Cloud Music Inc. Reports Fiscal Year 2022 Financial Results

HANGZHOU, China, Feb. 23, 2023 /PRNewswire/ -- Cloud Music Inc. (HKEX: 9899, "NetEase Cloud Music" or the "Company"), a leading interactive music streaming service provider in China, today announced its financial results for the fiscal year 2022 ended December 31, 2022.

Summary of Key Financial and Operating Metrics
(RMB in thousands, unless otherwise stated)

Fiscal Year 2022 Key Financial and Operating Highlights

• Revenue was RMB9.0 billion, an increase of 28.5% compared with RMB7.0 billion in 2021.
• Online music services:
  -Revenue from online music services was RMB3.7 billion, an increase of 12.4% compared with RMB3.3 billion in 2021. The increase was primarily due to the significant growth in revenues from sales of membership subscriptions.
  -MAUs of online music services grew to 189.4 million from 182.6 million in 2021.
  -Monthly paying users of online music services expanded to 38.3 million from 28.9 million in 2021. The increase was primarily due to the continued efforts in improving user experience, innovating interactive features and enriching the content offerings.
  -Monthly ARPPU (average revenue per paying user) of online music services was RMB6.6 compared with RMB6.7 in 2021.

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• Social entertainment services and others:
  -Revenue from social entertainment services and others was RMB5.3 billion, an increase of 42.8% from RMB3.7 billion in 2021. Our vibrant community culture that encourages content creation, as well as our diverse content offerings in social entertainment formats, contributed to the robust growth of our social entertainment business. 
  -Monthly paying users of social entertainment services increased to 1,332.3 thousand from 683.3 thousand in 2021.
  -Monthly ARPPU of social entertainment services was RMB326.0 compared with RMB448.1 in 2021.

• Gross profit was RMB1,293.1 million, compared with a gross profit of RMB142.7 million in 2021, as a result of the Company's significant revenue increase and control over content licensing fees. Gross margin improved to 14.4% from 2.0% in 2021.
• Net loss was RMB0.2 billion, narrowed by 89.2% compared with RMB2.1 billion in 2021.
• Adjusted net loss was RMB0.1 billion, narrowed by 89.0% compared with RMB1.0 billion in 2021.

Business Overview

Throughout 2022, we enhanced our music-inspired offerings. We brought our users innovative features and expansive content, grew our differentiated community and elevated our content ecosystem. The success of these initiatives strengthened our commercialization capabilities. Along with our optimized operating efficiency and cost structure, we considerably narrowed our net loss in 2022 year-over-year.

Despite the industry-wide slowdown, our MAUs of online music services for 2022 still steadily climbed to 189.4 million, up 4% year-over-year. The growth was supported by our continued effort to create a better user experience and broader music listening scenarios. Meanwhile, our DAU/MAU ratio (daily active user/monthly active user ratio) stayed well above 30%, demonstrating our ability to foster continued growth across our leading music-inspired community.

We continued to secure more high-quality content in 2022, with a focus on better investment efficiency. Paired with our stronghold in fostering a leading independent artists ecosystem and enhancements to our in-house music production, we have developed a comprehensive and differentiated content ecosystem that encourages user stickiness, as well as users' willingness to subscribe to our diverse premium offerings. We will further explore cooperations with record labels to round out our content offerings in 2023. A remarkable example is our recently announced partnership with B'in Music, which expands our leading content library with some of most influential C-pop music.

We have worked diligently to strengthen our monetisation capabilities throughout 2022. Despite a more challenging industry and macro environment, our total revenues in 2022 grew 28.5% year-over-year, led by increases across our subscription-based memberships (via subscriber scale-up) and social entertainment services. Our high-quality user community, ongoing content enhancements, and innovative features supported the increase of our paying ratio, which climbed to 20.2% in 2022, up from 15.8% in 2021. Monthly ARPPU of online music services also began to recover in the second half of 2022, aided by our pricing optimization initiatives and broadened membership privileges.

We have also managed to considerably improve profitability in 2022. The improvement is mainly attributable to the effects of increased scale and cost optimization. Gross margin soared to 14.4% in 2022, compared with 2.0% in 2021, owing to our increased business scale and copyright cost structure optimization as the industry tailwinds featuring more reasonable copyright fees and payment settlement mechanisms. Our adjusted net loss considerably narrowed to RMB0.1 billion in 2022, compared with RMB1.0 billion in 2021, further aided by disciplined cost management and improved operating leverage. We achieved positive operating cash inflow in 2022, compared with operating cash outflow in 2021, and we have maintained a healthy financial position with ample cash balance by the year end.

