Sealand Securities has released a research report forecasting that NETEASE MUSIC (09899) will achieve revenues of 8.479 billion yuan, 9.116 billion yuan, and 9.699 billion yuan for the years 2026 to 2028, respectively. Net profit attributable to shareholders is projected to be 2.059 billion yuan, 2.274 billion yuan, and 2.476 billion yuan for the same period. Adjusted net profit is estimated at 2.179 billion yuan, 2.404 billion yuan, and 2.617 billion yuan, corresponding to adjusted P/E ratios of 14, 13, and 12 times. NETEASE MUSIC is recognized as a leading online music platform in China, with a growing number of paying users driving significant revenue growth in its membership subscription business. Over the long term, the company is expected to gradually release operational leverage, leading to enhanced profitability. Based on this outlook, Sealand Securities maintains a "Buy" rating.

Key points from the report are as follows:

Adjusted operating profit increased by over 30% year-over-year, indicating sustained improvement in profitability. Revenue for 2025 reached 7.759 billion yuan, partly due to a more cautious operational strategy adopted for social entertainment services. Net profit attributable to shareholders was 2.748 billion yuan, a 76.0% increase year-over-year. Adjusted operating profit amounted to 1.734 billion yuan, rising 32.4% year-over-year, primarily driven by ongoing optimization of marketing expenses and content costs. Adjusted net profit was 2.860 billion yuan, marking a 68.2% increase year-over-year, which included an income tax benefit of 678 million yuan. Excluding the impact of this tax benefit, adjusted net profit was 2.182 billion yuan, representing a 28.0% year-over-year increase.

The gross profit margin for 2025 was 35.7%, up 2.0 percentage points from the previous year. The adjusted operating profit margin stood at 22.34%, an increase of 5.9 percentage points year-over-year. Selling expenses totaled 409 million yuan. The company held cash and cash equivalents of 12.175 billion yuan at the end of 2025, a 19.2% increase compared to the prior year.

Revenue for the first and second halves of 2025 was 3.827 billion yuan and 3.932 billion yuan, respectively. Cost of revenue was 2.435 billion yuan and 2.555 billion yuan for the same periods. Gross margins were 36.4% and 35.0% for H1 and H2, increasing by 1.4 and 2.7 percentage points year-over-year, respectively. Adjusted net profit margins were 50.9% and 23.2% for H1 and H2, rising by 29.2 and 2.1 percentage points year-over-year, respectively.

Growth in the number of paying users has driven an increase in online music subscription revenue, while content costs and promotional expenses have been optimized. Online music business revenue reached 5.994 billion yuan in 2025, a 12.0% year-over-year increase. Membership subscription revenue accounted for 5.053 billion yuan of this total, growing 13.3% year-over-year. This growth is attributed to enhanced user experience, upgraded membership benefits, and a continuously enriched music community, which collectively attracted more monthly paying users. The platform's monthly active users showed steady growth, with the ratio of daily active users to monthly active users remaining above 30% and improving year-over-year. Other revenue streams, including advertising and single track sales, totaled 942 million yuan, a 5.2% year-over-year increase. Revenue from social entertainment and other businesses was 1.765 billion yuan in 2025, reflecting a continued strategic focus on core music operations.

Content service costs in 2025 were 3.734 billion yuan, representing 48.1% of total revenue. Promotion and advertising expenses were 296 million yuan, consistent with a more prudent promotional strategy.

The company is actively expanding its music copyright library and has launched multiple AI-powered features. Copyright content has been significantly enriched, with new additions from K-POP labels such as RBW, StarShip, and Shofar Music, alongside works from Chinese musicians including Li Jian, Zhang Yixing, Chen Chusheng, and Yi Yangqianxi. The platform continues to cultivate its roster of independent musicians. By the end of 2025, registered independent musicians exceeded 1 million, an increase of approximately 181,000 from mid-2025, with over 5.6 million songs uploaded, an increase of about 800,000 from the first half of the year. Efforts to develop proprietary content are being strengthened to create high-quality, premium music offerings.

New AI features include "AI Singing Assistant 2.0" for one-click music video creation, "AI Divine Light Player" for personalized player backgrounds, and "AI Songwriting" for turning real-time inspiration into songs, significantly enriching the user music experience.

Potential risks include slower-than-expected growth in paying users, intensifying market competition, rising content costs, industry regulatory changes, non-renewal of copyright agreements, and competition from other entertainment formats and music platforms.