NetEase Spinning Off Music Streaming Unit for Hong Kong IPO

NetEase (NTES) is splitting up with the goal of making its music streaming unit a standalone public company. NetEase is a Chinese technology company with a diverse business portfolio spanning videogames publishing, ecommerce, advertising, and music services.

The company is spinning off its Cloud Village unit, which houses the NetEase Cloud Music streaming service. The music streaming service ended 2020 with more than 180 million users.

NetEase hasn’t provided the music unit’s IPO details, other than to announce Hong Kong as its location. For example, it remains unknown how many shares the unit plans to sell, the amount of money it aims to raise, and the IPO date.

NetEase owns more than 62% of Cloud Village. It expects that the spin-off will make Cloud Village more attractive to growth-focused investors with a taste for the music streaming business. 

“Cloud Village Group’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,” NetEase said in a SEC filing. 

NetEase is working with a group of investment banks, including Bank of America, Credit Suisse, and China International Capital on the music unit spinoff and IPO. It will retain at least 50% of the voting power in Cloud Village after the spinoff. (See NetEase stock analysis on TipRanks)

Macquarie analyst Han Joon Kim reiterated a Hold rating on NetEase stock but cut the price target to $118 from $124. The analyst’s new price target points to 3.96% upside potential. 

Kim observed that NetEase’s second-half outlook appears brighter than the first because of its upcoming major game launches.

Consensus among analysts on Wall Street is a Strong Buy based on 6 Buy and 2 Hold ratings. The average analyst price target of $134.14 suggests 15.32% upside potential to the current price.

NTES scores a 7 out of 10 on TipRanks’ Smart Score rating system, implying the stock’s returns are likely to align with the market performance.

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