Core Insights - The competitive landscape of online music has shifted from simple copyright acquisition to a comprehensive competition involving operational capabilities and AI productivity [1][3] - In 2025, NetEase Cloud Music's total revenue was 7.76 billion yuan, a slight decrease of 2.4% year-on-year, with a notable shift in business structure [4][7] Business Structure - NetEase Cloud Music's revenue is divided into two main categories: online music services and social entertainment services, with online music revenue previously accounting for 89.4% in 2018 [5] - By 2025, online music services generated 5.99 billion yuan, while social entertainment services contributed 1.77 billion yuan, indicating a return to 2019 revenue proportions [7] Regulatory Impact - Two key regulatory events have influenced the online music market: the prohibition of exclusive copyrights and tightened regulations on live streaming rewards, which have reshaped the growth potential of social entertainment services [6] - These regulations have allowed NetEase Cloud Music to improve its copyright content depth, aligning more closely with Tencent Music, while also capping the growth of social entertainment revenue [6][8] Competitive Dynamics - ByteDance's Soda Music is rapidly reshaping the market, with monthly active users increasing from 120 million to nearly 140 million, positioning it as the fourth-largest player [11] - Soda Music employs a low-decision threshold model, attracting users with its algorithm-driven music discovery, contrasting with traditional music apps [12][13] User Engagement and Revenue - NetEase Cloud Music's subscription revenue grew by 13.3% to 5.053 billion yuan in 2025, driven by an increase in subscriber numbers, but offset by a decrease in average revenue per paying user (ARPPU) [10] - In contrast, Tencent Music experienced a 17.2% increase in subscription revenue, with ARPPU rising by 10.2%, indicating a more favorable revenue environment [10] Strategic Responses - NetEase Cloud Music is focusing on enhancing its community features, including product upgrades and AI-driven recommendations, to maintain user engagement and listening time [19][20] - The company is leveraging AI to strengthen its competitive edge, introducing models that capture user preferences and enhance music creation tools [20] Emotional Connection vs. Algorithmic Efficiency - The reliance on algorithms raises concerns about the potential dilution of emotional connections within the music community, as evidenced by user dissatisfaction with the accuracy of annual listening reports [21] - NetEase Cloud Music faces a strategic choice between becoming a more efficient recommendation engine or preserving its community's emotional warmth, which has historically differentiated it from competitors [22]

Core Viewpoint - In 2025, NetEase Cloud Music is projected to achieve revenue of 7.76 billion yuan, a slight decrease of 2.4% year-on-year, primarily due to strategic adjustments in its social entertainment business; adjusted net profit is expected to be 2.86 billion yuan, reflecting a significant year-on-year increase of 68.2% [1] Revenue Breakdown - Online music service revenue is expected to perform well, growing by 12.0% year-on-year to 5.99 billion yuan, driven by a continuous increase in the number of paying users; membership subscription revenue is anticipated to grow by 13.3% year-on-year to 5.05 billion yuan [1] - Social entertainment services and other revenues are projected to be 1.77 billion yuan, a year-on-year decline of 32% [1] Business Strategy and Market Position - The company is focusing on its core music business, with online music services as the main growth engine; the strategic transformation has shown significant results [2] - By the end of 2025, the platform is expected to have over 1 million independent musicians and more than 5.6 million uploaded tracks, creating a unique ecosystem of original content [1] Profitability and Cost Management - The company's gross margin is expected to increase by 2.0 percentage points year-on-year to 35.7%, driven by a higher proportion of high-margin online music revenue and reduced revenue-sharing costs from the contraction of the social entertainment business [2] - Strict cost control measures have led to a significant year-on-year decrease of 33.2% in sales and marketing expenses, contributing to a 38.5% year-on-year increase in operating profit [2] Product Innovation and User Experience - The company continues to innovate its products, launching the self-developed AI generative recommendation model "Climber" to enhance personalized recommendation efficiency; additional features like "Automix" and "Shen Guang Player" have been introduced to improve user engagement and platform value [2] Future Projections - Revenue is expected to reach 8.6 billion yuan and 9.3 billion yuan in 2026 and 2027, respectively, with year-on-year growth rates of 11% and 8%; adjusted net profit is projected to be 2.24 billion yuan and 2.53 billion yuan, with a year-on-year decrease of 22% in 2026 due to high base effects from 2025 [2]

