21Vianet 2Q14 Preview: Riding On The Back Of Data Demand

Aug.26.14 | About: 21Vianet Group (VNET)

Summary

VNET will report 2Q14 after market on Wednesday. Consensus expects RMB0.65 in EPS on RMB642m in revenue.

Core business likely to maintain its momentum while cloud services showing good progress.

Expects more M&A to further boost core business and scale.

21 Vianet (NASDAQ:VNET) will report 2Q14 results on Wednesday after market close. A conference call is scheduled for 8pm EST. Detail of the call is below.

United States:

+1-845-675-0438

International Toll Free:

+1-855-500-8701

China Domestic:

400-1200654

Hong Kong:

+852-3051-2745

Conference ID:

# 77804574

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The replay will be accessible through September 3, 2014 by dialing the following numbers:

United States Toll Free:

+1- 855-452-5696

International:

+61-2-90034211

Conference ID:

# 77804574

Click to enlarge

Consensus expects RMB 0.65 EPS on RMB642m in revenue (Please note that VNET reports in RMB). VNET has had a good year so far with a twelve-month performance of +124% vs. the NASDAQ of 24% thanks to the rising demand for cloud services and data centers in China on the back of increasing data consumption on both PC and mobile. In addition, the partnership with IBM and Microsoft validates VNET's leading position in providing cloud services in China. The company is aggressive in both organic and M&A expansion. Q1 results reflected that the core hosting business is still growing at a robust pace (+53% y/y) on the back of rising data demand, and the company wants to leverage the near-term success to acquire assets that could further expand its scale (hence the acquisition of Dermot earlier this month).

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Hosting and cloud keeps on delivering

I expect the core hosting business to continue deliver another set of solid growth driven by data demand, in particularly from mobile. The trend toward cross connection between customers is on the rise in that traffics can be routed between customers rather than through telcos, thereby enhancing operational efficiency. I also expect the cloud services to progress smoothly with healthy uptick in both Azure and Windows. Last quarter, VNET had 9,000 Azure users and 20,000 Windows 365 users. While there is little evidence of the monetization impact behind these products, management has indicated that both products are well received by the customers and that user stickiness is high, which bodes well for long-term revenue growth.

Expect more M&As ahead

VNET is looking to invest/acquire businesses that will further boost its hosting and data delivery business, hence its investment in Aipu in June in which VNET buys into an internet provider that already has the capacity and bandwidth lease in place. The acquisition is will not only save on cost but also be earnings accretive in the long-run. Moreover, the acquisition of Dermot earlier this month essentially doubled the size of VNET's VPN capacity, an important asset post the IBM partnership in which corporate customers will require reliable VPN services. We could see more acquisitions ahead as VNET looks to solidify its standing as the largest independent carrier neutral data center service provider in China.

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