Cloud Music Inc. Reports First Half 2022 Financial Results

HANGZHOU, China, Aug. 18, 2022 /PRNewswire/ -- Cloud Music Inc. (HKEX: 9899 or the "Company"), a leading interactive music streaming service provider in China, today announced its financial results for the first half of 2022 ended 30 June 2022.

First Half 2022 Key Financial and Operating Highlights

• Revenue was RMB4.3 billion, an increase of 33.8% compared with RMB3.2 billion for the same period of 2021.
• Online music services:
  -Revenue from online music services was RMB1,783.7 million, an increase of 11.2% compared with RMB1,604.3 million for the same period of 2021. The increase was primarily due to the significant growth in revenues from sales of membership subscriptions.
  -MAUs of online music services stood at 181.9 million, which was largely stable on a sequential and year-over-year basis.
  -Monthly paying users of online music services expanded to 37.6 million from 26.1 million for the same period of 2021.
  -Monthly ARPPU (average revenue per paying user) of online music services was RMB6.5 compared with RMB6.8 for the same period of 2021.
• Social entertainment services and others:
  -Revenue from social entertainment services and others was RMB2,475.0 million, an increase of 56.7% from RMB1,579.3 million for the same period of 2021, driven by the rapid growth of social entertainment services revenue.
  -Monthly paying users of social entertainment services increased to 1.2 million from 496.4 thousand for the same period of 2021.
  -Monthly ARPPU of social entertainment services was RMB329.8 compared with RMB526.5 for the same period of 2021.
• Gross profit was RMB537.1 million, compared with a gross loss of RMB12.9 million for the same period of 2021. Gross margin improved to 12.6% from negative 0.4% for the same period of 2021, as a result of the significant revenue increase and control over content licensing fees.
• Net loss was RMB270.8 million, narrowed by 92.9% compared with RMB3.8 billion for the same period of 2021.
• Adjusted net loss was RMB217.0 million, narrowed by 59.3% compared with RMB533.0 million for the same period of 2021.

Business Overview

In the first half of 2022, we continued to bring innovative products and content to our followers, improving our differentiated community ecosystem and user engagement levels. Meanwhile, we also successfully strengthened our commercialisation capabilities and further optimised our content cost structure.

In the first half of 2022, our online music services MAUs stood at 181.9 million, which was largely stable on a sequential and year-over-year basis, with our DAU/MAU ratio (daily active user/monthly active user ratio) staying well above 30% in the period. We have made solid progress in growing and fostering our leading music-inspired community over the past years, and will continue our endeavours in doing so.

We have worked diligently to step up our monetisation efforts since 2019, and these efforts have started to bear fruit. Despite a more challenging industry environment and macro-headwinds, our total revenues for the first half of 2022 grew 33.8% year-over-year. Our commercialisation capabilities further improved with gains across both our subscription-based memberships as well as our growing social entertainment services.

In particular, our membership paying ratio reached 20.7%, soaring from 14.2% in the first half of 2021. Based on our high quality and young user community, our ongoing initiatives in content enhancement (from more labels) and premium and innovative functions (e.g. Hi-Res) for subscribers have collectively contributed to the increase in our paying user conversion over the past year.

Gross margins improved significantly as well, soaring to 12.6% in the first half of 2022, compared with a negative 0.4% gross margin in the first half of 2021. To support our margin growth, we further scaled our business, while enacting meaningful copyright cost optimisation.

Looking ahead, we are strategically broadening our prospects by:

• fostering our music-oriented community ecosystem via enhancements to our comprehensive and innovative product offerings, embedded with more interactive features and ecology, along with advanced tools and technologies to liberate UGC (user-generated content) content creation;
• exploring innovations in social networking, utilising user behaviours and music preferences to connect users, and providing additional social networking options;
• further diversifying and rounding out our content offerings with better efficiency, via active negotiation with copyright holders to secure more high-quality content, as well as ongoing progress in independent artists incubation and in-house music production;
• cultivating our users' willingness to pay and pursuing commercialisation potential, via improved user experience and deepened user engagement, innovative products and content offerings, and broadened consumption scenarios; and
• looking to include layouts in IoT, as well as potentially game-inspired initiatives, with an expectation to generate incremental contribution from these initiatives over time.

Community Ecosystem

Throughout the first half of 2022, we successfully revitalised our differentiated community with strong user engagement across our large and stable user scale. During the Reporting Period, each daily active user spent, on average, approximately 80.6 minutes per day listening to music on our platform, up from 76.9 minutes during the first half of 2021. Nearly half of our users browsed the "comments section" while listening to music. As of 30 June 2022, 31.4% of music streams were attributable to platform recommendations, up from 30.5% as of 30 June 2021. These metrics demonstrate the strong stickiness and activities of our high-quality user group and distinguish our vibrant community atmosphere and attributes, mutually reinforcing each other within our ecosystem.

