Cloud Music Inc. Reports Fiscal Year 2023 Financial Results

HANGZHOU, China, Feb. 29, 2024 /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 2023 ended December 31, 2023.

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

Fiscal Year 2023 Key Financial and Operating Highlights

• Revenue was RMB7.9 billion, a decrease of 12.5% compared with RMB9.0 billion in 2022.
  
  
  • Online music services:
    -Revenue from online music services was RMB4.4 billion, an increase of 17.6% compared with RMB3.7 billion in 2022. The increase was primarily due to the growth in revenue from sales of membership subscriptions.
    -MAUs of online music services grew to 205.9 million from 189.4 million in 2022. The increase was primarily attributable to continued efforts to improve the user experience, innovate interactive features, and enrich content offerings.
    -Monthly paying users of online music services expanded to 44.1 million from 38.3 million in 2022.
    -Monthly ARPPU (average revenue per paying user) of online music services was RMB6.9 compared with RMB6.6 in 2022, resulting from optimised promotions.

• • Social entertainment services and others:
    -Revenue from social entertainment services and others was RMB3.5 billion, a decrease of 33.6% from RMB5.3 billion in 2022, mainly due to a more cautious operating strategy we adopted, such as reducing the in-app exposure of certain functions and lowering the revenue sharing ratio, and a further strengthened internal control mechanism.
    -Monthly paying users of social entertainment services increased to 1.6 million from 1.3 million in 2022.
    -Monthly ARPPU of social entertainment services was RMB178.6 compared with RMB326.0 in 2022.

• Gross profit was RMB2,102.7 million, an increase of 62.6% from RMB1,293.1 million in 2022, as a result of increased revenue from sales of membership subscriptions and continued improvement in cost control measures. Gross margin improved to 26.7% from 14.4% in 2022.
• Net profit was RMB734.2 million, compared with net loss of RMB221.5 million in 2022.
• Adjusted net profit was RMB818.5 million, compared with adjusted net loss of RMB114.6 million in 2022.

Note:

(1) Adjusted net profit/(loss) is defined as profit/(loss) for the year adjusted by adding back equity-settled share- based payments as appropriate.

Business Overview

Throughout 2023, we had continued with our quality development across our core music-centric ecosystem, considerably strengthening our music-centric monetisation capabilities and further improving our profitability. Our appeal to users has been enhanced as we bolstered our content ecosystem and broadened our differentiated offerings, including adding new innovative features and strengthening our community attributes. These successful efforts, combined with advanced membership privileges offered, drove notable growth in our subscription-based memberships. Having been backed by the solid monetisation momentum from our core online music business and our optimised operating efficiency and cost structure, we reached a record high on profitability for the full year of 2023 and achieved a profit making position for a financial year for the first time in our history.

We worked diligently to strengthen our music-centric monetisation capabilities throughout 2023. Our online music business has continued to show solid growth momentum on a year-over-year basis. Our revenue from subscription-based memberships grew by 20.2% year over year, mainly driven by a scale-up in the number of subscribers, along with moderate ARPPU improvement. We have enhanced our premium offerings, including expansive content and innovative features, along with broadened membership privileges and joint programmes with external partners, delivering a notable 15.3% year-over-year increase in our subscriber base. Moreover, membership retention rates improved among our rapidly expanding, high-quality subscriber base. On top of subscriptions, we also strengthened our advertising commercialisation capabilities in 2023, backed by our brand's increasing influence and more diversified advertisement formats. In particular, our ad-supported mode began contributing to our incremental advertising revenue stream in the second half of 2023.

We improved our profitability considerably for the full year of 2023. This was primarily due to the benefits of economies of scale and ongoing cost optimisation. Gross margins soared to 26.7% for 2023, compared with 14.4% in 2022, owing to the strong monetisation in our core online music business, and improved copyright cost structure and revenue sharing ratio. Consequently, we achieved an adjusted net profit of RMB818.5 million in 2023, marking our first positive full-year bottom-line performance, compared to an adjusted net loss of RMB114.6 million in 2022.

Despite an industry-wide slowdown, our MAUs of online music services for 2023 steadily increased to 205.9 million, representing a growth of 8.7% year-over-year. Our MAU growth was attributable to the ongoing broadening of our differentiated premium offerings and enhancing user experience across various music-listening scenarios, improved brand awareness, and our stronger platform operating capabilities. In addition, we implemented measures to make the premium privileges of our online music membership more accessible, which also helped us attract both high-quality active users and paying users.

