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    Kingsoft Cloud Holdings Ltd (KC)

    Q2 2024 Earnings Summary

    Reported on Mar 20, 2025 (Before Market Open)
    Pre-Earnings Price$2.53Last close (Aug 19, 2024)
    Post-Earnings Price$2.58Open (Aug 20, 2024)
    Price Change
    $0.05(+1.98%)

    What went well

    • Kingsoft Cloud's AI revenue surged to RMB 326 million, doubling from the first quarter and accounting for 26.3% of public cloud revenues, marking an industry-leading position. The AI business has higher gross profit margins, significantly contributing to the company's overall margin improvement.
    • Revenues from Xiaomi and Kingsoft Group increased by 36.9% year-over-year to reach RMB 370 million, contributing 20% of total revenue. This growth is primarily due to AI-related revenues, indicating strong internal demand and synergy within the ecosystem.
    • The company has secured various financing channels, including support from Kingsoft Group and Xiaomi Group, as well as national policy banks and state-owned financial institutions, allowing it to invest heavily in AI without being constrained by current cash balances. Over 95% of CapEx is related to AI investment, expected to accelerate revenue growth in the coming quarters.

    What went wrong

    • Significant increase in capital expenditures (CapEx) without clear guidance on ROI: Kingsoft Cloud plans to accelerate its CapEx, expecting total CapEx for the year to be "a few times" higher than last year, primarily investing in AI. However, management cannot provide full guidance on CapEx investment, potentially leading to financial risk due to high spending without detailed ROI projections.
    • Increasing reliance on related-party revenues raises sustainability concerns: Revenue from Xiaomi and Kingsoft Group increased by 36.9% year-over-year, contributing to 20% of total revenue this quarter. This growing dependence on related parties might raise concerns about revenue concentration and the sustainability of such growth driven by internal clients.
    • Proactive downscaling of CDN business could negatively impact revenue: The company is intentionally reducing its CDN services revenue contribution, aiming to maintain a minimum quarterly revenue of RMB 300 million from standard CDN business. This downscaling may signal challenges in that segment and could adversely affect total revenue.

    Q&A Summary

    1. CapEx Guidance & AI Investments
      Q: What's your CapEx guidance and ROI on AI investments?
      A: The company is accelerating investments in AI, with over 95% of CapEx directed toward AI opportunities. They've expanded financing channels, securing support from Kingsoft Group, Xiaomi Group, and state-owned institutions. CapEx for this year will be a few times higher than last year, aiming for accelerated revenue growth in coming quarters. They are not limiting CapEx to current cash balances and expect strong ROI and recurring cash flow from these AI investments.

    2. Revenue from Xiaomi and Kingsoft Group
      Q: What's driving strong revenue from Xiaomi and Kingsoft Group?
      A: Revenue from Xiaomi and Kingsoft Group increased 36.9% year-over-year, reaching about RMB 370 million this quarter. This growth is primarily due to AI-related revenues. Approximately half of the AI revenue comes from these related parties, while the other half is from external clients. The company may seek shareholder approval to increase the revenue cap from related parties, signaling potential for further growth.

    3. AI Revenue Contribution & Outlook
      Q: How is AI contributing to revenue and what's the outlook?
      A: The AI business is showing tremendous growth, with a 10x year-over-year increase and 2x growth versus the first quarter. The gross profit margin for AI is significantly higher, improving the company's overall gross margin. While current revenues are mainly from supplying computing power, future potential lies in AI model training and applications. Opportunities are seen in electric vehicles, autonomous driving, and robotics, laying a solid foundation for providing one-stop Model as a Service (MaaS) offerings.

    4. CDN Revenue Outlook
      Q: What's the outlook for the CDN business line?
      A: The company distinguishes between standard CDN business and higher-margin CDN services like live broadcasting acceleration. They aim to maintain a minimum of RMB 300 million quarterly revenue from standard CDN business and do not expect it to drop below that. Focus will be on investing in and expanding the higher-margin CDN services to enhance profitability.

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