NetEase Cloud Music Inc.’s (HKG:9899) stock price dropped 14% last week; public companies would not be happy

Key Insights

• The considerable ownership by public companies in NetEase Cloud Music indicates that they collectively have a greater say in management and business strategy
• 59% of the company is held by a single shareholder (NetEase, Inc.)
• Recent sales by insiders

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A look at the shareholders of NetEase Cloud Music Inc. (HKG:9899) can tell us which group is most powerful. We can see that public companies own the lion’s share in the company with 64% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, public companies as a group endured the highest losses last week after market cap fell by HK$7.6b.

In the chart below, we zoom in on the different ownership groups of NetEase Cloud Music.

See our latest analysis for NetEase Cloud Music

What Does The Institutional Ownership Tell Us About NetEase Cloud Music?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that NetEase Cloud Music does have institutional investors; and they hold a good portion of the company’s stock. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone since institutions make bad investments sometimes, just like everyone does. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It’s therefore worth looking at NetEase Cloud Music’s earnings history below. Of course, the future is what really matters.

We note that hedge funds don’t have a meaningful investment in NetEase Cloud Music. Looking at our data, we can see that the largest shareholder is NetEase, Inc. with 59% of shares outstanding. This essentially means that they have extensive influence, if not outright control, over the future of the corporation. For context, the second largest shareholder holds about 4.9% of the shares outstanding, followed by an ownership of 3.5% by the third-largest shareholder.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of NetEase Cloud Music

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our most recent data indicates that insiders own less than 1% of NetEase Cloud Music Inc.. It’s a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own HK$2.6m worth of shares. Arguably, recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

With a 21% ownership, the general public, mostly comprising of individual investors, have some degree of sway over NetEase Cloud Music. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Public Company Ownership

We can see that public companies hold 64% of the NetEase Cloud Music shares on issue. This may be a strategic interest and the two companies may have related business interests. It could be that they have de-merged. This holding is probably worth investigating further.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. For example, we’ve discovered 1 warning sign for NetEase Cloud Music that you should be aware of before investing here.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.