At an early development phase, the cloud services company is expanding its infrastructure to support future growth.
Kingsoft cloud stand. Image credit: Kingsoft Cloud
One of the China’s top 5 cloud vendors, Kingsoft Cloud (KC:NASDAQ) has announced it would issue 8 million additional ADS (1 ADS = 15 ordinary shares).
The company expects to collect USD 298 million from the additional shares. Around 35% of the proceeds from the FPO will be used to fund Cloud infrastructural development; 30% of the fund will be put into technology upgrade and product R&D process; one quarter of the proceeds will be used to expand the Cloud ecosystem and the rest will be retained for company’s operation. Besides the FPO, Kingsoft Cloud shareholders planned to sell 9,677,310 ADS and the company will not collect any proceeds from the transaction.
According to the company’s filing document, Kingsoft Cloud has 5.4% of the Infrastructure-as-a-Service (IaaS) market share in China, making it the third-largest in its own category ‘Internet IaaS provider’, after Alibaba Cloud and Tencent Cloud. The domestic Cloud service market is dominated by Alibaba Cloud, which has around 50% of the market share. Alibaba Cloud was founded in the late 2010s, and the cloud development in China has just passed its first decade.
Staying at an early stage, Chinese Cloud services companies have been investing in infrastructural development heavily and the situation will continue to last as China further pushes the digitalization process across industries. Cloud service companies are under financial pressure due to the initial infrastructural input and Kingsoft Cloud’s increasing cost of revenue (IDC costs, depreciation & amortization, staff costs, etc.) tells the same story: in 2017, the cost of revenue was 1,354 million, but in 2019, the costs scaled to 3,949 million. Before the Cloud services landscape entering a mature status, the Cloud services company will maintain a high growth with high costs.