In 2023, we remain committed to cultivating our community, bringing more high-quality music to our users, further strengthening our operating capabilities and improving profitability. Our plans call to:

• foster our music-oriented community ecosystem and explore innovations in social networking, via enhancements to our comprehensive product offerings, embedded with more interactive features and broadened communicative ecology;
• further diversify and enhance our content offerings with better efficiency. We plan to deepen our collaboration with copyright holders, as well as strengthen our independent artists incubation and our in-house music production;
• cultivate our users' willingness to pay and subscribe to premium offerings, via improved user experience and deepened user engagement, and broadened consumption scenarios;
• improve profitability through continued content cost optimization, enhanced operating efficiency and disciplined cost control; and
• look to IoT layouts, as well as potentially game-inspired initiatives, to further expand music listening scenarios and explore commercialization opportunities.

Content enhancement

We offer a full spectrum of content as our young users' demands become increasingly diverse and personalised. Our content library comprised more than 116 million music tracks by the end of December 2022, including music from established labels, as well as independent artists and our in- house production.

Partnerships with music labels. Music copyright licensing has opened up following the end of the online music industry monopoly. We continued to promote the reclaiming and expansion of music copyright in a disciplined manner in 2022, and thus further diversified and enriched our content offerings.

• Expansive catalogue of music labels. We have signed copyright collaborations successively with top labels including Linfair Records, SM Entertainment, TF Entertainment, YG Entertainment, KAO!INC and Pony Canyon. These collaborations add more popular music tracks from influential singers and groups to our platform, including, but not limited to, Angela Chang, SUPER JUNIOR, Girls' Generation, EXO, TFBOYS, BIGBANG, BLACKPINK and Kana Hanazawa.
• Digital album. Several premium digital albums achieved impressive sales on our platform in 2022, including "希忘 (Xiwang) Hope" by Chenyu Hua, "I NEVER DIE" and "I LOVE" by (G)I-DLE, "Teen on Shuqian Street" by Lei Zhao and "Midnights (3am Edition)" by Taylor Swift.

Going forward, we will look to actively negotiate with multiple copyright holders to secure more high-quality content that complements our offerings.

• At the beginning of 2023, we successfully signed a copyright collaboration agreement with B'in Music, adding its vast music catalogue from top artists such as Jonathan Lee and Mayday.

Independent artists. We continue to grow and empower independent artists, serving more than 611,000 registered independent artists by the end of 2022. Our content library includes approximately 2.6 million music tracks generated by our registered independent artists. Throughout 2022, we continued to actively nurture independent artists, helping them create and promote music works, and realise commercial value.

• Supporting musicians in content creation. A variety of musical forces convene on our platform such as lyricists, composers and arrangers. We have been effectively facilitating music cooperation on our platform among musicians across the creation value chain.
     - Rolled out more creation-oriented communities among musicians including Musicians Community (音乐人社区) and Backstage Artists Forum (幕后专区): In doing so, we promote interaction and cooperation among musicians, and better serve the music production industry.
     - Music knowledge sharing (音乐说) is a special column covering various aspects of artists' development, which offers professional contents such as professionals interviews, industry trend analysis and the exchange of ideas.

• Improving musicians' exposure. During the year, we further mobilised our internal and external resources to help musicians increase their exposure and promote their music works.
     - Online exposure: Launched Independent Artist Zone, comprising Original Music Discovery and Local Recommendation, expanding music discovery and consumption scenarios, and kicking off local-based operations for original music.
     - Offline presence: Rolled out our camping-themed music festival brand "Cloud Village Camping Music Festival", incorporating an offline presence to promote our musician ecosystem.

• Helping musicians realise commercial value. We take an active role in helping musicians profit on our platform by leveraging our diversified commercialisation methods and tools.
     - Launched Musical Work Trading Platform: Musicians can realise commercial value through trading and cooperating on music works with other professionals across songwriting, mixing and arrangement, and other production services.

In-house music. In 2022, we further reinforced our in-house production capabilities, focusing on our advantageous music genres and styles. We were proud to cooperate with CCTV to produce "Blooming Bauhinia" (《紫荆花盛开》), 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" (《再见Monica》), "Ruo Ba Ni"(《若把你》) and "Ta Zai Hu" (《他在乎》), further demonstrating our excellent in-house music content production capabilities.