Core Insights - The article discusses the rise of Soda Music, a new music app by ByteDance, which has gained significant traction in the online music industry, positioning itself as a strong competitor to established players like QQ Music and NetEase Cloud Music [2][3][4]. Group 1: User Growth and Market Position - As of September 2025, Soda Music reached 120 million monthly active users, marking a year-on-year increase of over 90%, making it the fourth largest in the industry [3]. - By 2026, insider reports indicated that monthly active users had grown to 140 million, with daily active users securing the third position in the market [3]. Group 2: Unique Features and User Experience - Soda Music is characterized by its simplicity and a user interface reminiscent of TikTok, allowing users to listen to music instantly without searching for songs [5]. - The app's design focuses on matching songs to user preferences based on different scenarios, effectively changing the traditional music listening experience [5][7]. Group 3: Competitive Advantages - Soda Music offers a significant price advantage, often providing free access and daily VIP rewards, which attracts users in a market where many apps restrict access to paid content [6]. - The app has successfully bypassed copyright issues by focusing on a broad range of music that appeals to general listeners, positioning itself as a personalized music platform [7]. Group 4: Strategic Positioning and Growth Drivers - Soda Music has leveraged traffic from Douyin (TikTok) to drive user growth, with 82.1% of its monthly active users coming from the platform [9]. - The app's integration with Douyin allows users to transition seamlessly from discovering music in short videos to listening to full tracks, addressing user retention challenges [9][10]. Group 5: Technological Integration and Future Prospects - The app utilizes advanced algorithms to deliver personalized music recommendations based on user behavior on Douyin, enhancing user engagement [11]. - Soda Music is also embracing AI technology, which has the potential to reshape the music landscape by simplifying the creation and distribution of music [11]. Group 6: Industry Impact and Competitive Landscape - The emergence of Soda Music has coincided with a decline in monthly active users for competitors like QQ Music and Kugou Music, indicating a shift in user preferences [16]. - Despite its rapid growth, Soda Music faces challenges in user retention and monetization, with advertising revenue currently being its primary source of income [16].

Investment Rating - The report maintains a "BUY" rating for NetEase Cloud Music, indicating a potential return of over 15% over the next 12 months [14]. Core Insights - NetEase Cloud Music's total revenue for FY25 declined by 2% YoY to RMB7.76 billion, slightly below the Bloomberg consensus estimate of RMB7.91 billion. However, adjusted net profit increased by 68% YoY to RMB2.86 billion, aligning with consensus estimates [1]. - The company has slightly lowered its FY26 total revenue forecast by 1% due to a soft non-subscription business, but maintains a solid earnings growth outlook for FY26 [1][6]. - The target price has been adjusted to HK$245.00, down from HK$330.00, based on a 23x FY26E non-GAAP PE, reflecting a decline in sector valuation [1][9]. Financial Performance Summary - FY25 total revenue: RMB7.76 billion, down 2% YoY; adjusted net profit: RMB2.86 billion, up 68% YoY [2]. - FY26 revenue forecast: RMB8.42 billion, expected to grow by 8.5% YoY; adjusted net profit forecast: RMB2.14 billion, expected to decline by 25.3% YoY [2][7]. - Gross margin for FY26 is projected at 37.0%, with an operating profit margin of 22.9% [2][11]. Revenue Breakdown - Online music services revenue grew by 8% YoY to RMB3.0 billion in 2H25, while membership subscription revenue increased by 12% YoY to RMB2.6 billion [6]. - Non-subscription music revenue declined by 7% YoY in 2H25, primarily due to a drop in digital album sales [6]. - Social entertainment revenue fell by 17% YoY to RMB905 million in 2H25, although it stabilized with a 5% HoH growth [6]. Margin Analysis - Overall gross profit margin (GPM) increased by 2.7 percentage points YoY but declined by 1.4 percentage points HoH to 35.0% in 2H25 [6]. - Adjusted operating margin improved by 4.6 percentage points YoY to 21.1% in 2H25, driven by operating leverage and effective expense control [6]. Valuation Metrics - The current price of NetEase Cloud Music is HK$165.40, with an upside potential of 48.1% to the target price of HK$245.00 [3]. - The company is currently trading at a P/E of 15x for FY26E, which is considered attractive compared to the target P/E of 23x [1][9].

