Image source @Visual China
Article | Yiguan Finance, Author | Xuan Ye Baixue
After the market close on May 24, NetEase Cloud Music released its financial performance report for the first quarter of 2022. This is a sad and happy financial report. How should we treat this financial report rationally?
In the post-copyright era, with the entry of ByteDance, and facing the giant Tencent Music, is the future of NetEase Cloud Music worth looking forward to?
Highlights: Significant increase in paying users, increase in gross profit margin, narrowing net loss
After the market close on May 24, NetEase Cloud Music released its financial performance report for the first quarter of 2022. Among them, the large increase in the scale of paying users, the increase in gross profit margin and the sharp reduction in net loss can be said to be the highlights of the quarterly financial report.
First, the scale of monthly paying users has increased significantly.
According to the financial report, the number of monthly paying users of NetEase Cloud Music’s online music service increased by 51% year-on-year, from 24.29 million in the same period last year to 36.7417 million, and the online music service payment rate further increased to 20.2%. The monthly paying users of social entertainment services increased by 170% year-on-year, from 438,100 in the same period of the previous year to 1,181,700.
NetEase Cloud Music’s revenue is mainly composed of two parts: online music service revenue and social entertainment service. NetEase Cloud Music’s prospectus disclosed that online music services mainly include: membership subscription, advertising services and other three parts. Among them, membership subscriptions are the largest source of income.
The financial report shows that in the first quarter, NetEase Cloud Music achieved revenue of 2.067 billion yuan, a year-on-year increase of 38.6%, of which online music service revenue was 885 million yuan, a year-on-year increase of 16.5%. The growth of this part of the revenue was mainly driven by the increase in the scale of paid membership users. In the first quarter, NetEase Cloud Music’s membership subscription revenue reached 710 million yuan, a year-on-year increase of 38.13%.
In fact, behind the surge in NetEase Cloud Music’s paid membership is related to platform promotions. NetEase Cloud Music said, “The increase in membership subscription revenue was mainly due to our collaboration with other platforms to increase the sales of joint membership packages, in which our membership subscriptions are sold at discounted prices to market our subscriptions and expand our service coverage.”
It is reported that NetEase Cloud Music launched a promotional activity in January. Users who purchase an annual card of 158 yuan can receive “Mango TV Annual Card + Himalayan Annual Card + NetEase Yanxuan Annual Card + Kuaikan Comic Season Card + NetEase Game Super Membership” + “Overwatch” Legendary Collector’s Edition + “The Shore of the Earth” Spring Festival package + “New Chinese Ghost Story” fairy music package”, it is difficult to imagine that users buy NetEase Cloud Music Annual Cards to listen to music, or to play games, watch video.
On the one hand, users who are exchanged for profit promotion are extremely sensitive to price. After the annual card expires, the retention rate and repurchase rate of new users need to be considered. If a certain price increases, whether this part of users will be profit-seeking Escape is also unknown.
Secondly, the gross profit margin increased and the net loss narrowed sharply.
In the first quarter of 2022, NetEase Cloud Music’s gross profit reached 252 million yuan, higher than the 143 million yuan gross profit in 2021, and the gross profit margin increased significantly from -3.6% in the same period of the previous year to 12.2% in this quarter.
The financial report shows that in the first quarter, NetEase Cloud Music lost 180 million yuan during the period, compared with the loss of 1.7 billion yuan in the same period of the previous year, which was significantly narrowed by 89.2%. The adjusted net loss was 152 million yuan, which also narrowed year-on-year.
The increase in gross profit margin and the narrowing of net losses all reflect the improvement of NetEase Cloud Music’s profitability to a certain extent. NetEase Cloud Music disclosed in its financial report that the company will improve profitability by enhancing its commercialization capabilities and optimizing its content cost structure. The financial report shows that NetEase Cloud Music’s operating costs in the first quarter increased from 1.5 billion yuan in the same period last year to 1.8 billion yuan this quarter. The increase was mainly due to the increase in content service costs, while the increase in content service costs was due to revenue sharing. Fees increase with revenue from social entertainment services.
Are NetEase Cloud Music’s “excellent” results sustainable?
In addition to the bright spots, NetEase Cloud Music’s financial report for this quarter also revealed some hidden concerns.
First, the monthly active users of online music services decreased year-on-year.
The financial report shows that in the first quarter, the monthly active users of NetEase Cloud Music’s online music service dropped from 183.1 million in the same period last year to 181.7 million in this quarter, with a net loss of 1.4 million. It should be pointed out that since the beginning of this year, the domestic new crown epidemic has rebounded, and the situation of people in different regions at home has increased, which means that more people and users have time for online entertainment than normal, but it seems It did not help the online music platform to increase the scale of monthly active users. On the contrary, the monthly active users are decreasing, which shows that the leisure and entertainment of online music is less attractive to the public.
Since it cannot attract more monthly active users, it is necessary to find a way to retain existing users. NetEase Cloud Music said, “In the first quarter, through a large and stable user scale and strong user participation, we successfully revitalized our differentiated community.”
The financial report shows that in the first quarter, NetEase Cloud Music’s daily active users listened to songs for about 82 minutes, compared with 76.5 minutes in the same period last year. About half of the users browsed the “comment area” while listening to songs.
In addition, in order to retain users and increase user stickiness, online music platforms need to continuously improve user experience. In the first quarter, NetEase Cloud Music also launched a number of user-oriented innovative functions such as seamless playback and double-speed playback, and launched Hi-Res sound quality to test the “cloud random” custom random playback function.
Second, monthly revenue per paying user decreased year-over-year.
While the number of monthly active users is decreasing, NetEase Cloud Music’s monthly revenue per paying user is decreasing.