Differentiated special planning episodes. Building upon the highly engaged user interaction, we stimulated more IP-planning projects to expand the exposure of elite music content. These initiatives entail aesthetics appreciation of distinct content offerings and the pursuit of passionate resonance, helping us cater to music enthusiasts, as well as underpin our branding proposition and user mindset.

• Following our partnership with major record labels, such as Rock Records and Linfair Records, we rolled out special episodes to revive classic songs and popularize them with the younger generation.
• We helped expand the exposure of distinct music genres through creative introductory episodes. For example, the episode titled "100 Years History of Jazz Music" received great user recognition.
• We rolled out more IP-themed special planning episodes to promote in-house content via well-liked topics, such as "In the Other Hometown," and utilize creative endeavours to increase the exposure of lesser-known content, such as "The Land of Silver Salt Photography."

Community ecosystem and product innovation

Throughout 2022, we continued to revitalise our differentiated community across our steadily growing user scale, and achieved strong and sustained user engagement levels. During the year, each daily active user spent, on average, approximately 78.9 minutes per day listening to music on our platform (2021: 78.2 minutes). As of 31 December 2022, 33.4% of music streams were attributable to platform recommendations. These metrics demonstrate the strong stickiness and activities of our high-quality user group, and distinguish our vibrant community attributes, which are mutually reinforcing within our ecosystem.

Meanwhile, we advanced our initiatives in product innovation. We are not only committed to improving user music listening experience, but also actively adding interactive features and broadening communication scenarios, which invokes music-inspired resonance and reinforces a multi-layered community ecology. We are also broadening music listening scenarios, further aided by collaborations with NetEase Games.

Optimising users' listening experience

• Memory Coordinates (回忆坐标): Our newly launched feature presents users with recollections of their own personal moments and emotional connections to the song by displaying digitalised metrics of meaningful accompaniment.
• Style Recommendation (风格推荐): The addition of this tab brings more personalised options to users in the daily recommendation function to better reflect diverse tastes with more accurate recommendation content.
• Music Encyclopedia (音乐百科): We have rolled out the "Music Encyclopedia" function, integrating fragmented information into an encyclopedia page that contains music genre, style, instruments, BPM (beat count) and awards.
• Initiatives to improve audio quality: Following our successful launch of "Hi-Res," we further introduced "Dolby Atmos (杜比全景声)," which allows users more authentic and immersive ways to elevate their listening experience.

Fostering community atmosphere and social networking features

• Launched innovative offerings, including Star-rated Comment Section (星评馆) presented on our home page to display emotionally touching comments, aiming to further boost our community atmosphere and motivate creators to post high-quality comments.
• Rolled out Fans Space (乐迷团), an engaging and interactive gathering place for artists and their followers to strengthen bonds and establish closer connections, while encouraging user interactions to discover like-minded people for more communication.

Expanding music consumption scenarios

• Joint collaboration with NetEase Games. We continued to expand our internal collaboration with NetEase Games, seeking more tie-ups that utilise our strength in content to integrate users' gaming experience with diverse listening options, across Ace Racer and Minecraft, etc. , as well as the newly launched popular casual game Eggy Party (蛋仔派对).
• IoT layouts. Our foray in the IoT market covers smart devices across more aspects of people's lives, around travel, gatherings, sports and more. In particular, we added TV terminal layouts, extending to large-screen household scenarios, featuring Atmosphere Space (氛围空间), a new immersive companion function with a variety of soothing visuals and atmospheric sounds.

Conference Call

The Company's management will host an earnings conference call at 7:00 p.m Beijing/Hong Kong Time on Thursday, February 23, 2023 (6:00 a.m. U.S. Eastern Time). Details for the conference call are as follows:

Event Title: Cloud Music Inc. Fiscal Year 2022 Earnings Conference Call
Registration Link: https://s1.c-conf.com/diamondpass/10028650-gfyd6f.html

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 dial-in numbers, an event passcode, and a personal access PIN, which will be used to join the conference call.

A replay of the call will be accessible by phone at the following numbers and entering PIN: 10028650. The replay will be available through March 2, 2023.

Additionally, a live and archived webcast 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 the platform 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 ("IFRS"), our Company uses adjusted net loss as an additional financial measure, which is not required by, or presented in accordance with, IFRS. 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 IFRS. 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. Our 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