Cloud Village Inc. Announces Results for 2022 First Quarter

HANGZHOU,China,May 24,2022 --Cloud Village Inc. (HKEX: 9899,"NetEase Cloud Music" or the "Company"),a leading interactive music streaming service provider in China,today announced its unaudited consolidated results for the three months ended March 31,2022.

Summary of Key Financial and Operating Metrics

(RMB in thousands,unless otherwise stated)

Three months ended March 31,

2022

2021

Financial Metrics

Revenue

2,067,206

1,491,167

Gross profit/(loss)

251,557

(53,951)

Loss for the period

(180,027)

(1,665,236)

Non-IFRS measure:

Adjusted net loss1

(151,719)

(283,896)

Operating Metrics

Online music services

-MAUs (million)

181.7

183.1

-Monthly paying users (million)

36.7

24.3

-Monthly ARPPU (RMB)

6.4

7.1

Social entertainment services

-Monthly paying users (thousand)

1,181.7

438.1

-Monthly ARPPU (RMB)

329.8

553.3

First Quarter 2022 Key Financial and Operating Highlights

Revenuewas RMB2.1 billion,an increase of 38.6% compared with 1.5 billion for the same period of 2021.

Online music services:

-Revenue from online music services was RMB884.8 million,an increase of 16.5% compared with RMB759.5 million for the same period of 2021. The increase was primarily due to the significant growth in revenues from sales of membership subscriptions.

-MAUs of online music services was 181.7 million compared with 183.1 million for the same period of 2021.

-Monthly paying users of online music services expanded to 36.7 million from 24.3 million for the same period of 2021.

-Monthly ARPPU (average revenue per paying user) of online music services was RMB6.4 compared with RMB7.1 for the same period of 2021. The decrease was primarily due to the increased use of joint membership packages in cooperation with other platforms,in which our membership subscriptions were sold at a discount to promote our subscriptions and broaden the reach of our services.

Social entertainment services and others:

-Revenue from social entertainment services and others was RMB1,182.4 million,an increase of 61.6% from RMB731.7 million for the same period of 2021,driven by the rapid growth of social entertainment services revenue.

-Monthly paying users of social entertainment services increased to 1,181.7 thousand from 438.1 thousand for the same period of 2021.

-Monthly ARPPU of social entertainment services was RMB329.8 compared with RMB553.3 for the same period of 2021.

Gross profitwas RMB251.6 million,compared with a gross loss of RMB54.0 million for the same period of 2021. Gross margin improved to 12.2% from negative 3.6% for the same period of 2021,as a result of the significant revenue increase and control over content licensing fees.

Net losswas RMB0.2 billion,narrowed by 89.2% compared with RMB1.7 billion for the same period of 2021. We recognised fair value loss of convertible redeemable preferred shares of RMB1.3 billion for the first quarter of 2021 while we did not record any further fair value changes for the first quarter of 2022 as such convertible redeemable preferred shares were re-designated from liabilities to equity as a result of the automatic conversion into ordinary shares in the Company's initial public offering in December 2021.

Adjusted net losswas RMB151.7 million,narrowed by 46.6% compared with RMB283.9 million for the same period of 2021.

Note:

(1) Adjusted net loss is defined as loss for the year adjusted by adding back equity-settled share-based payments and changes in fair value of convertible redeemable preferred shares.

Business Overview

Our first quarter performance represents a solid start to 2022. We continued to improve our differentiated community ecosystem and users' engagement through product innovation and content enhancement. At the same time,we successfully increased our profitability by strengthening our commercialisation capabilities and optimising our content cost structure.

In the first quarter of 2022,our MAUs of online music services stood at 181.7 million,largely stable both year-over-year and quarter-over-quarter,with our DAU/MAU ratio (daily average user/ monthly average user ratio) staying well above 30% in the quarter. We also continued to improve our monetisation capabilities in the first quarter of 2022,demonstrated by revenue growth of 38.6% year-over-year,with our membership paying ratio reaching 20.2% based on content and service enhancement. Gross margins reached 12.2% in the first quarter of 2022,compared with a negative gross margin of 3.6% in the first quarter of 2021.

