Kaiyuan Securities has reaffirmed its "Buy" rating on NETEASE MUSIC (09899), with the current stock price corresponding to PE ratios of 15.0x, 13.4x, and 11.9x for respective periods. The firm expresses optimism that high-quality content will gradually drive an increase in Average Revenue Per User (ARPU).
In 2025, the company achieved revenue of RMB 77.6 billion, with net profit attributable to shareholders reaching RMB 27.5 billion, representing a year-on-year increase of 76.0%. Adjusted operating profit was RMB 17.3 billion, up 32.4% year-on-year, while adjusted net profit reached RMB 28.6 billion, a 68.2% increase. This robust performance was primarily attributed to enhanced profitability and the recognition of approximately RMB 6.8 billion in income tax credits during 2025.
For the second half of the year alone, the company reported revenue of RMB 39.3 billion, a 1.4% increase compared to the same period last year. Net profit attributable to shareholders was RMB 8.6 billion, up 14.8% year-on-year. Adjusted operating profit for H2 was RMB 8.3 billion, rising 29.7%, and adjusted net profit was RMB 9.1 billion, an increase of 11.5%.
The gross profit margin for the full year 2025 stood at 35.7%, an improvement of 2 percentage points year-on-year. The H2 gross margin was 35.0%, up 3 percentage points compared to the prior year period. The annual improvement was mainly due to enhanced operating leverage and efficiency in the music service segment. The sequential decline from H1 to H2 is potentially linked to an increased proportion of social entertainment revenue, which led to higher revenue sharing costs.
Music service revenue demonstrated steady growth, reaching RMB 59.9 billion in 2025, a 12% year-on-year increase. This was driven by the company's strategy of upgrading membership benefits and enriching community content, which fostered continuous growth in monthly paying users. Membership service revenue specifically reached RMB 50.5 billion, up 13% year-on-year.
The platform's brand identity was further strengthened. Despite a reduction in promotional spending in 2025, both user scale and activity levels achieved year-on-year growth. Key engagement metrics, including the DAU/MAU ratio and average daily time spent per mobile user, also increased compared to the previous year, indicating enhanced user stickiness.
The company continues to expand its audio content library and leverage AI to improve the user experience, with expectations for accelerated commercialization. It is building a diverse and differentiated content ecosystem by supplementing its licensed music catalog and reinforcing its leading independent musician community. Initiatives like the "Original Sound Promoter" program establish a mechanism for discovering, appreciating, and promoting quality content, providing exposure opportunities on high-traffic variety shows like "Singer 2025" and games such as "Fantasy Westward Journey." By the end of 2025, the platform hosted over one million registered independent musicians and more than 5.6 million uploaded tracks.
The platform is also broadening its audio content offerings; for instance, the supernatural story podcast "Zi Bu Yu Wo Yu" by Guo Degang garnered nearly ten million listens. The proprietary large language model, Climber, enhances content recommendation capabilities, while a suite of AI features enables one-click MV generation and customizable player backgrounds.
Kaiyuan Securities is optimistic that the expansion of audio content and the deepening application of AI will continue to drive growth in the platform's active user base, paying user ratio, and ARPU.
Risk factors include potential shortfalls in user growth and pay rate increases, as well as intensifying industry competition.
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