Northeast: Music ecosystem giant NETEASE MUSIC (09899) benefits from rapid industry growth.

Northeast released a research report pointing out that the potential for paid users of NETEASE MUSIC (09899) is yet to be fully realized, with an online music payment rate of 21.4% in 2023, compared to Spotify's 39% overseas, indicating significant room for improvement. In addition, with the enhancement of member benefits (adding AI functionality and connecting external platform benefits), it is expected to drive ARPU further improvement. It is estimated that the company's revenue for 2025-2027 will be 7.935/8.692/9.585 billion yuan, with net profit attributable to shareholders of 2.684/2.215/2.541 billion yuan, and EPS of 12.32/10.17/11.66 yuan, corresponding to a PE ratio of 16 times in 2026. Breaking through the online music track with a combination of "music + social" to achieve strategic and profitable breakthroughs in two dimensions. As a domestic music platform focusing on social experiences, NETEASE MUSIC has always differentiated itself by focusing on "community-driven music consumption" as its core strategy, distinguishing it from traditional platforms. At the equity level, it is led by NetEase, with a 59.4% stake to ensure stability in strategic direction; the management team covers diverse professional backgrounds in internet operations, copyright cooperation, and business intelligence, providing complementary support for business implementation. Financially, it achieved a key breakthrough in 2023, turning losses into profits for the first time, and its gross margin has steadily improved from -114.74% in 2018 to 33.73% in 2024. The profit model has completely moved away from "scale input for growth" to "content value-driven efficient monetization," significantly enhancing the quality and sustainability of profits. The industry's expanding scale combined with differentiated patterns highlight growth opportunities. The global recorded music market is expected to reach $29.6 billion by 2024, with a year-on-year increase of 4.8%, growing continuously for ten years, and streaming accounting for 69% as a core driver; China entered the global top five in 2022, with a growth rate of 9.6% in 2024, higher than mature markets in the United States and Europe, driven by strengthened copyright protection and local music innovation. 2) The competition landscape of the online music track is clear: Global leader Spotify with a 32% user share, domestic Tencent (Kugou 29% + QQ Music 25%) dominates, NETEASE MUSIC with a 19% monthly active user share, forming differentiated advantages in the Z generation (with a user share of over 90%) with "community stickiness + original content." 3) The copyright ecosystem is transitioning from "exclusive monopolies" to "cross-licensing", with NetEase Cloud cooperating with labels including Warner and Sony, with a library of 180 million songs, acquiring Tencent Music's 99% exclusive library to eliminate core content gaps. The three-wheel drive of "content-community-technology" constructs a core growth moat. On the content side, dual-track replacement: covering a variety of categories such as Chinese, Korean Wave, and independent music on the copyright side, and on the original side incubating 774,000 independent musicians and 4.4 million original songs through the "Stone Plan" and "Cloud Ladder Plan", self-made tracks becoming hits. On the community side, a high-stickiness ecosystem is significant: with 1.2 billion music reviews (average of 1.6 million per day), playlist playback accounting for 70%-80%, daily active users listening to music for an average of 78.9 minutes in 2024, DAU/MAU exceeding 30%, leading in user stickiness in the industry. On the technology side, AI and multi-scenario empowerment: personalized recommendations are industry-leading in accuracy, the "NetEase Tianyin" AIGC platform lowers the threshold for creation, partnerships with brands such as Xiaomi and Mercedes-Benz for in-car experiences, ensuring a consistent experience across multiple terminals.