The financial report shows that in the first quarter, NetEase Cloud Music social entertainment services and others achieved revenue of 1.182 billion yuan, a year-on-year increase of 62%. The scale and growth rate of this revenue exceeded that of online music services. It should be reminded that in the first quarter, NetEase Cloud Music social entertainment service monthly revenue per paying user decreased by nearly 40% year-on-year.
The financial report shows that in the first quarter, NetEase Cloud Music social entertainment service monthly revenue per paying user was 329.8 yuan, a decrease of 40.4% to 329.8 yuan compared with 553.3 yuan in the same period last year. At the same time, revenue per paying user per month for online music services also decreased, from 7.1 yuan a year earlier to 6.4 yuan this quarter.
Finally, are NetEase Cloud Music’s “excellent” results sustainable?
From the above analysis, the growth of NetEase Cloud Music paying users is related to promotion to a certain extent. The reduction of losses is achieved on the basis of optimizing costs. The cost optimization space cannot continue indefinitely. NetEase Cloud Music wants to continue to develop positively. , Winning the favor of investors does not seem to be so easy.
- There is still a big gap between NetEase Cloud Music and Tencent Music.
1. In the first quarter, Tencent Music achieved a revenue of 6.64 billion yuan, and the revenue scale was 3.2 times that of NetEase Cloud Music; in the first quarter, Tencent Music’s online music monthly active users were 604 million, and the scale of online music monthly active users was that of NetEase Cloud Music. 3.3 times.
It should be pointed out that both Tencent Music and NetEase Cloud Music have experienced varying degrees of decline in monthly active users, which means that online music users seem to have reached the ceiling, and the competition between the two in terms of users and user usage time will be more intense.
2. Tencent Music remained profitable, and NetEase Cloud Music continued to lose money. The financial report shows that in the first quarter of 2022, the company’s net profit was 649 million yuan, making profits for 13 consecutive quarters, while NetEase Cloud Music has not yet escaped losses.
3. Copyright monopoly has become a thing of the past, which gives NetEase Cloud Music more opportunities to obtain copyright. But there is a problem that needs to be addressed: music copyright is in the hands of copyright owners such as Universal, Warner, and record companies. If a music streaming platform wants to obtain music copyright, the related costs may not be reduced. The expenditure of copyright costs is a hard expenditure, and the cash for the platform Streaming is a big test.
4. In the post-copyright era, after the implementation of strong supervision of live broadcasts, both of them need to find new growth potential. The confrontation between the two sides in the field of original music will be more intense.
What cannot be ignored is that Tencent Music continues to invest based on the content and platform “one body and two wings” strategy, and continues to penetrate into the upstream of the music industry through a sound original content production support system and a full-service system for musicians.
Original musicians are also the focus of online music platforms. According to the financial report, the number of registered independent musicians on the NetEase Cloud Music platform exceeded 450,000, a year-on-year increase of about 70%; a total of about 2 million music tracks were created. It is reported that Tencent Music has launched a new behind-the-scenes producer service, with more than 50 industry and well-known professionals and more than 100,000 creators joining in the first quarter. In the past 12 months, Tencent Music has distributed more than 200 million yuan in income incentives to musicians.
- Short video platforms have caused a major impact on online music platforms.
In recent years, the rapid development of short video platforms, while occupying the core of traffic, has also changed the production, dissemination and consumption patterns of music. Short video platforms are also building and improving their own music ecology, which is very important for NetEase Cloud Music. , Tencent Music and other online music platforms caused a major impact.
In response to the competitive pressure of short video platforms, Tencent Music has invested in long-audio audio live broadcasts, and also expanded its overseas business. At the same time, it has continued to deepen its in-depth cooperation with Tencent ecosystem.
Liang Zhu, CEO of Tencent Music Entertainment Group, said: “In the first quarter of 2022, we will continue to build an immersive music entertainment ecosystem and actively bring more innovative possibilities for music lovers to listen, watch, sing and play. We continue to refine to meet the individual needs of multi-level groups, and deepen the sense of identity and belonging between products and users. We have also further strengthened the all-round linkage with Tencent’s ecology, and the benefits are becoming more and more significant. In addition, we also provide users with More differentiated long audio content, and are committed to continuing to improve the commercialization efficiency of this business through the membership model. Going forward, we will continue to enhance the differentiation and specialization of our ecosystem, content, products and services, and more It is a good way to provide high-quality services for the majority of music lovers, music creators and the entire music industry, and further release.”
In contrast, NetEase Cloud Music continues to strengthen the content side to meet the diverse and personalized needs of young users. Looking forward to the future, NetEase Cloud Music will actively negotiate with many copyright holders to obtain more high-quality content and enrich the content of the platform.
From this point of view, NetEase Cloud Music hopes to develop through its own innovation and technical capabilities, while Tencent Music relies on Tencent’s ecology and has relatively more room for expansion. The future road of NetEase Cloud Music does not seem to be so easy.
media coverage
NetEase News TechWeb Titanium Media
event tracking
- 2022-05-25The “secret” behind NetEase Cloud Music’s highlights
- 2022-02-24NetEase Cloud Music has over 400,000 independent musicians, with a positive annual gross profit margin
- 2022-02-17 QQ Music released the new “Seamless Play” function for the first time in China, NetEase Cloud Music will follow up
- 2021-12-27 QQ Music, NetEase Cloud Music User Annual Listening Song Report Online
- 2021-12-02NetEase Cloud Music listed on HKEx
This article is reproduced from: https://readhub.cn/topic/8ghoKC8VS2r
This site is for inclusion only, and the copyright belongs to the original author.