Core Viewpoint - The company reported its 1H25 earnings, showing a slight revenue miss but a significant profit beat, driven by tax asset recognition and cost control measures [4]. Group 1: Financial Performance - The company achieved revenue of 3.83 billion RMB, a year-over-year decrease of 6%, compared to Bloomberg's consensus estimate of 3.91 billion RMB [4]. - Gross profit reached 1.39 billion RMB, with a gross margin of 36.4%, reflecting a year-over-year increase of 1.4 percentage points due to operational leverage [4]. - Operating profit increased by 40.8% year-over-year to 845 million RMB, primarily due to reduced sales expenses [4]. - Adjusted net profit attributable to shareholders was 1.95 billion RMB, a substantial year-over-year increase of 121%, mainly due to the recognition of deferred tax assets amounting to 850 million RMB [4]. Group 2: Online Music Business - The company generated online music service revenue of 2.97 billion RMB, representing a year-over-year growth of 15.9% [5]. - Subscription revenue grew by 15.2% year-over-year to 2.47 billion RMB, driven by an increase in membership subscriptions [5]. - Non-subscription revenue, including advertising and digital albums, rose by 20% year-over-year to 498 million RMB [5]. - The platform continues to enhance its content and community ecosystem by introducing high-quality copyright music and strengthening original content capabilities [5][6]. Group 3: Cost Management - Sales expenses for 1H25 were 163 million RMB, a significant year-over-year decrease of 55.8%, attributed to a cautious promotional strategy [7]. - Management expenses increased by 3.6% year-over-year to 93 million RMB, while R&D expenses decreased by 4.2% year-over-year to 379 million RMB [7].

Investment Rating - The report maintains a "Buy" rating for NetEase Cloud Music (9899.HK) [4] Core Insights - The company reported a slight revenue miss but exceeded profit expectations due to a reduction in sales expenses. Revenue for 1H25 was RMB 38.3 billion, down 6% year-over-year, compared to Bloomberg's consensus estimate of RMB 39.1 billion. Gross profit reached RMB 13.9 billion, with a gross margin of 36.4%, an increase of 1.4 percentage points year-over-year. Operating profit was RMB 8.45 billion, up 40.8% year-over-year, primarily due to reduced sales expenses. Adjusted net profit attributable to shareholders was RMB 19.5 billion, a significant increase of 121% year-over-year, mainly due to the recognition of deferred tax assets amounting to RMB 8.5 billion [1][4] Revenue Breakdown - Online music service revenue for 1H25 was RMB 29.7 billion, reflecting a year-over-year growth of 15.9%. Subscription revenue grew by 15.2% to RMB 24.7 billion, driven by an increase in membership subscriptions, while social entertainment services and other revenues fell by 43.1% to RMB 8.6 billion due to the closure of the live streaming entry after the 2024 year-end version update [2][3] User Engagement and Product Development - The platform continues to enhance user engagement through product innovation and community ecosystem improvements. The NetEase Cloud Music app has introduced features such as personalized recommendations and AI functionalities, maintaining a daily active users to monthly active users ratio (DAU/MAU) above 30% [3] Cost Management - The company has effectively controlled costs, with sales expenses decreasing by 55.8% year-over-year to RMB 1.63 billion, attributed to a cautious promotional strategy. Management expenses increased by 3.6% to RMB 930 million, while R&D expenses decreased by 4.2% to RMB 3.79 billion [3] Profit Forecast and Valuation - The adjusted net profit forecast for 2025 has been raised to RMB 29.4 billion, a 55% increase from previous estimates. The adjusted net profit for 2026 and 2027 is also revised upward to RMB 25.9 billion and RMB 28.6 billion, representing increases of 19% and 17% respectively [4][5]