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Chinese Internet technology company NetEase is all set to initiate an initial public offering (IPO) of its music streaming unit – Cloud Village. The company is eyeing a valuation of about $500 Million.
The plan is to roll out approximately sixteen million shares (about 7.7% of the enlarged share capital) priced between the range of 190 Hong Kong dollars and 220 Hong Kong dollars. The closing rate is, however, yet to be decided. Another alternative is to supply a subsequent set of 2.4 Million shares under the bracket of an over-allotment opportunity. This is essentially a part of the greenshoe option once the company is listed on the Hong Kong Stock Exchange.
If all goes well with the IPO, Cloud Village can expect a market capitalization of $5.4 Billion to $6.2 Billion. The valuation includes all the external expenses involving fees etc.
Cloud Village, NetEase’s music streaming arm, according to the company, has around 185 million active subscribers. Till September 2021, the company witnessed a continuous nine-month rise to 5.1 Billion Yuan ($799.6 million), with a 51.5% year-on-year increase. However, owing to the cut-throat competition over market share with rival company Tencent, NetEase is enduring substantial losses in the streaming business.
According to the term sheet, Cloud Village will attach a definite value to its shares on November 26, while commencing trading on the Hong Kong Stock Exchange on December 2nd.
NetEase has paid for stocks worth $200 Million as the primary investor, adjacent to the investments by Sony Music (with $100 million) and Orbis Investments (with $50 million). According to some internal sources, Cloud Village had larger plans for the IPO, with an aim to elevate the valuation by at least $1 Billion. However, the plans were dropped and the initial public offering was squeezed to a smaller scale.
While the reasons might be wide-ranging, one of the possible factors affecting the scale down of NetEase’s IPO is touted to be the extensive regulatory proceedings. Chinese mobility technology company Didi Global Inc faced an unpleasant response to the Chinese mandates and regulations from the international financial markets while launching its IPO in the United States.
NetEase’s source of revenue is generated principally from user subscriptions, advertisements, and virtual products put upon its digital platform. The company initially registered for the listing of Cloud Village in August 2021 but postponed the whole procedure due to instability in the Chinese markets.
The Chinese Technology sector, with the strict legislation of government authorities, is encountering a highly stringent regulatory ecosystem in sectors ranging from antitrust to data protection. The austere conditions of the financial markets have affected the share prices of many big names in the Chinese markets.