FAST NEWS: Cloud Music’s Gross Profit Jumps on Social Services, Cost Controls

The latest: Cloud Music Inc. (9899.HK), the music arm of gaming giant NetEase (NTES.US; 9999.HK), said on Thursday its revenue rose 22.5% year-on-year in the third quarter to 2.36 billion yuan ($330 million). Its gross profit for the period jumped 6.79 times to 333 million yuan, and its gross margin surged 12 percentage points to 14.2%.

Looking up: The company attributed the gross profit improvement to increased revenues from its social entertainment services, as well as continuously improving cost control measures.

Take Note: Cloud Music revealed that parent NetEase purchased about 700,000 of its ordinary shares in open market transactions on the Hong Kong Stock Exchange. But it noted such support is based on market factors and could be suspended or terminated in the future.

Digging Deeper: Founded in 2013, Cloud Music is the online music arm of NetEase, one of China’s leading online game operators. It generates revenue by selling membership subscriptions, digital albums and virtual goods for social entertainment services, and by providing advertising services. Its biggest domestic competitor is Tencent Music (TME.US; 1698.HK), a subsidiary of leading game operator Tencent (700.HK). Despite recording gross profits, Cloud Music has recorded net losses of more than 2 billion yuan in each of the past four years. It was able to list in Hong Kong, which normally shuns money-losing companies, as its market capitalization and revenue level were both in excess of the Hong Kong Stock Exchange’s minimum requirements.

Market Reaction: Shares of Cloud Music closed 5.7% higher at $72.70 by the midday break on Friday. But they are still 64.5% below their IPO price of HK$205 at the end of last year.

Translation by Jony Ho

To subscribe to Bamboo Works free weekly newsletter, click here