In the online music industry,we are optimistic that our differentiated content and product offerings,along with unparalleled community features and strengthened monetisation efforts,well positioned NetEase Cloud Music to deliver a solid performance. Looking ahead,we will strive to continue advancing our competitive edge amid a healthier industry environment.

Our social entertainment services also achieved strong growth in the first quarter of 2022 against the backdrop of an industry-wide slowdown,attributable to our differentiated audio-based product and service offerings.

Looking ahead,we are strategically expanding our prospects by:

Fostering our music-oriented community ecosystem via enhancements to our comprehensive and innovative product offerings,embedded with more interactive features and ecology,along with advanced tools and technologies to liberate UGC (user-generated content) content creation;

Exploring innovations in social networking,utilising user behavior and music preference to connect users with each other,providing additional social networking options;

Further diversifying and rounding out our content offerings with better investment efficiency,via active negotiation with copyright holders to secure more high-quality content,as well as constant progress in independent artists incubation and in-house music production;

Cultivating our users' willingness to pay and pursuing commercialisation potential,via improved user experience and deepened user engagement,innovative products and content offerings,and broadened consumption scenarios; and

Looking to include layouts in IoT and at expansion opportunities in overseas markets,and potentially game-inspired initiatives,with an expectation to generate incremental contribution from these initiatives over time.

Community ecosystem

Throughout the first quarter of 2022,we successfully revitalised our differentiated community with strong user engagement across our large and stable user scale. In the first quarter of 2022,each daily active user spent approximately 82.0 minutes per day on average listening to music on our platform,up from 76.5 minutes during the first quarter of 2021. Meanwhile,nearly half of our users browsed the "comments section" while listening to music demonstrating high engagement levels. As of March 2022,33% of music streams were attributable to platform recommendations,up from 28% in March 2021,showcasing our robust technology.

UGC-inspired community ecosystem.In the first quarter of 2022,we continued fostering our music-oriented community and UGC ecosystem through constant product improvement across multiple content formats. Meanwhile,we continued developing multiple assistant tools to facilitate further UGC creation on our platform,which will also enhance our vibrant UGC-oriented community and users' engagement. Our UGC ecosystem is unparalleled in the market,aided by our strong and supportive community culture. By the end of the first quarter of 2022,we had accumulated 3.25 billion UGC playlists on our platform.

Invigorating an immersive and comprehensive content community.On top of the music comments section and playlist,we continued diversifying the content offerings on our platform,to create a one-stop,immersive and comprehensive music-oriented content community,including Moments,music blogs (Mlogs),Podcasts,etc. Our UGC-oriented Podcast covered approximately 20% of our total user base during the first quarter of 2022,which further augments our all-in-one comprehensive offerings across online music and audio entertainment.

Product and service innovations

In the first quarter of 2022,we advanced our initiatives to enhance user experience and community features through product innovation:

Joint-collaboration with NetEase Games.We are actively seeking internal collaboration opportunities with NetEase Games,beginning with a joint program with NARAKA: BLADEPOINT (永劫無間) in December 2021 to promote our membership subscription,followed by Harry Potter: Magic Awakened (哈利波特魔法覺醒),etc. In the first quarter of 2022,we made a step in our cooperation with NetEase Games,as we integrated our Podcast content with the game. More specifically,we introduced our innovative Harry Potter Magic Radio (哈利波特魔法電台),a joint-collaboration with NetEase's blockbuster game,which allows users and gamers to enjoy Harry Potter -themed podcast content within the game. With this step,we believe we have laid the foundation for a new collaboration model,with both internal and external partners,leveraging our expertise in audio-based services.