We continued to engage users across our leading music-inspired community during 2023, and our DAU/MAU ratio (daily active user/monthly active user ratio) consistently remained above 30%. Moreover, our fast-growing online music subscriber group is more engaging on our platform, with more time spent and a higher activity ratio, as compared to non-paying users. Throughout the year, we focused on improving users' music discovery and consumption experience, as well as fostering our music-centric community, through product innovation, particularly by integrating AI technology. As we continuously deepened our understanding of users' music preferences and enhanced our AI-powered recommendation algorithms, the percentage of music streams stemming from platform-recommendations continued to increase in 2023.

In 2023, we continually broadened our content offerings and expanded our catalogue of music labels, with a focus on improving cost efficiency. Paired with our strong support for independent artists and enhancements to our in-house music production, we have developed a comprehensive and differentiated content ecosystem that encourages user stickiness and their willingness to subscribe to our premium offerings. Apart from top-tier music content, we focused on our most advantageous music genres, such as hip-hop, fuelled by our initiatives in both copyrighted content and original music.

For our social entertainment arm, revenue has declined 33.6% year-over-year, as we refined our operating strategies in social entertainment services. We introduced multiple measures in the social entertainment services to enhance the listening experience of more dedicated music fans and improve profitability. We also further reinforced our internal controls mechanism for social entertainment services.

Going forward, we will remain committed to bringing more high-quality music to our users, cultivating our community and enhancing user experience, further strengthening our operating and commercialisation capabilities, and improving profitability. Our plans call to:

• further diversify and enhance our differentiated content offerings with better efficiency. We plan to deepen our collaboration with copyright holders, as well as to strengthen our capabilities in independent artist incubation and in-house music production, focusing on our advantageous music genres;
  
  
• foster our music-oriented community ecosystem and explore innovative interpersonal interaction via comprehensive enhancements to our product offerings, including embedding our products with more interactive features and broadening communicative scenarios and ecology;
  
  
• cultivate our users' willingness to pay and subscribe to premium offerings by improving user experience, deepening user engagement, enhancing membership privileges and broadening consumption scenarios; and
  
  
• improve profitability through continuous cost optimisation, enhanced operating efficiency and disciplined cost control.

Comprehensive and differentiated content ecosystem

We further expanded our content library to include a wider variety of music, including tracks from established labels, independent artists and our in-house studios. As of the end of 2023, we have accumulated approximately 149 million music tracks. Our diverse selection of music is continually updated to meet the evolving needs of our users, particularly younger users who have varied preferences and a desire to discover new music. In addition to top-tier renowned music works, we especially focused on promoting our advantageous music genres, such as hip-hop, Chinese folk and rock.

Enhancing partnerships with copyright holders

Throughout the year, we consistently demonstrated our commitment to fostering strong partnerships with music copyright holders and actively worked towards deepening these collaborations, ultimately benefiting both copyright holders and music enthusiasts.

• Expansive catalogue of music labels. We expanded our catalogue of music labels throughout 2023, including new partnerships with renowned labels such as B'in Music, CoMix Wave Films (新海诚), Sodagreen/Oaeen (鱼丁糸), RYCE Entertainment (represented by Jackson Wang), etc. We successfully broadened our extensive music collection by adding songs from influential musicians, singers, and groups, including Mayday, Sodagreen, Jackson Wang, Karen Mok (莫文蔚), Li Yuchun (李宇春), Phoenix Legend (凤凰传奇), Cheer Chen (陈绮贞), Crowd Lu (卢广仲), Cui Jian (崔健), and Zheng Jun (郑钧). We were also pleased to renew our copyright partnership agreement with EE-Media, which deepens our two-way collaboration to promote popular Chinese music content. Additionally, we extended our reach to overseas record labels such as DREAMUS (represented by popular artists including Shinhwa), JTBC (which is renowned for its vast library of original soundtracks), Lantis and Space Shower, etc.
  
  
• Recorded impressive album sales performances from top artists. We successfully collaborated with several copyright holders and top artists, resulting in impressive sales of premium albums on our platform. For example, the latest digital album from Eason Chan, titled《CHIN UP! 》, recorded the highest sales volume on our platform, among all online music streaming platforms in China. We also made a notable debut in the physical album market, recording more than RMB20 million in total gross sales for our first co-published physical album, Chenyu Hua's new album "希忘 (Xiwang) Hope" which launched in May 2023. We subsequently successfully promoted the sales of Zhang Jie's physical album, "Wainanjie 1982".
  
