NetEase Cloud Music (09899.HK): Benefiting from improved gross margin, net profit significantly increased.

$NETEASE MUSIC(09899.HK) NetEase Cloud Music announced its full-year 2025 results, with total revenue slightly down 2.4% year-on-year to RMB 7.76 billion. Despite revenue pressure, benefiting from optimized copyright costs and operating leverage, gross margin expanded significantly from 33.7% to 35.7%. Net profit for the period reached RMB 2.75 billion, a substantial increase of 75.4% year-on-year; adjusted net profit also rose 68.2% to RMB 2.86 billion, indicating significant achievements in profit release and cost control.

In terms of business segments, core online music service revenue continued to grow, with subscription revenue rising approximately 13.3%, mainly driven by an increase in the number of paying users; however, average revenue per paying user (ARPPU) decreased by 3% year-on-year. In contrast, social entertainment service revenue fell 32% year-on-year, continuing to drag down overall revenue performance, but the decline narrowed in the second half. At the operational level, the company effectively resisted competition from short-video platforms by optimizing algorithms and differentiating content, maintaining robust user activity.

Looking ahead to 2026, management expects ARPPU to regain growth momentum as channel discounts are optimized, with the subscription business remaining the primary growth engine. The company currently holds ample cash and has initiated a share repurchase, which is expected to enhance shareholder returns.

Source: KGI Securities