Core Viewpoint - The report from CICC maintains the Non-IFRS net profit forecast for NetEase Cloud Music (09899) for 2026 and 2027, with a target price of HKD 224, indicating a 22% upside from the current price [1]. Financial Performance - The 2025 Non-IFRS net profit of NetEase Cloud Music is in line with expectations, reporting revenue of RMB 7.759 billion and a Non-IFRS net profit of RMB 2.860 billion, both closely matching CICC's forecasts [2]. Music Business Outlook - The online music revenue for 2025 is projected at RMB 5.994 billion, reflecting a 12% year-on-year increase, driven by a 13.3% growth in subscription revenue and a 5.2% increase in non-subscription revenue. The company aims to expand its paid user base in 2026, with an expected 10.8% growth in online music revenue and a 12.1% increase in subscription revenue [3]. - Social entertainment and other revenues for 2025 are expected to decline by 32% to RMB 1.765 billion due to a cautious operational strategy, although there is a slight improvement in the second half of 2025 [3]. Profitability and Cost Management - The gross margin for 2025 is reported at 35.7%, an increase of 2 percentage points year-on-year. Operating expenses for sales, management, and R&D have decreased, indicating controlled spending. The company plans to increase investment in 2026, particularly in content costs and customer acquisition [4]. - The operating profit for 2026 is anticipated to grow by 20% to RMB 1.95 billion, supported by healthy growth in the music business [4]. Industry Dynamics and Innovation - The industry landscape is stabilizing, with concerns about competition. NetEase Cloud Music's user base remains relatively stable, and the company is focusing on user experience and innovation, including the launch of its AI-generated recommendation model, Climber [5]. - The company is positioned to differentiate itself in the market, with a focus on user retention and experience as key strategies [5].

Core Insights - The fourth quarter of 2025 saw a divergence in market performance, with AI beneficiaries and cyclical sectors leading, while quality growth strategies faced challenges [1] - The SGA Emerging Markets Growth Strategy portfolio returned 0.8% (Gross) and 0.6% (Net) in Q4 2025, underperforming against the MSCI EM Net TR Index return of 4.7% and the MSCI EM Growth Net TR Index return of 3.3% [1] - For the full year 2025, the portfolio achieved returns of 23.8% (Gross) and 22.8% (Net), lagging behind the indexes which returned 33.6% and 34.3% respectively [1] - The portfolio anticipates annual revenue growth of 13% and earnings growth of 16% over the next three years [1] Company-Specific Insights - Tencent Music Entertainment Group (NYSE:TME) was identified as a notable detractor in the fourth quarter of 2025 due to rising competition and margin dilution concerns, despite strong financial results [2][3] - As of February 11, 2026, Tencent Music's stock closed at $16.94 per share, with a one-month return of 2.05% and a twelve-month increase of 32.76% [2] - Tencent Music has a market capitalization of $28.53 billion [2] - The company is facing competitive pressures from Soda Music, which is backed by Douyin's traffic, raising concerns about long-term competitive dynamics, especially in lower market segments [3] - Investments in new verticals like concerts and merchandise are expected to pressure gross margins but are viewed as strategically valuable for long-term growth and differentiation [3] - The company continues to be seen as having strong long-term growth prospects due to its differentiated content ecosystem and brand strength, although the position was trimmed to below-average weight based on relative valuation after strong performance in the first half of 2025 [3]

NetEase 4Q25 Investor Presentation Investor Relations February 11, 2026 SAFE HARBOR STATEMENT This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. In addition, statements that are not histo ...

Core Viewpoint - NetEase reported its unaudited financial results for the fourth quarter and fiscal year 2025, showing a slight increase in net revenues but a decline in net income compared to the previous year, highlighting the impact of various business segments and the integration of AI in operations [1]. Financial Highlights - Fourth quarter net revenues reached RMB27.5 billion (US$3.9 billion), a 3.0% increase from the same quarter in 2024 [1]. - Net revenues from games and related value-added services were RMB22.0 billion (US$3.1 billion), up 3.4% year-over-year [1]. - Youdao's net revenues increased by 16.8% year-over-year to RMB1.6 billion (US$223.7 million) [1]. - Net income attributable to shareholders for the fourth quarter was RMB6.2 billion (US$892.6 million), down from RMB8.8 billion in the same quarter of 2024 [1]. Operational Highlights - Blizzard titles maintained strong engagement in China, achieving record-high annual revenue [1]. - The game portfolio was strengthened with successful launches like Sword of Justice and Where Winds Meet, which surpassed 80 million cumulative players [1]. - AI integration across game development processes has improved production efficiency and enabled new gameplay experiences [1]. Fiscal Year 2025 Results - Total net revenues for fiscal year 2025 were RMB112.6 billion (US$16.1 billion), an increase from RMB105.3 billion in 2024 [1]. - Net revenues from games and related services for the fiscal year were RMB92.1 billion (US$13.2 billion), compared to RMB83.6 billion in 2024 [1]. - Net income attributable to shareholders for the fiscal year totaled RMB33.8 billion (US$4.8 billion), up from RMB29.7 billion in 2024 [1]. Cost and Profit Analysis - Cost of revenues for the fourth quarter was RMB9.9 billion (US$1.4 billion), a decrease from RMB10.5 billion in the same quarter of 2024 [1]. - Gross profit for the fourth quarter was RMB17.7 billion (US$2.5 billion), compared to RMB16.3 billion in the same quarter of 2024 [1]. - Total operating expenses for the fourth quarter were RMB9.4 billion (US$1.3 billion), up from RMB8.5 billion in the same quarter of 2024 [1]. Cash and Dividend Information - As of December 31, 2025, the company's net cash totaled RMB163.5 billion (US$23.4 billion), an increase from RMB131.5 billion in 2024 [1]. - A quarterly dividend of US$0.232 per share (US$1.16 per ADS) was approved for the fourth quarter of 2025 [2]. Share Repurchase Program - The company extended its share repurchase program of up to US$5.0 billion for an additional 36 months until January 9, 2029, with approximately 22.1 million ADSs repurchased for a total cost of US$2.0 billion as of December 31, 2025 [2].

