Summary of NetEase Cloud Music (NCM) Research Call Company Overview - **Company**: NetEase Cloud Music (NCM) - **Industry**: Online Music Industry in China - **Rating**: Initiated with a Buy rating - **Price Target**: HK$350.00, implying a 30x 2026E PE [2][5][7] Key Insights Market Positioning - NCM is recognized as a leading online music platform in China, positioned as a runner-up in a stable duopoly with Tencent Music Entertainment (TME) [2][18] - The online music industry in China is expected to see a +15% CAGR in online music revenue and a +17% CAGR in earnings from 2025 to 2029, outperforming TME [2][43] User Demographics and Engagement - NCM has a strong penetration among younger users, with 47% of its monthly active users (MAU) aged below 25, compared to 41% for TME [16][37] - The platform emphasizes community engagement and interactive features, which enhance user retention and satisfaction [3][19][20] Monetization Strategy - NCM is currently in the early stages of monetization, focusing on user scale and subscriber growth rather than immediate ARPPU (Average Revenue Per Paying User) growth [4][47] - The company is projected to achieve an +11% CAGR in subscribers from 2025 to 2029, significantly higher than TME's +4% [10][50] Financial Projections - NCM's revenues are forecasted to grow from Rmb8,992 million in 2022 to Rmb12,254 million by 2029, with EBIT expected to rise from a loss of Rmb278 million in 2022 to Rmb3,583 million in 2029 [6][62] - The adjusted net margin is anticipated to improve from -14.9% in 2021 to 27.0% by 2027, driven by economies of scale and a favorable content cost structure [64][69] Competitive Advantages - NCM's content strategy includes a diverse library with a significant focus on independent artists and self-produced content, which accounts for over 70% of its streaming volume [15][29] - The platform has successfully secured licensing agreements with major labels post-2021, narrowing the content gap with TME [28][32] Valuation and Market Sentiment - NCM is currently trading at 23.2x 2026 consensus PE, which is considered undemanding compared to TME's 24.9x [74] - The company has seen a strong share performance year-to-date, with a +141% increase compared to TME's +111% [73] Additional Considerations - NCM's strategic partnerships, such as with Alibaba's 88VIP, have significantly contributed to subscriber growth, accounting for 20-30% of total subscribers [54] - The company is expected to gradually improve ARPPU as it transitions from a focus on subscriber growth to monetization strategies that include premium memberships and content offerings [75] This comprehensive analysis highlights NCM's strong market position, growth potential, and strategic focus on community engagement and content diversity, making it a compelling investment opportunity in the online music sector.