Kingsoft Cloud (NASDAQ:KC), a recent spin-off from Kingsoft Corp. (OTCPK:KSFTF), is a China-based cloud-service player primarily operating in the IaaS + PaaS (Infrastructure as a service + Platform as a service) cloud services space. The company also provides industry-specific solutions. Its latest quarterly report highlighted the underlying growth potential, with the company already on track for EBITDA breakeven at some point in FQ4. Longer term, Kingsoft Cloud is positioned to benefit from a structural digitalization tailwind across industries, with a benign competitive environment also boosting prospects. At current valuations, KC shares trade well below its US peers.
Growth Accelerates in FQ3
Kingsoft Cloud posted some impressive top line metrics for its latest quarter, with overall growth at +73% Y/Y in FQ3, driving the faster-than-expected improvement in margins. Public cloud revenue increased by 48% Y/Y, suggesting resilient cloud demand in the aftermath of COVID-19 in China. However, enterprise cloud revenue was the standout, growing at 257% Y/Y, and now contributing c. 24% of total revenues (up from 16% last quarter), on the back of pent-up demand in digitalization among corporate and public organizations and increased multi-cloud adoption across verticals.
3Q19 | 4Q19 | 1Q20 | 2Q20 | 3Q20 | |
Public cloud services | 885 | 945 | 1,209 | 1,287 | 1,310 |
Enterprise cloud services | 114 | 220 | 182 | 246 | 409 |
Others | 3 | 8 | 1 | 2 | 10 |
Total revenues | 1,002 | 1,174 | 1,391 | 1,535 | 1,729 |
% Y/Y | 67% | 62% | 64% | 64% | 73% |
(Source: Company Data)
In addition, easing industry competition also helped the bottom line, with key product pricing remaining largely stable Y/Y. Improving operational efficiency in FQ3 was also key in driving the solid Y/Y margin improvement, with non-GAAP EBITDA margin now at -1.5%.
3Q19 | 4Q19 | 1Q20 | 2Q20 | 3Q20 | |
Adjusted EBITDA | (102) | (89) | (34) | (27) | (26) |
% Adjusted EBITDA margin | -10.2% | -7.6% | -2.5% | -1.7% | -1.5% |