Fostering an interactive music community. The interactive young generation of music lovers and new breed of talented independent artists work in harmony with our unique music content distribution mechanism and diverse array of UGC. Together, these components facilitate music-inspired content consumption from both the demand (music lovers) and supply side (artists and UGC creators). This winning combination promotes interactions among users and content creators, thus forming a self-perpetuating community ecosystem.

Our UGC-inspired community ecosystem. We cultivate our music-oriented community and UGC ecosystem through constant product improvement across multiple content formats. We develop multiple assistant tools to facilitate further UGC creation. Our vibrant UGC ecosystem is unparalleled in the market, and reinforced by our dynamic, supportive community culture. By the end of June 2022, we had accumulated 3.4 billion UGC playlists on our platform.

A focus on music-inspired connections. Our community is centred around music-inspired emotional resonances, not only between music content and audiences, but also between musicians and followers, as well as among users. In offering vibrant community features, social networking options, along with heart-warming atmosphere, we are nurturing these relationships, encouraging users, artists and content creators to interact and engage with each other.

Product and service innovations

In the first half of 2022, we advanced our initiatives to enhance user experience and community features through product innovation. The young music enthusiasts on our platform are passionate about its superior listening experience and are more willing to express and share, fulfilled by our thoughtful rollout of innovative products and services.

Optimising users listening experience

• Cloud Shuffle (雲隨機). We creatively launched the "Cloud Shuffle" to streamline users' core listening experience. The new function allows users to shuffle songs with a suite of personalised preferences in terms of familiarity and style similarity to gauge the level of randomness and satisfy users' diverse tastes.
• Hi-Res (High Resolution Audio) and Seamless Listening. Our newly launched Hi-Res function is the solution. Hi-Res offers higher audio quality to bring users an immersive sound experience as the artist intended. Coupled with our Seamless Listening and Multi-speed Listening innovations, we are committed to bringing superior sound quality to users.
• Music Encyclopedia (音樂百科). We have rolled out the "Music Encyclopedia" function, integrating fragmented information into an encyclopedia page that contains professional content including music genre, style, instruments, BPM (beat count), and awards. This function aims to fulfil users' musical needs with our platform's enhanced professional offering.

Fostering social networking features

• Introduced more social attributes. We rolled out Taste Match (合拍推薦) on the daily recommendation page. The algorithm-based tool finds new matches with similar listening tastes according to users listening behaviors. Taste Match recommends a list of songs of which the user may be interested in from the matching one's favourite tracks. It represents a creative approach to recommend music and connect users.
• Launched new social networking App – MUS. MUS, our new music-inspired social networking app, strives to utilise music content to connect users. An individual's homepage showcases their music preferences, based on music consumption behaviour within NetEase Cloud Music App. We believe music preference is a good reflection of individual personality, and similar music taste represents a good starting point to connect people. We believe this brand-new product provides additional social networking options to our users, further inspiring person-to-person connections among our users.

Joint-collaboration with NetEase Games

• We continued to expand our internal collaboration opportunities with NetEase Games. Following our innovative Harry Potter Magic Radio (哈利波特魔法電台) with NetEase's blockbuster game, we are seeking more tie-ups to utilise our strength in content to integrate user's gaming experience with diverse listening options. We look forward to new collaborations with NetEase Games to expand the consumption scenarios of auditory experience, as well as commercialisation.

Content enhancement

We offer a full spectrum of various content as our young users' demands are increasingly diverse and personalised. Our content library consisted of more than 106 million music tracks by the end of June 2022, including music from established labels, as well as independent artists and in-house production. Our robust library expansion, together with music inspired UGC content, brings users broad and differentiated content. Consequently, our enhanced content offerings helped strengthen our brand awareness and develop a mindset among users that encourages their willingness to pay.

Music labels. We continued to secure more high-quality content with a focus on better return on investment (ROI) in the first half of 2022. We are actively completing our music catalog and have signed copyright collaborations successively with top labels including Linfair Records, SM Entertainment and TF Entertainment, adding more popular music tracks from influential singers and groups to our platform, including, but not limited to, Angela Chang, SUPER JUNIOR, Girls' Generation, EXO and TFBOYS.

• Adding top music labels from China and abroad, as well as popular labels among young generation users, to further diversify and round out the content library on our platform, and thus better catering to users' diverse tastes and demands; and
• Content enhancement via collaboration with music labels help us further improve users' stickiness and activity on our platform.

More importantly, we are pleased to see favourable industry trends with more reasonable copyright fees and cost structures, which provide us with the flexibility to optimise our investments in content prudently. Going forward, we will look to actively negotiate with multiple copyright holders to secure more high-quality content that complements our offerings. Meanwhile, we will also work alongside other industry players to foster healthier development of the overall online music industry in China.

