NetEase to spin off Cloud Village, its music streaming service operator, in Hong Kong IPO

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NetEase said it plans to spin off Cloud Village, the operator of its NetEase Cloud Music streaming service, in an initial public offering in Hong Kong.

The Hangzhou-based tech company said it had received permission from the Hong Kong stock exchange to move forward with a potential spin-off of the business.

NetEase would hold at least 50 per cent of the voting rights of Cloud Village and the company would remain a NetEase subsidiary following the IPO. NetEase owns 62.46 per cent of Cloud Village’s total issued share capital.

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“Cloud Village’s business is expected to undergo relatively rapid business expansion and would be appealing to an investor base that focuses on high growth opportunities in the music streaming business, different from the relatively more diverse business model of NetEase’s operations,” the company said in a stock exchange filing on Wednesday.

Details of the proposed spin-off, including the size of the offering, have not been finalised, NetEase said. It would include a Hong Kong retail offering, as well as an offering to international investors.

The proposed offering is subject to final approval by the Hong Kong bourse’s listing committee.

NetEase, the operator of China’s second-largest gaming business, reported a 39.7 per cent increase in first-quarter revenue in its “innovative businesses and other” segment, which includes the music streaming business. NetEase attributed a year-over-year increase in gross profit in the segment primarily to the improved performance of NetEase Cloud Music.

Earlier this month, NetEase Cloud Music struck a licensing deal with Sony Music Entertainment to distribute the latter’s content to mainland Chinese users and explore other areas of collaboration, including music vlogs and online karaoke with smartphones. It also has licensing deals with Universal Music Group and Warner Chappell, the global music publishing arm of Warner Music Group.

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NetEase Cloud Music had more than 180 million monthly active users for its music streaming service in 2020.

Last June, NetEase itself raised US$2.7 billion in a secondary listing in Hong Kong, two decades after its IPO on the Nasdaq.

China International Capital Corporation (CICC), Credit Suisse and Merrill Lynch (Asia Pacific) are acting as joint sponsors on the Cloud Village offering.

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