Optimising user experience.We continued to elevate users' experience in the first quarter of 2022 by launching multiple innovative user-oriented functions,including Seemless Listening and Multi-speed Listening,to cater to users' diverse and personalised music listening preferences and demands.

Propelled brand.In the first quarter of 2022,we also conducted multiple content-oriented and event-driven campaigns to further strengthen our brand awareness and influence,including but not limited to the NetEase Cloud Level 8 Certificate (網易雲八級證書) and the NetEase Musicians 2021 Annual Review (網易音樂人2021 年度盤點).

Content enhancement

We offer a full spectrum of various content as our young users' demands are increasingly diverse and personalised. Our content library consisted of more than 90 million music tracks by the end of March 2022,including music from established labels as well as independent artists. Our robust library,together with music-inspired UGC content,brings users broad and differentiated content.

Music labels. We continued to secure more high-quality content with a focus on better return on investment (ROI) in the first quarter of 2022. We are actively completing our major Chinese music library and signed copyright collaborations with Linfair Records,adding music tracks from popular singers to our platform,including but not limited to,Angela Chang (張韶涵) and Christine Fan (范瑋琪). More importantly,we are pleased to see favourable industry trends with more reasonable copyright fees and cost structures,which provide us with the flexibility to optimise our investments in content using a more disciplined approach.

Going forward,we are open to collaborating and will actively negotiate with multiple copyright holders with a goal of securing more high-quality content that complements our content offerings. Meanwhile,we will also work alongside other industry players to foster healthier development of the overall online music industry in China for the benefit of all music lovers.

Independent artists. In addition to music labels,we have become a natural incubator of music talent looking for an audience,empowered by our massive community and large cohort of young users with diverse and personalised tastes. By the end of March 2022,we were serving more than 450,000 registered independent artists on our platform,representing an approximately 70% year-over-year growth. Meanwhile,within our content library,about 2.0 million music tracks came from our registered independent artists.

About Cloud Village Inc.

Launched in 2013 by NetEase,Inc. (NASDAQ: NTES; HKEX: 9999),Cloud Village Inc. (HKEX: 9899) is a leading interactive music streaming service provider in China. Dedicated to providing an elevated user experience,Cloud Village Inc. provides precise,personalised recommendations,promotes user interaction and creates a strong social community. Its focus on discovering and promoting emerging musicians has made Cloud Village Inc. a destination of choice for exploring new and independent music among music enthusiasts in China. The platform has been recognised as the most popular entertainment app among China's vibrant Generation Z community.

Please see http://ir.music.163.com/for more information.

Forward Looking Statements

This press release contains forward-looking statements relating to the business outlook,estimates of financial performance,forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations,assumptions and premises,some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in the future. Underlying these forward-looking statements are a lot of risks and uncertainties. In light of the risks and uncertainties,the inclusion of forward-looking statements in this press release should not be regarded as representations by the Board or the Company that the plans and objectives will be achieved,and investors should not place undue reliance on such statements.

Non-IFRS Measure

To supplement our consolidated results,which are prepared and presented in accordance with International Financial Reporting Standards ("IFRSs"),the Company uses adjusted net loss as an additional financial measure,which is not required by,or presented in accordance with,IFRSs. We believe that this measure facilitates comparisons of operating performance from period to period and company to company by eliminating the potential impact of items that our management does not consider to be indicative of our group's operating performance,such as certain non-cash items. The use of this non-IFRS measure has limitations as an analytical tool,and shareholders and potential investors of our company should not consider them in isolation from,as a substitute for,analysis of,or superior to,our group's results of operations or financial condition as reported under IFRSs. In addition,this non-IFRS financial measure may be defined differently from similar terms used by other companies,and may not be comparable to other similarly titled measures used by other companies. The presentation of this non-IFRS measure should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

Investor Enquiries:

Angela Xu

Cloud Village Inc.

music.ir@service.netease.com

Media Enquiries:

Li Ruohan

NetEase,Inc.

globalpr@service.netease.com

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