts for 2025-2027 are 8.7 billion, 9.7 billion, and 10.8 billion yuan, representing year-on-year growth rates of 9%, 12%, and 12% [4] - Adjusted profit for the same period is expected to be 2.1 billion, 2.5 billion, and 3 billion yuan, with a CAGR of 21% [4] - The company is compared favorably to Spotify and Tencent Music in terms of valuation, with a target price range of 311-354 HKD, indicating a potential upside of 30-48% [4]