NetEase reportedly mulling restart of IPO plan in HK for music streaming arm

NetEase's music streaming arm Cloud Village has reportedly restarted its initial public offering in Hong Kong after delaying it for more than three months. According to a report from CNBC, the company submitted a new filing to the Hong Kong stock exchange, indicating that it is going ahead with the  listing. In August, NetEase filed for the listing of Cloud Village. However, due to the volatility of markets at that time, the company decided to delay the IPO. 

A Reuters report said the filing to the Hong Kong Stock Exchange did not specify the size or timetable. Previously, NetEase planned to raise US$1 billion in the August transaction. However, just three months after, it now hopes to raise just about US$500 million. The final figure has yet to be determined but NetEase hopes to complete the listing before the end of 2021, depending on market conditions.

Cloud Village is a rival to Tencent's popular music streaming service, and runs NetEase’s music streaming business. It has 185 million monthly active users, according to the company. Its revenue relies on subscriptions, advertising and users buying virtual items on its platforms. 

In an HKEX filing, Cloud Village said it had incurred gross losses, net losses and net operating cash outflow in the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2021, as it has been focused on growing its user base via investing in its brand and high-quality content, rather than seeking immediate financial returns or profitability to lay a solid foundation for long-term development.

It added that despite a continued increase in its user base, Cloud Village may continue to incur gross and net losses and net operating cash outflow in the foreseeable future, including for the year ended on 31 December 2021, due to its continued investments in content, technologies, marketing initiatives as well as research and development. Cloud Village may also "continue to incur net losses in the foreseeable future due to changes in the macroeconomic and regulatory environment, competitive dynamics and its inability to respond to these changes in a timely and effective manner."

Moreover, the company said it expects to remain loss-making for the years ending on 31 December 2021, 2022 and 2023.

China internet companies have been facing crackdown from the authorities. For example, Cloud Village's rival Tencent Music was ordered by China's antitrust regulator The State Administration for Market Regulation (SAMR) to give up its exclusive music licensing rights in July. It has also been fined for unfair market practices in the online music market after acquiring China Music Corporation in 2016.

In a statement, SAMR said after investigating the tech giant's activities in the online music broadcasting platform market in China and the acquisition of China Music five years ago, as Tencent currently owns more than 80% of exclusive music library resources, such dominance offers Tencent an advantage over its competitors while it is able to reach more exclusive deals with copyright holders as music copyright is the core asset. 

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