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China’s NetEase Cloud Village Restarts Hong Kong IPO With Investment From Sony Music

HONG KONG — The music streaming arm of Chinese tech giant NetEase is reviving its plans for an initial public offering (IPO) in Hong Kong, after shelving it earlier this year amid an environment of tightening regulations by Beijing on China’s private sector.

The unit, Cloud Village, is selling 16 million shares, which accounts to 7.7% of the enlarged share capital, according to a securities filing released on Tuesday.

A price range of HK$190 to HK$220 per share has been set for institutional investors. Cloud Village plans to raise HK$3.52 billion ($451.9 million) with a 15% over-allotment option.

Cloud Village will price its shares on Friday and start trading on the Hong Kong Stock Exchange on Dec. 2, according to the filing. The final offer price and share allotment results will be announced on Dec. 1, the company says.

Cornerstone investors include parent company NetEase, Sony Music Entertainment (which previously reached a licensing cooperation deal with Cloud Village in mid-2021) and Orbis Funds.

NetEase originally filed for the Cloud Village listing in August, and planned to raise $1 billion, after winning approval from the Hong Kong stock exchange. The company shelved its decision after Beijing introduced new regulations on data privacy, sending market violations to companies in China’s tech sector.

Hello Inc, a bike-sharing provider funded by Chinese tech giant Ant Group, has also postponed its IPO plans due to the regulatory scrutiny.

In July, the country’s antitrust watchdog also ordered Tencent and its subsidiary Tencent Music Entertainment to end its exclusive music licensing deals with global record labels. The regulator fined TME a total of 2.5 million yuan ($385,000), or 500,000 yuan ($77,000) for each breach.

Cloud Village, which had 185 million monthly average users in the first six months of 2021, is considered the closest rival to TME’s three music streaming platforms, which collectively dominated China’s market with 77% of monthly active users as of May, according to Statista. (NetEase had 9%.)

Cloud Village generates most of its revenue through subscriptions, advertising and virtual items users buy on its platforms. Since 2013, the music streaming platform has expanded its services to karaoke and lyrics-sharing.

Revenue for the first nine months in 2021 rose 51.5% year-over-year to 5.1 billion yuan, according to a company prospectus. Monthly paying users of online music services grew from 4.2 million in 2018 to 27.5 million in the nine months ended Sept. 30, 2021.

However, the company is unprofitable. Cloud Village has posted losses for the past three years, with a full-year net loss widening to 3 billion yuan in 2020 compared to 2 billion yuan in 2019.

“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 ending Dec. 31, 2021,” the company said in a filing with the Hong Kong stock exchange, “due to its continued investments in content, technologies, marketing initiatives as well as research and development.”

UPDATE: This article was updated Nov. 23 at 6:25 a.m. ET to reflect new information about the offering filing.