FAST NEWS: Cloud Music shares plunge on revenue decline

The latest: Chinese music platform Cloud Music Inc. (9899.HK) last Friday reported first-quarter revenue of 1.96 billion yuan ($277 million), down 5.2% year-over-year and 17.5% quarter-over-quarter, respectively. Its gross profit for the period jumped 74.7% to 439 million yuan.

Looking up: Continued cost controls helped the company boost its gross margin for the first quarter to 22.4%, a significant improvement of 10.2 and 4.6 percentage points year-over-year and quarter-over-quarter, respectively.

Take Note: The company’s revenue from social entertainment services declined due to a reduction of in-app exposure for certain livestreaming functions and less favorable revenue-sharing ratios with its broadcaster and agency partners.

Digging Deeper: Founded in 2013, Cloud Music is the online music arm of NetEase (NTES.US; 9999.HK), one of China’s leading online game operators. It generates revenue by selling membership subscriptions, digital albums and virtual goods for social entertainment services, and by providing advertising services. Its biggest domestic competitor is Tencent Music (TME.US; 1698.HK), a subsidiary of leading game operator Tencent (700.HK). The company has never made a profit and has accumulated combined losses of more than 9.2 billion yuan over the past five years. But last year’s loss narrowed significantly to 220 million yuan, reflecting a significant improvement in its performance.

Market Reaction: Cloud Music shares plunged on Monday, closing down 11.7% at HK$74.15 by the midday break. The stock now trades in the middle of its 52-week range.

Translation by Jony Ho

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