  
• Promoting advantageous music genres. Music genres such as hip-hop and Chinese folk have seen a surge in popularity on our platform. Hit songs, including "Wo Ji De (《 我记得》)" by Chinese folk musician Lei Zhao, "Snow Distance (《雪 Distance》) " by Capper & Yan Luo, and "Leng Zhan (《冷战》)" by TizzyT and Vinida, showcased the positive momentum we have built across these genres. We also successfully promoted the digital album sales in our advantageous music genres, including albums from MC HotDog (热狗), KeyNG (杨和苏), Eason Shen (沈以诚), and MaSiWei (马思唯).

Strengthening our leading independent artists ecosystem

We continue to enhance our support system for independent artists, offering comprehensive assistance throughout their music industry journey. This includes support from creation to promotion and financial aid. As of 31 December 2023, our platform had nearly 684,000 registered independent artists who contributed around 3.1 million music tracks in total to our library. We remain committed to investing in initiatives that bolster musicians, improve music creation tools, and expand online and offline music exposure. These initiatives aim to help independent artists increase their influence and commercial income, ultimately strengthening the original music ecosystem on our platform.

• Exploring and improving the exposure of musicians and their work. We leverage our internal and external resources to boost the level of visibility of musicians and their quality work, particularly in our advantageous genres. Our musician discovery programmes aim to identify and nurture talented individuals, such as the ongoing Project Cornerstone (石头计划) up to its fifth season for discovering fresh musicians, and particularly focusing on hip-hop and other advantageous music genres, including Take in and Rap Out (街头招式计划) and the New Voice Power Project (新生势力计划), etc. Our region-oriented music promotions include "City Tour Guide" (城市云游指南) special planning series, an online exposure opportunity for regionally representative talents and "Localised Sound (近地之声)", a new program which offers comprehensive support to local musicians via online features and activities. To expand the outreach of musicians and premium content, we utilised our internal and external resources to promote expansive music content, and our extensive promotion channels included music festivals and variety shows. We also collaborated with our partners like Pepsi to launch annual music festivals and resumed campus tour music festivals, nurturing NetEase Cloud Music musicians.
  
  
• Helping musicians improve their commercial value. Our supportive initiatives are designed to help musicians maximise their financial returns, which in turn help us promote original music ecosystem. In early 2023, we upgraded our renowned musicians' support project, and rolled out "Project Cloud Ladder 2023 – Phase 1" (云梯计划2023第一期), which bolsters the financial aid to musicians by offering a more attractive financial settlement mechanism. In September 2023, we launched "Project Cloud Ladder 2023 – Phase 2"(云梯计划2023第二期) and introduced the new "Appreciation (赞赏)" feature for tipping. This feature facilitates innovative interaction between musicians and fans and also provide independent musicians with a new avenue to monetise their talent.
  
  
• Supporting musicians in content creation. We have launched a suite of AI-enabled tools to make music creation more accessible and efficient. The NetEase Tianyin platform is an all-in-one AI music creation tool that assists musicians with songwriting and music arrangements. We made NetEase Tianyin accessible to all musicians beginning in August 2023, and continually streamline the process of creating and releasing music. X Studio, an AI-based voice synthesis software developed in partnership with Xiaoice, offers a wide range of natural singing voices, covering styles like pop and folk, that musicians can conveniently select from. We held AI songwriting competitions and introduced the "AI Rap Song Contest", to inspire musicians to leverage AI-enabled tools to produce more high-Building on our expertise in music, a wide and varied user base, and in-depth user insights, our multiple in-house studios continued to focus on creating unique music content to further enrich our content matrix.

Developing differentiated in-house music

Building on our expertise in music, a wide and varied user base, and in-depth user insights, our multiple in-house studios continued to focus on creating unique music content to further enrich our content matrix.

• Crafting high-quality music content tailored to a variety of needs. Since the beginning of 2023, our in-house studios have successfully popularised multiple hit songs, including "Xiang Yun Duan"(《向云端》), "Jing Wei" (《精卫》) and "To You" (《予你》). In particular, our co-produced song "Xiang Yun Duan" (《向云端》) has demonstrated remarkable popularity. Additionally, we focused on our advantageous music genres, and have produced a number of popular hip-hop song tracks, including "Sunshine Boys and Sunshine Girls 2023" (《阳光男孩阳光女孩2023》), and "Shen Shan" (《圣山》). Our in-house studios have recently launched several special music projects, aiming at producing and promoting in-house music, covering band music, hip-hop, R&B, pure music, as well as film music.
  
