China's Kingsoft Cloud files for US IPO

The company is one of several subsidies that Kingsoft Corporation spun out so they could operate with greater independence. The others are enterprise software division Kingsoft Office Software, security software provider Kingsoft Internet Security and entertainment software developer Kingsoft Entertainment. Several went on to raise venture capital funding.

Kingsoft Corporation currently owns 53.7% of Kingsoft Cloud, while smart phone maker Xiaomi – which acquired a 10% stake in the then-nascent business for $1.82 million in December 2012 – has 15.8%. FutureX Capital, a tech-focused growth investment firm established by Cynthia Zhang, formerly head of private equity at ChinaAMC Capital, holds 5.7%. It invested $100 million in 2018.

Kingsoft Cloud’s prospectus discloses several other investments – all described as part of the company’s Series D round – including $50 million from the state-backed China Internet Investment Fund and $10 million from Shunwei Capital. Shunwei is a venture capital firm co-founded by Lei Jun, who also established and continues to run Xiaomi. Lei previously spent a decade as CEO of Kingsoft Corporation and is currently chairman of the board.

AVCJ Research’s records also show that Kingsoft Cloud raised $53 million in a Series B round led by IDG Capital Partners in 2015. This was followed by a Series C round of $110 million in 2016 spread across two tranches. This included $28.9 million from Kingsoft Corporation and $20 million from China Merchants Securities. IDG also took part.

Kingsoft Cloud is the third-largest internet cloud services provider in China – the top two are not independent – with a 5.4% share of the infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) market in 2019, according to Frost & Sullivan. It claims to have built a platform comprising cloud infrastructure and industry-specific solutions across enterprise services and AIoT (artificial intelligence of things) services. PaaS solutions allow customers to run business applications from outsourced cloud-based systems, removing the need for in-house infrastructure

China became the second-largest cloud market globally in terms of revenue, following the US, in 2018. Services for internet companies generated RMB53.8 billion in revenue last year and are expected to reach RMB217.5 billion by 2024. The market segment that caters to traditional businesses and public service organizations is even larger. Revenue is projected to jump from RMB108 billion to RMB345.9 billion in 2024.

Kingsoft Cloud had 243 premium customers last year, up from 154 the previous year. Most of its revenue comes from the public cloud market, where customers pay for services based on use, as opposed to single-payment project assignments. However, the company expects enterprise cloud services and AIoT services – which were only launched in 2019 – to deliver significant growth.

PaaS – also referred to as middle platform solutions – is increasingly popular among Chinese VC investors, with the likes of MiningLamp Technology and 4Paradigm raising substantial rounds in recent months. However, most start-ups have yet to complete the transition from software-as-a-service (SaaS) to PaaS and are primarily working on a project basis, which is less lucrative than designing standardized products for the public cloud.

At the same time, numerous established technology companies are moving into the space. The likes of Alibaba Group, Tencent Holdings, and Huawei Technologies have all expanded from IaaS into PaaS and are expected to present significant long-term competition in all segments.

Kingsoft Cloud's revenue came to RMB3.96 billion last year, up from RMB2.22 billion in 2018. Over the same period, its net loss widened from RMB1 billion to RMB1.11 billion. The size and pricing of the IPO have yet to be decided.

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• Topics
• Greater China
• Technology
• IPO
• China
• Xiaomi
• IDG capital
• Shunwei Capital Partners