Kingsoft IPO: Stock Successfully Launches on the Nasdaq

The Kingsoft IPO recently hit the market. Kingsoft Cloud (Nasdaq: KC) is the first Chinese company to go public since the Luckin Coffee scandal in April. But even though investors are wary of Chinese companies, the launch of Kingsoft stock was successful.

So, should you invest in Kingsoft Cloud? Here’s what we know…

Kingsoft IPO: The Business

Founded in 2012, Kingsoft Cloud is China’s largest independent cloud service provider. And overall, it’s the third largest provider with a market share of 5.4%. Its main competitors are Alibaba (NYSE: BABA) and Tencent (OTCMKTS: TCEHY). But Kingsoft believes it has a leading position as global IT practices shift to cloud-based models.

The company is a spinoff from Kingsoft Corporation (OTCMKTS: KSFTS), a Chinese software company. But Kingsoft Cloud now claims it’s an independent company. It owns data centers in China, Russia, Southeast Asia and North America.

Kingsoft sees a lot of growth in the future, both for the company and the cloud industry. But after the Luckin Coffee scandal, why did the Kingsoft IPO happen now?

Coronavirus Gives Kingsoft Cloud an Advantage

The coronavirus ended a long bull market. At the end of February, the stock market had one of the biggest drops in history. And although markets have improved, they’re still volatile. So, many companies have pushed back IPO plans. But there are a few that were successful.

For a company to successfully IPO during the coronavirus, it should be able to continue providing a great service or product. Most companies are technology or biotech. This is because more people are working from home and relying on technology to communicate. And biotech companies are racing to create a coronavirus vaccine.

After the pandemic, many social distancing practices will likely continue. That includes continuing to work from home. Companies are becoming more flexible with employees working remotely. And cloud services make it easier to do that. They allow companies to store data online rather than in traditional, in-office hardware. Employees can then access the information from almost anywhere.

It’s for this reason investors anticipate a Freshworks IPO, a company that provides CRM software. Or how DraftKings, an online daily sports better, was successful in its IPO. And it’s likely why the Kingsoft IPO had more demand than anticipated.

Kingsoft IPO: The Details

Starting out, Kingsoft Cloud planned to sell 25 million shares with a price range of $16 to $18. But the company found high demand for Kingsoft stock durings its roadshows. It sold an additional five million shares when the IPO launched. Shares were priced at $17 a share to raise a total of $510 million. At the end of its first trading day, Kingsoft stock closed at $23.84. That gave the company a market value of $4.77 billion.

Underwriters have the option to buy up to 4.5 million more shares. Parent company Kingsoft Corporation said it will buy up to $25 million worth of shares. And Xiomi, the company founded by Kingsoft Cloud chairman Lei Jun, is interested in buying up to $50 million.

And although U.S. investors are wary of Chinese companies, Kingsoft Cloud’s CFO Henry He isn’t worried.

“Given the context regarding China ADR, it’s actually good for quality companies. The capital has to be deployed and quality long-only investors will pay more attention to quality companies like us.”

But is the Kingsoft IPO a good investment?

Kingsoft’s Growth: Industry, Revenue and Losses

Kingsoft Cloud divides China’s cloud service market into two categories. The first is services for internet enterprises. The internet cloud market in China was worth about $7.5 billion in 2019. And it’s estimated to grow to $30.6 billion by 2024.

The second market is services for traditional enterprises and public service organizations. This area is a larger market than the first. In 2019, it was worth $15.2 billion. By 2024, analysts estimate the market to be worth $48.7 billion.

But Kingsoft then breaks down the market by service fee. It charges companies based on when and how long they use the cloud service or on a project basis. By 2024, they’re expected to be worth about $51.8 billion and $27.5 billion, respectively.

Kingsoft also notes the company’s revenue growth. Sales grew from $174.5 million in 2017 to $557.5 million in 2019. However, the company also reported larger losses. In 2017, Kingsoft’s losses were about $100.5 million. And in 2019, losses increased to almost $156.3 million.

Kingsoft Cloud is growing and increasing its market share. So, if you’re interested in investing after the successful Kingsoft IPO, it’s important to look at the company’s growth strategy.

Strengths, Challenges and Strategies

Kingsoft Cloud shared the company’s strengths and how it plans to overcome obstacles. Kingsoft believes its strengths will help it keep a leading position in the industry. Some of the strengths include:

• Strategically selected verticals with high growth
• Superior enterprise service capabilities
• Cutting-edge technologies
• Prominent research and development capabilities
• Strong customer conversion capabilities

On the other hand, Kingsoft knows that to grow, there are challenges. There’s risk to buying Kingsoft stock. Here are a few of Kingsoft Cloud’s challenges:

• The company expects to continue its rapid growth but is unsure if it will effectively manage that growth
• There is a history of net loss and profitability isn’t guaranteed
• The market is competitive and continually evolving
• Security attacks on the company and its products could result in harm to the business, finances and reputation
• The company is affected by export controls and economic or trade restriction imposed on the company itself or its business partners

But for a successful Kingsoft IPO, the company needed to list strategies to achieve its goals. Some strategies listed are:

• Strengthen market position in selected verticals
• Expand into new verticals
• Grow the company’s customer base
• Invest in infrastructure and technology
• Selectively pursue international expansion

Many investors are looking at the Kingsoft Cloud IPO as a test. Since it’s the first Chinese IPO since the Luckin Coffee scandal. It’s also one of the few tech IPOs to hit the market during the coronavirus pandemic.

When Did Kingsoft Cloud IPO?

Kingsoft Cloud stock launched Friday May 8, 2020. The company is listed on the Nasdaq under the ticker symbol KC.  The SEC filing can be found here.

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Although the IPO market isn’t as active as it used to be, companies are still going public. And if IPOs continue to be successful like the Kingsoft IPO, investors might be able to expect an increase in IPO activity.

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