  
• Deepening collaboration with NetEase and commercial brands. Our in-house music works have been featured in many prominent galas and have served large-scale sports events and influential public events. We also further created value through deeper collaboration with NetEase's portfolio like Eggy Party (蛋仔派对), Fantasy Westward Journey (梦幻西游) , and Onmyoji (阴阳师), and external commercial brands, such as SAIC Volkswagen, and Yili.

Diversified audio-based content offerings

In addition to music tracks, we have been actively expanding the long-form audio offerings on our platform. This includes user-generated podcasts (including PUGC/UGC) and professionally generated content (PGC) such as audio books and radio dramas. Our aim is to create a comprehensive listening experience for our users, catering to their diverse interests and preferences, and ultimately increasing user engagement and exploring potential commercial opportunities. In 2023, we saw a significant increase in the consumption of our long-form audio content, with the total listening time growing by 70.9% compared to the previous year.

• PUGC/UGC – podcast. The podcast is an essential part of our content ecosystem, with a focus on music-inspired content and real-life stories. We have enhanced our Music-Podcast feature, which combines podcasting and music discovery in a unique format on our platform. This new format offers an enjoyable way for music fans to discover quality and lesser-known songs while listening to podcasts, thereby increasing user engagement and music consumption.
  
  
• PGC – audio books & radio dramas. We have been expanding our PGC long-form audio content library in a cost-efficient manner, particularly by increasing our pool of self-produced content. A notable success is the radio drama "The Young Master and I (少爷和我)", which is adapted from popular comedy. This new approach did not only help broaden our audio content library but also improved content creation efficiency.

Community ecosystem and product innovation

During 2023, we further promoted our initiatives in product innovation, especially through advancements in AI technology. We innovated the music discovery and consumption experience, added features empowering strong music-inspired connections, and broadened communication scenarios. Our efforts have helped to elevate user experience, inspiring music-resonance and increasing user stickiness, resulting in the growth of our multi-layered community ecology.

Optimising users' music discovery and listening experience

• AI-enabled functions. We officially launched the "Private DJ" (私人 DJ) feature on our platform, incorporating music recommendations with an intelligent and personalised music introduction and explanatory experience including song recommendations, background stories of songs and encyclopaedia. This feature allows users to enjoy a more personalised music accompaniment.
  
  
• Music content discovery and distribution. We continuously improved our understanding of users' music preferences in various scenarios and enhanced our algorithms using advanced models, such as an Large Multimodal Model (LMM) and multi-scene recommendation sorting model (多场景推荐排序模型). The latter consolidated user preference behaviours across different sections of the entire platform to provide song recommendations.

Fostering music-inspired community resonance and connections

• Community resonance inspired by music content. Our music community is centred around the iconic Comments section on our platform. Through optimisations in product, operation, and algorithm, we consistently amplify the value of comments across our platform, including the playback page, search function, and landing page layout. Our new feature, "Moments Square (动态广场)," is a vibrant hub where users can interact with comments, forming a community where they can share and connect with each other's feelings.
  
  
• Music-centric connections. We continually engage our community to have more music- inspired connections and strengthen the bonds within our community. We have made ongoing improvements to our Fans Space (乐迷团) function, an interactive platform for artists and their fans to connect and encourage interaction among users with similar music tastes.

Expanding music consumption and communicative scenarios

• Expanding collaboration with NetEase Games. This allows users to choose from different listening options while playing popular games. We have partnered with Eggy Party (蛋仔派对), integrating our music player into its core gaming scenes. We have also launched a cooperative gift package that includes custom in-game skins and actions featuring Cloud Music IP attributes. Additionally, users can access an Eggy Party-themed player interface within the NetEase Cloud Music app. In our collaboration with Sky (光遇), we launched several joint programs, such as embedding a music player within gaming scenes, creating game-themed music-player skins, and introducing the "Multi-person Listen Together (多人一起听)" feature within the game.
  
  
• IoT layouts. We recently added a new feature that allows users to easily switch between different devices like mobile phone, PC, TV, and in-car scenarios, effectively addressing diverse needs of our users.

Conference Call

The Company's management will host an earnings conference call at 7:00 p.m Beijing/Hong Kong Time on Thursday, February 29, 2024 (6:00 a.m. U.S. Eastern Time on the same day). Details for the conference call are as follows:

Event Title: Cloud Music Inc. Fiscal Year 2023 Earnings Conference Call
Registration Link: https://s1.c-conf.com/diamondpass/10036637-tqx1j3.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: 10036637. The replay will be available through March 7, 2024.

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 well-known online music platform featuring a vibrant content community. 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 ("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