NetEase’s Music App Files for $1 Billion Hong Kong IPO

Chinese gaming giant NetEase Inc.’s music streaming arm has filed for an initial public offering in Hong Kong as the Tencent Holdings Ltd. rival ratchets up competition in online content.

The Hangzhou-based firm has submitted a listing application for Cloud Village Inc. to the Hong Kong stock exchange, according to a filing on Wednesday. Cloud Village runs NetEase’s music streaming platform in China and also operates streaming and advertising through the platform. The filing didn’t provide details of the share sale.

An IPO of the music unit could raise about $1 billion, according to a person familiar with the matter, who asked not to be identified as the information is private. Jiemian and IFR reported the size of the offering earlier on Wednesday. A representative for NetEase declined to comment.

China International Capital Corp., Credit Suisse Group AG and Bank of America Corp. are the sponsors of the deal, according to the filing.

NetEase has long been a distant runner-up to Tencent in gaming and music streaming. Started in 2013, the music wing has since expanded its products to offer everything from online karaoke to live-streaming and lyrics sharing. The unit -- 62% owned by NetEase -- grew its monthly music users to 181 million last year, of which 9% are paying subscribers, according to its preliminary prospectus. Revenue surged 111% to 4.9 billion yuan ($767 million) in 2020, with social entertainment services making up a bigger share compared with previous years. Net loss widened to 3 billion yuan last year, versus 2 billion yuan in 2019.

NetEase’s Music App Files for $1 Billion Hong Kong IPO

Unlike its much larger rival, NetEase’s music arm is still in the red largely because of high content costs -- almost as big as its 2020 sales. But William Ding’s company recently struck deals to license songs directly from Universal Music Group Inc. and Sony Music Entertainment, ending the label giants’ exclusive arrangements with Tencent Music Entertainment Group. China’s antitrust authority had launched a probe into Tencent’s music spin-off over its licensing practices. Tencent Music has been cooperating with the regulators as it has received increased scrutiny, Chief Strategy Officer Tony Yip said in a post-earnings call last week.

In 2019, NetEase Cloud Music unit raised $700 million from Alibaba Group Holding Ltd. and founder Jack Ma’s Yunfeng Capital, following a previous round in which Baidu Inc., General Atlantic and Boyu Capital participated. The company said it plans to invest more in tech, build up its user base, and diversify its revenue stream in the next three years.

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