Why Kingsoft Cloud Gets Long-Term Favor from Capital with Consecutive Losses

Kingsoft Cloud has experienced consecutive economic losses: in 2015, its pre-tax net loss wasRMB ¥238 million; in 2016, its pre-tax net loos was up to RMB ¥508 million, and by 2017 September, its pre-tax net loss was up to RMB ¥605 million. In such a situation, Kingsoft still received huge amount of financing. Why?

In the cloud industry, people often pay attention to those international giants only like Amazon’s AWS, Google Cloud and Microsoft Azure. When it comes to domestic cloud vendors, there are always Alibaba Cloud, Tencent Cloud, and Baidu Cloud coming into their mind. However, domestic cloud industry has been getting through great changes. Facing the huge market cake and BAT’s powerful attacks, new cloud companies are also not giving any impression of weakness and striving for market segments. 

According to the data released by Ministry of Industry and Information Technology of the People’s Republic of China, the cloud industry scale in 2017 reached near RMB ¥600 billion and in 2018 the total scale will be probably up to RMB ¥800 billion. China cloud industry will get a big boost in 2018. Prosperous cloud market can’t do without capital’s favor.

According to incomplete statistics, there are 20 innovative entrepreneurial firms in the cloud area conducting financing, and the total amount of financing in 2017 was near RMB ¥10 billion. Kingsoft Cloud, Chinac.com, QingCloud and Qiniu Cloud all obtained more than RMB ¥500 million per financing. Kingsoft Cloud even ranked No.1. 

In detail, Kingsoft Cloud announced that it closed D round of financing for $300 million with the value of assessment of $1.9 billion on 2017, December 12; on 2018, January 4, Kingsoft Cloud completed a financing for $220 million with a value of assessment of $2.12 billion; in January 29, Kingsoft Cloud announced that it received another financing for $200 million after two D series of financing. 

So, during 49 days, Kingsoft Cloud published D series financing for three times, and the total amount of the three times of financing was up to $720 million. With these investments, it is estimated that Kingsoft Cloud has value of $2.373 billion. These investments also continuously made the records of the financed amount in China cloud industry and the highest estimation value. 

As the financed amount continued to increase, It was exposed that Kingsoft Cloud has been experiencing consecutive losses: in 2015, Kingsoft Cloud had RMB ¥238 million pre-tax net loss, RMB ¥508 million pre-tax net loss in 2016, and for the early 9 months of 2017, its pre-tax net loos was up to RMB ¥605 million. 

Although Kingsoft Cloud has been losing year after year, Kingsoft Cloud CEO Wang Yulin said that Kingsoft Cloud received continuously successful D series of financing, which means capital has high recognition and great confidence to China’s public cloud market, especially to Kingsoft Cloud. Why could Kingsoft Cloud get favor from capital?

Strong Parent Company Decides Kingsoft Cloud’s Destiny

Kingsoft Cloud is the cloud computing brand under Kingsoft; therefore in both capital structure and business, Kingsoft Cloud has powerful backbones of Kingsoft and Xiaomi.com. For capital structure, Kingsoft holds 52% shares, and Xiaomi.com is the second largest shareholder. In terms of business, Xiaomi.com mainly focuses on mobile phones and 2C business including smart home, while Kingsoft is an IT service company. The two largest shareholders both look promising on cloud business. 

In 2014, Kingsoft president Lei Jun put forward All in Cloud, and planned to invest $1 billion in its cloud computing. For Kingsoft, Kingsoft Cloud now is one of very core strategic businesses, and its Cheetah Mobile, Kingsoft Season Game Studio and WPS all become powerful supports for Kingsoft Cloud. 

Specifically, Kingsoft Cloud now is responsible for providing public services to Cheetah Mobile, Kingsoft Season Game Studio, Office software WPS, and even Xiaomi eco-companies. Currrently, public cloud is a big trend in the future, no matter whether Kingsoft develops the cloud or nor, internet companies will all put their basic framework to the cloud. Kingsoft Cloud, Kingsoft’s other subsidiaries, Xiaomi and its eco-companies all use independent clearing form. 

Meanwhile, Kingsoft Cloud started to deploy full product line of public cloud products. By taking advantage of strong parent company, Kingsoft Cloud firstly chose game industry that both Kingsoft and Xiaomi are good at as its public product line’s entry point, and then began to layout video cloud and original intent cloud service capacity based on internet industry. Besides, Kingsoft Cloud also started to layout cloud services for government affairs and medical industry.

We have to admit that with powerful parent company, Kingsoft Cloud indeed has shorter winding course to go during its initial phase. Also, capital looks promising to its parent company, which can have a good effect on Kingsoft Cloud as well. 

Kingsoft Cloud Has Its Own Power

During beginning period, Kingsoft Cloud can make full use of its parent company’s strength to step forward, but later it has to provide quality cloud service to obtain market’s recognition. 

In the initial phase of entering public cloud industry, Kingsoft chose game and video industries as its business entry points. At present, it has become the largest domestic cloud service provider in the game cloud and video cloud industries. By far, Kingsoft Cloud has served more than 1,600 game companies, published and operates more than 1,000 games, among which there are 40% hot games. 

In video area, with the boost of the platforms of live video and short videos, the demand for video cloud is sharply increasing. Kingsoft Cloud also has experienced many tests by supporting several significant activities like G20 Summit live broadcast and “Two Sessions” live broadcast, and now it can offer reliable video cloud services. 

In addition, for entrepreneurs and developer market, Kingsoft Cloud released Dami Cloud hosting, which features high price value and ease-of-use, quickly becomes popular among developers, entrepreneurs and SMBs. 

According to IDC reports, in terms of growth rate, Kingsoft Cloud’s income growth rate was up to 251.6% and 130% on year and year basis in 2015 and 2016. In 2016, Alibaba Cloud had 40.67% market share, Tencent Cloud had 7.34%, and Kingsoft occupied 6.02%, according to IDC’s China Public Cloud Market Tracking Report. Also, there was a report released by CCID Consulting saying that Alibaba, Tencent and Kingsoft Cloud were the top three in China public cloud market respectively. 

These figures all show that Kingsoft Cloud has its own strength to get the market recognition. That’s one of the reasons that capital like it. 

Debtor Economy – Internet Economy’s Feature

In fact, it is not only Kingsoft Cloud experiencing losses. Alibaba Cloud published 2018 second-quarter earnings report, which showed that Alibaba Cloud gained earnings of RMB ¥2.975 billion in this quarter, and RMB ¥697 million operating loss. Comparing to the same period last year of RMB ¥398 million, its loss was relatively increased, and also the loss rate was larger than last quarter. 

Thunder’s financial report also included that it has operating loss of $11.3 million during the second quarter 2017, $10.2 million loss in the first quarter. In totally, Thunder has more than 100 million loss during the first half of 2017. 

Loss is an objective industry trend for current cloud industry, but even experiencing loss, cloud service providers still receive large financed amount. It is the feature of Internet economy. That’s how to explain why Kingsoft can get such large financed amounts 

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