Core Viewpoint - NetEase Cloud Music has significant user payment potential, with a current online music payment rate of 21.4%, compared to Spotify's 39%, indicating room for improvement in monetization strategies [1] Group 1: Company Performance - The company is expected to achieve revenues of 7.935 billion, 8.692 billion, and 9.585 billion yuan from 2025 to 2027, with net profits of 2.684 billion, 2.215 billion, and 2.541 billion yuan respectively [1] - The company is projected to have an EPS of 12.32, 10.17, and 11.66 yuan for the years 2025 to 2027, with a PE ratio of 16 times in 2026 [1] - In 2023, the company turned profitable for the first time, with a gross margin recovery from -114.74% in 2018 to an expected 33.73% in 2024, marking a shift from growth through scale to value-driven monetization [1] Group 2: Industry Landscape - The global recorded music market is expected to reach 29.6 billion dollars in 2024, growing at 4.8% year-on-year, with streaming accounting for 69% of the market [2] - China is projected to grow at 9.6% in 2024, surpassing mature markets in the US and Europe, driven by enhanced copyright protection and local music innovation [2] - The competitive landscape in the online music sector shows Spotify leading globally with a 32% user share, while Tencent's platforms dominate domestically, with NetEase Cloud Music holding a 19% monthly active user share [2] Group 3: Strategic Advantages - The company differentiates itself through a community-driven music consumption model, focusing on social experiences rather than traditional tool-based platforms [1] - The content strategy includes a diverse range of genres and a significant number of independent artists, with 774,000 independent musicians and 4.4 million original songs nurtured through initiatives like the "Stone Plan" and "Cloud Ladder Plan" [3] - The company has established a high-engagement ecosystem, with 1.2 billion music reviews and an average daily listening time of 78.9 minutes per user, leading the industry in user stickiness [3]

Core Insights - ByteDance's AI product Doubao has surpassed 100 million daily active users, becoming the first AI application in China to achieve this milestone [1] - The music app Soda Music has reached nearly 140 million monthly active users, ranking fourth in the industry, driven by ByteDance's traffic ecosystem [1][3] - Soda Music's user growth is significant, with a year-on-year increase of 90.7% in September 2025, while other platforms are experiencing user declines or minimal growth [2][3] Group 1: User Growth and Market Position - Soda Music's monthly active users increased from over 70 million to 130 million in one year, and then to nearly 140 million in just one month [2] - The app has become the third in daily active users, surpassing NetEase Cloud Music [3] - 82.1% of Soda Music's users in June 2025 came from Douyin, highlighting the importance of Douyin as a traffic source [3] Group 2: Business Model and User Demographics - Soda Music employs a free model that attracts a broad user base, allowing users to listen for free by watching ads, similar to the model used by the successful product Hongguo [3][4] - The app targets younger users aged 18-30, while another app, Tomato Music, focuses on older demographics, indicating a strategy to cover a wide age range [6][7] - Soda Music's user base is primarily composed of users from lower-tier cities, with over 50% of users being from third-tier cities and below [7] Group 3: Competitive Landscape and Industry Challenges - Despite rapid growth, Soda Music's library of 50 million songs is significantly smaller than Tencent Music's 260 million songs, which includes exclusive rights to many top artists [8] - Industry experts believe that while Soda Music could reach 200 million monthly active users, it is unlikely to surpass Tencent Music or NetEase Cloud Music in market dominance [8][9] - The music industry is facing challenges with declining revenues for artists and increasing promotional costs, which may impact the long-term sustainability of platforms like Soda Music [10]