Northeast Securities has released a research report highlighting the significant potential for user monetization at NETEASE MUSIC (09899). The report notes that while the platform's online music paying ratio reached 21.4% in 2023, this still leaves considerable room for improvement compared to Spotify's 39% paying rate overseas. Enhancements to member benefits, including the addition of AI features and integration with external platform privileges, are expected to further boost Average Revenue Per User (ARPU). The firm forecasts the company's revenue for 2025-2027 to be 7.935 billion yuan, 8.692 billion yuan, and 9.585 billion yuan, respectively. Net profit attributable to the parent company is projected at 2.684 billion yuan, 2.215 billion yuan, and 2.541 billion yuan for the same period, with Earnings Per Share (EPS) of 12.32 yuan, 10.17 yuan, and 11.66 yuan. This implies a Price-to-Earnings (P/E) ratio of 16 times for 2026.
NETEASE MUSIC has carved a niche in the online music sector by combining "music and social" elements, achieving strategic and profitability breakthroughs. As a music platform in China focused on a socialized experience, its core differentiation lies in "community-driven music consumption," setting it apart from traditional utility-based platforms. At the ownership level, NetEase holds a controlling 59.4% stake, ensuring strategic stability. The management team possesses diverse professional backgrounds encompassing internet operations, copyright cooperation, and business intelligence, providing complementary skills that support effective business execution.
Financially, the company achieved a critical milestone by turning a profit for the first time in 2023. Its gross profit margin has shown a sustained recovery, improving from -114.74% in 2018 to 33.73% in 2024. This shift marks a departure from the previous model of "scaling investment for growth" towards "efficient monetization driven by content value," significantly enhancing both the quality and sustainability of its profitability.
The company's differentiated advantages are well-positioned to capture growth opportunities amid industry expansion and market segmentation. The global recorded music market reached $29.6 billion in 2024, growing 4.8% year-on-year and marking a decade of continuous growth, with streaming accounting for 69% as the core driver. China entered the global top five markets in 2022 and demonstrated a growth rate of 9.6% in 2024, outpacing mature markets like the US and Europe, fueled by strengthened copyright protection and innovation in local music.
The competitive landscape in the online music sector is clear. Globally, Spotify leads with a 32% user share. Domestically, the Tencent ecosystem (KuGou 29% + QQ Music 25%) dominates. NETEASE MUSIC, with its 19% share of monthly active users, has established a differentiated advantage among Gen Z users (who comprise over 90% of its user base) through strong "community stickiness and original content." The copyright environment is shifting from "exclusive monopolies" to "cross-licensing." Through partnerships with major labels like Warner and Sony, NETEASE MUSIC has built a library of 180 million tracks and has secured access to 99% of Tencent Music's formerly exclusive catalog, effectively eliminating previous content gaps.
The company's growth is underpinned by a three-pronged strategy focusing on "Content-Community-Technology." On the content front, it operates a dual-track approach: its licensed library covers diverse genres including C-pop, K-pop, and independent music, while its original content initiative, through programs like the "Stone Plan" and "Ladder Plan," has nurtured 774,000 independent musicians and 4.4 million original songs, with self-produced tracks frequently becoming hits. The community aspect exhibits high user stickiness, with a total of 1.2 billion user comments (1.6 million daily) and user-created playlists accounting for 70%-80% of total plays. In 2024, daily active users spent an average of 78.9 minutes listening per day, and the DAU/MAU ratio exceeded 30%, indicating industry-leading user engagement. Technologically, AI and multi-scenario integration provide empowerment: its personalized recommendation system ranks first in the industry for accuracy, the "NetEase Tianyin" AIGC platform lowers the barrier to music creation, and partnerships with brands like Xiaomi and Mercedes-Benz ensure a consistent experience across multiple endpoints, including in-car entertainment.