HONG KONG  - China's Kingsoft Cloud will be a breath of fresh air for New York. Xiaomi boss Lei Jun wants to float his cloud venture on the Nasdaq at a valuation of up to $3.6 billion. The debut will test investor appetite a month after a fraud at Luckin Coffee cratered the shares of the Xiamen-based chain and as the U.S. government turns even more hostile to the People’s Republic. There’s enough to like in this offering though.

Companies that don't want to build and manage their own servers and tech infrastructure are increasingly turning to outfits like Kingsoft, which at the very basic level offer on-demand computing, content delivery and storage. Thanks to a boom in video-streaming and other apps, China's cloud service market is on track to top $80 billion by 2024, up from $23 billion last year, according to research cited in the company's prospectus.

Kingsoft is a known brand in software. Its parent, listed in Hong Kong for over a decade, has avoided any sign of accounting trouble so far. Kingsoft’s chairman, Lei, is also no stranger to public markets: he is the founder and chief executive of handset maker Xiaomi, also listed in the Asian financial hub. Lei’s interests across the two companies may pose conflicts of interest later, but not for now.

What’s more, Kingsoft has a captive pool of customers who don’t want their critical IT infrastructure needs served by Alibaba and Tencent 0700.HK . The two cloud market leaders are also competitors to many companies through their vast businesses ranging from online shopping to video games and more. Kingsoft's customers already include the $75 billion ByteDance, owner of viral video app TikTok.

The biggest headache may be in valuing a loss-making, standalone cloud company that’s more akin to the AWS or Azure subsidiaries buried deep within Amazon and Microsoft respectively. The debutant expects its first-quarter revenue to rise as much as 66% year-on-year to roughly $200 million. Assuming the company can increase sales through the year at the same pace, Kingsoft will be valued at about 3.8 times 2020 revenue at the top of the price range announced on Monday - higher than its Hong Kong parent on 2.8 times.

In a hostile environment, Kingsoft looks as good as any U.S. China listing probably can.

 

CONTEXT NEWS

- China's Kingsoft Cloud Holdings is raising up to $450 million in a U.S. initial public offering which could value the company at up to $3.6 billion, according to an updated prospectus filing dated May 4.

- The company, which is a subsidiary of Hong Kong-listed Kingsoft Corp, is selling 25 million American depositary shares (ADS) between $16 and $18 per ADS.

- Smartphone maker Xiaomi, founded by Kingsoft Corp Chairman Lei Jun, owns 15.8%.

- The company made a net loss of $167 million on revenue of $568 million of revenue in 2019.

 

(Editing by Una Galani, Jamie Lo and Sharon Lam) ((robyn.mak@thomsonreuters.com; Reuters Messaging: robyn.mak.thomsonreuters.com@reuters.net))