The board of Chinese tech company NetEase has been given the green light by the Hong Kong Stock Exchange to float its subsidiary Cloud Village Inc., which regroups NetEase's music streaming business.
"The Board of NetEase, Inc. is pleased to announce that it was informed by Cloud Village Inc. that in connection with the Proposed Spin-off, Cloud Village has submitted the post hearing information pack (the “PHIP”) to the Hong Kong Stock Exchange for publication on the Hong Kong Stock Exchange’s website," said the company in a filing.
According to local media reports in Hong Kong, the IPO could raise up to $1 billion. NetEase is expected to retain at least 50% of Cloud Village's shares.
Over 180 million active users
Could Village operates a music streaming service, NetEase Cloud Music, China's second largest streaming service after Tencent, and social media platform providing services such as online karaoke, audio livestreaming, dating, among others.
In a prospectus filed in May, NetEase claimed that NetEase Cloud Music had more than 180 million active users in 2020, of which 9% paying subscribers. It's main competitor, Tencent Music, had about 615 million active users.
In another filing, NetEase informed that "Cloud Village has incurred gross losses, net losses and net operating cash outflow in the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2021." For the past three years, Cloud Village's operating losses reached RMB1.8bn (approx. $278.6m) in 2018, RMB1.6bn in 2019 and RMB1.6bn in 2020.
Investing in content and growth
The losses were explained by the need to focus "on growing its user base via investing in its brand and high-quality content, rather than seeking immediate financial returns or profitability, in order to lay a solid foundation for long-term development."
The company also warned that "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 ended December 31, 2021, due to its continued investments in content, technologies, marketing initiatives as well as research and development."
NetEase added that it was "not possible for Cloud Village to accurately predict when it will be able to achieve profitability. Cloud Village expects to remain loss-making for the years ending December 31, 2021, 2022 and 2023. Cloud Village’s net liabilities position after listing may potentially further deteriorate. If Cloud Village fails to ramp up scale, it may need further fundraising before reaching adjusted net profit and/or net operating cash flow breakeven."
Changes in the regulatory environment
In the filing, NetEase also informs potential investors that Cloud Village "may also continue to incur net losses in the foreseeable future due to changes in the macroeconomic and regulatory environment, competitive dynamics and its inability to respond to these changes in a timely and effective manner."
This paragraph is a veiled reference to potential regulatory hurdles as the Chinese government has been focusing recently on the market dynamics of major tech companies and applied some corrections in the form of fines or requirements for mandatory changes. In recent weeks, companies such as Alibaba or NetEase's competitor Tencent were investigated by Chinese regulators.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.