Independent artists. Additionally, we have become a natural incubator of music talent looking for an audience, supported by our massive community and large cohort of young users with diverse tastes. We continued growing and empowering independent artists, serving more than 529,000 registered independent artists by the end of June 2022. Meanwhile, within our content library, about 2.3 million music tracks came from our registered independent artists. We continue to nurture independent artists to help them create and promote music works, as well as realise commercial value.

• Supporting musicians in content creation. NetEase Cloud Music has been effectively expanding exposure of backstage musicians to facilitate music cooperation for better returns, and building their career path.
  – As we expanded the certification scope of musicians to arranger and producer, we officially released the first industry-wide arranger award "The First Arranger Award by NetEase Cloud Music" to draw more attention to the backstage musical professionals. Likewise, the domestic BeatMakers community speaks highly of our vibrant transaction platform BeatSoul and the first BeatMaker Contest.
• Improving musicians' exposure. During the Reporting Period, we further mobilised internal and external resources to help musicians increase their exposure.
  – Local original music zone. We launched locally-based operations of music content that overlays content ecology of different regions. By leveraging our massive user scale and strong social attributes, the local original music zone will be a useful hinge to intertwine the operation of music content with regional attributes and lifestyles, as well as offline music event.

In-house music. In the first half of 2022, we further reinforced our in-house production capabilities with comprehensive support and elevated industry-wide exposure. We were proud to cooperate with CCTV to produce "Blooming Bauhinia" (《紫荊花盛開》), a special song dedicated to the 25th anniversary of Hong Kong's return to China. Additionally, our in-house studios have successfully popularised a batch of hit songs, including "Goodbye Monica" (《再見莫妮卡》), further demonstrating our in-house capability to produce premium music content.

Other Corporate Development

At the annual general meeting of the Company held on 16 June 2022, the special resolution to change the Company's name from "Cloud Village Inc." to "Cloud Music Inc." was approved and took effect on the same date. For more information on the name change and the change in the Company's English short stock name from "CLOUD VILLAGE" to "CLOUD MUSIC," please see the Company's announcement of 22 July 2022.

Conference Call

The Company's management will host an earnings conference call at 7:00 p.m Beijing/Hong Kong Time on Thursday, August 18, 2022 (7:00 a.m. U.S. Eastern Time). Details for the conference call are as follows:

Event Title: Cloud Music Inc. First Half 2022 Earnings Conference Call

Registration Link: https://register.vevent.com/register/BI612167dfb6ce495bb2fe61c4ec8d966d

All participants must use the link provided above to complete the online registration process in advance of the conference call. Upon registering, each participant will receive a set of participant dial-in numbers and a personal PIN, which will be used to join the conference call.

Additionally, a live and archived webcast as well as the English transcript of the conference call will be available on the Company's investor relations website at http://ir.music.163.com.

About Cloud Music Inc.

Launched in 2013 by NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), Cloud Music Inc. (HKEX: 9899) is a leading interactive music streaming service provider in China. Dedicated to providing an elevated user experience, Cloud Music Inc. provides precise, personalised recommendations, promotes user interaction and creates a strong social community. Its focus on discovering and promoting emerging musicians has made Cloud Music Inc. a destination of choice for exploring new and independent music among music enthusiasts in China. The platform has been recognised as the most popular entertainment app among China's vibrant Generation Z community.

Please see http://ir.music.163.com/ for more information.

Forward Looking Statements

This press release contains forward-looking statements relating to the business outlook, estimates of financial performance, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in the future. Underlying these forward-looking statements are a lot of risks and uncertainties. In light of the risks and uncertainties, the inclusion of forward-looking statements in this press release should not be regarded as representations by the Board or the Company that the plans and objectives will be achieved, and investors should not place undue reliance on such statements.

Non-IFRS Measure

To supplement our consolidated results, which are prepared and presented in accordance with International Financial Reporting Standards ("IFRSs"), the Company uses adjusted net loss as an additional financial measure, which is not required by, or presented in accordance with, IFRSs. We believe that this measure facilitates comparisons of operating performance from period to period and company to company by eliminating the potential impact of items that our management does not consider to be indicative of our group's operating performance, such as certain non-cash items. The use of this non-IFRS measure has limitations as an analytical tool, and shareholders and potential investors of our company should not consider them in isolation from, as a substitute for, analysis of, or superior to, our group's results of operations or financial condition as reported under IFRSs. In addition, this non-IFRS financial measure may be defined differently from similar terms used by other companies, and may not be comparable to other similarly titled measures used by other companies. The presentation of this non-IFRS measure should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

Investor Enquiries:

Angela Xu
Cloud Music Inc.
music.ir@service.netease.com

Media Enquiries:

Li Ruohan
NetEase, Inc.
globalpr@service.netease.com