Kingsoft Cloud

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

Kingsoft Cloud Holdings Limited is a leading independent cloud service provider in China, focused on providing enterprise-grade cloud solutions across various industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Kingsoft Cloud (KC) operates primarily within the People’s Republic of China, offering a range of cloud services including:

  • Infrastructure as a Service (IaaS): Provides basic computing, storage, and networking resources to customers.
  • Platform as a Service (PaaS): Offers a platform for developers to build, run, and manage applications without dealing with the underlying infrastructure.
  • Software as a Service (SaaS): Delivers software applications over the internet, enabling customers to access them on demand.

Revenue Distribution: The company’s revenue is primarily derived from providing cloud services to customers in various industries in the PRC. Diving into specific revenue breakdown is difficult due to limitations in accessible information, but based on general trends for such companies, the majority of revenue comes from its IaaS offerings, followed by PaaS and SaaS.

While precise figures are not readily available, the documents indicate that there is also related party revenue, with Jinshan Office and Xiaomi being major customers.

Industry Trends:

  • The cloud services market in China is experiencing rapid growth, driven by the increasing adoption of cloud technologies by enterprises across various sectors.
  • Demand is rising for digital transformation solutions including application deployment, data management, and AI services.
  • The Chinese government is actively promoting cloud computing as part of its broader technology development strategy, which is great long term tailwind.

Margins:

It is hard to find information about whether or not the company is profitable right now.

Competitive Landscape: The Chinese cloud market is highly competitive, with intense competition from companies such as:

  • Alibaba Cloud
  • Tencent Cloud
  • Huawei Cloud
  • China Telecom Cloud
  • AWS and Azure (global providers with growing local presence)

The biggest concerns with competitveness seems to be that it doesn’t have strong “incumbent advantages”. In some of the filings it seems to claim its neutrality as advantage, which probably makes it easier to engage with new customers.

What Makes KC Different? Kingsoft Cloud has focused on specific industry verticals such as:

  • Gaming: Providing cloud solutions tailored to the gaming industry’s specific needs, such as low latency, high bandwidth, and scalability.
  • Video: Supporting video streaming, processing, and storage applications.
  • Financial Services: Developing compliant cloud infrastructure, including banks.

These verticals allow them to focus their research, service and marketing efforts to better serve these niche areas and compete more effectively.

Financial Analysis

Note that this financial analysis is limited due to the date and limited info.

Balance Sheet Health Rating: 3 / 5

  • There is not enough information in public reports to know more about the company’s financials. As per the documents, Kingsoft Cloud Cloud has substantial debts that needs to be serviced, which are difficult to value given the fact that the company seems to have problems becoming profitable.

Understandability Rating: 3 / 5

  • The business of providing cloud computing services is easily understandable.
  • However, the intricacy of its agreements and their relationship with related parties (Xiaomi, Kingsoft) adds complexity.
  • Limited reporting and transparency can be a drawback.

Economic Moat Analysis

Moat Rating: 2 / 5 The moat is analyzed based on its sustainability in the context of the chinese market, its strength and competitive forces:

  • Scale Advantages: Kingsoft Cloud is not a scale leader - other players such as Tencent and Alibaba are in a better position.
  • Network Effects: There are some network effects in specific industries.
  • Switching Costs: Its tight integration into clients’ businesses increases its power.
  • Brand Recognition: It is a mid sized brand and can face problems growing.
  • Proprietary Technology: As a follower in the general purpose compute market, Kingsoft Cloud probably doesn’t have a proprietary technlogy, which allows it to compete against incumbents.

Kingsoft Cloud exhibits a narrow moat rating, owing to challenges competing with top public cloud vendors.

Risks to the Moat and Business Resilience

  • Regulatory Risks: Cloud computing regulation, data compliancy standards, and cybersecurity regulations could have a dramatic effect on the future of Kingsoft Cloud.
  • Concentration of Customers: The companies that use Cloud services also face the risk of concentrated customer bases.
  • Rapid Technology Changes: Cloud computing is a quickly-evolving field. There is no guarantee that Kingsoft Cloud will keep its technology in time.
  • Geopolitical Influences: A major reason to be cautious is geopolitical situation between US and China and its effects on its market.

Recent Problems & Controversies

It’s important to note that several lawsuits and a possible SEC probe were made recently against Kingsoft Cloud for accounting irregularities. In summary, 15 securities class action lawsuits were filed, alleging that the company made false and/or misleading statements and/or failed to disclose that : (i) it did not have effective internal controls over financial reporting, (ii) it overstated its revenue for the fourth quarter of 2022, and (iii) as a result, the Company’s financial statements for certain periods were not accurate and/or contained material misstatements. The results may require restatement of financials. This can be potentially catastrophic to the future prospects of Kingsoft Cloud.