Prospectus Summary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors,” “Business,” and information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to buy the ADSs. Investors should note that Kingsoft Cloud Holdings Limited, our ultimate Cayman Islands holding company, does not directly own any substantive business operations in the PRC and our businesses in the PRC described in this prospectus are operated through our VIEs.Our Mission
Our mission is to empower enterprises with cloud services.
Our Business
We are the largest independent cloud service provider in China, according to Frost & Sullivan, a third-party industry research firm commissioned by us. We have built a comprehensive and reliable cloud platform consisting of extensive cloud infrastructure, cutting-edge cloud products and well-architected industry-specific solutions across public cloud, enterprise cloud and AIoT cloud services, based on which we have achieved a leading position in the cloud market in China. We are the third largest internet cloud service provider in China with a market share of 5.4% in terms of revenue from Infrastructure as a Service, or IaaS, and Platform as a Service, or PaaS, public cloud services in 2019, according to Frost & Sullivan.
Cloud offers a wide variety of benefits, primarily including cost reduction, flexibility, scalability and reliability, and technology innovation, to enterprises compared with the traditional on-premise IT models. As a result of these benefits, global IT spending has seen a structural shift from traditional on-premise IT models to a cloud-based model. In 2018, China has become the second largest cloud market globally in terms of revenue, following the United States, according to Frost & Sullivan. The market size of China’s cloud services grew at a CAGR of 37.7% from 2015 to 2019 and is expected to grow at a CAGR of 28.3% from 2019 to 2024, outpacing the CAGR of 21.3% and 20.3% for the respective periods in the United States, according to Frost & Sullivan. Based on the industries and verticals of customers, China’s cloud service market could be divided into (i) services for internet enterprises, or internet cloud market, and (ii) services for traditional enterprises and public service organizations. The market size of China’s internet cloud market was RMB53.8 billion in 2019 and is expected to reach RMB217.5 billion in 2024, while the market size of China’s cloud market for traditional enterprises and public service organizations is even larger, which was RMB108.0 billion in 2019 and is expected to reach RMB345.9 billion in 2024, according to Frost & Sullivan. In addition, based on the fee model of services, China’s cloud service market could be divided into (i) services charged based on utilization and duration, or public cloud market, and (ii) services charged on a project basis. China’s public cloud market is one of the fastest growing markets in the world. According to Frost & Sullivan, the market size of China’s public cloud market was RMB81.4 billion in 2019 and is expected to reach RMB368.1 billion in 2024, while the market size of cloud services charged on a project basis was RMB80.4 billion in 2019 and is expected to reach RMB195.2 billion in 2024.
Moreover, China’s cloud market is at an early stage with tremendous growth potentials as indicated by the lower market penetration as compared to that in the United States. Being among the existing market leaders who have built significant competitive advantages in a market that has high entry barriers, we are well positioned to capture the large and growing market opportunities brought about by the increased penetration of cloud services into traditional enterprises and public service organizations, application of 5G, AI and IoT, demand for multi-cloud and neutrality, and support by favorable government policies.
Being an independently operated company, focusing on cloud services since our inception, we are able to fully mobilize our resources into the innovation of our business models and provide high-quality services to businesses and organizations of all kind. With our full dedication to cloud business, we are able to avoid potential conflicts of interest with our customers and enhance our neutral position, which in turn gains additional trust from more and more customers.
Leveraging our profound industry insights, we saw significant growth prospects in selected verticals, such as game, video and financial services. We have strategically expanded our footprints into such fast-growing verticals as first-movers and have established a leading market position through relentless execution. We have inherited the “enterprise service DNA” from Kingsoft Group, the widely trusted leading software franchise in China, and have established superior enterprise service capabilities. Benefiting from Kingsoft Group’s over 30 years of experience in providing enterprise services, we value each customer and provide best-in-class customer services covering their entire life-cycle. Such customer-centric service philosophy enables us to achieve increasing brand recognition, a loyal customer base while improving unit economics. We also adopt a premium-customer strategy, focusing on leading enterprises within selected verticals to establish our market presence efficiently. The total number of our Premium Customers increased from 113 in 2017 to 154 in 2018, and further to 243 in 2019. In 2018 and 2019, our net dollar retention rate of Public Cloud Service Premium Customers was 161% and 155%, respectively.
We stay at the forefront of cloud technology development and have built prominent research and development capabilities. We enjoy a skilled talent pool and will continue to invest in research and development to enhance our technology leadership and upgrade our cloud solutions. As of December 31, 2019, our research and development team consisted of 1,150 engineers, researchers, programmers and computer and data scientists, accounting for 62% of our total employees.
We are dedicated to providing safe, reliable, stable and high-quality cloud products and solutions to our customers, covering (i) public cloud services from which we generated majority of our revenues, (ii) enterprise cloud services which experienced fast growth, and (iii) AIoT cloud services which was launched in 2019. We offer public cloud services primarily to internet enterprises and charge our customers based on utilization and duration. We offer enterprise cloud services primarily to traditional enterprises and public service organizations and charge our customers on a project basis.
Attributable to the above, we have achieved superior growth. Our revenues increased by 79.5% from RMB1,236.0 million in 2017 to RMB2,218.2 million in 2018, and further increased by 78.4% to RMB3,956.4 million (US$568.3 million) in 2019. We have incurred gross loss of RMB118.2 million and RMB200.4 million in 2017 and 2018, respectively, and generated gross profit of RMB7.7 million (US$1.1 million) in 2019. We have incurred net loss of RMB714.3 million, RMB1,006.4 million and RMB1,111.2 million (US$159.6 million) in 2017, 2018 and 2019, respectively.
Our Strengths
We believe the following competitive strengths are essential for our continued leadership and differentiate us from our competitors:
Our Strategies
We intend to further achieve superior growth and strengthen our market position by pursuing the following strategies:
Our Challenges
Investing in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties summarized below, the risks described under the “Risk Factors” section beginning on page 17 of, and the other information contained in, this prospectus before you decide whether to purchase our ADSs.
We face risks and uncertainties in realizing our business objectives and executing our strategies, including:
Corporate History and Structure
In January 2012, we incorporated Kingsoft Cloud Holdings Limited under the laws of the Cayman Islands as our offshore holding company. In February 2012, we incorporated Kingsoft Cloud Corporation Limited as Kingsoft Cloud Holdings Limited’s wholly-owned subsidiary in Hong Kong.
In April 2012, Kingsoft Cloud Corporation Limited incorporated Beijing Kingsoft Cloud Technology Co., Ltd., or Beijing Kingsoft Cloud, as its wholly-owned subsidiary in the PRC. In December 2015, Kingsoft Cloud Corporation Limited incorporated another wholly-owned subsidiary, Beijing Yunxiang Zhisheng Technology Co., Ltd., or Yunxiang Zhisheng, in the PRC. See “Corporate History and Structure—Corporate Structure.”
In December 2017, Kingsoft Cloud Corporation Limited incorporated a wholly-owned subsidiary, Kingsoft Cloud Inc., in the United States, to operate cloud service business and conduct research and development on cloud technology and products.
Beijing Kingsoft Cloud entered into a series of contractual arrangements, as amended and restated, with Zhuhai Kingsoft Cloud Technology Co., Ltd., or Zhuhai Kingsoft Cloud, and its wholly-owned subsidiary, Beijing Kingsoft Cloud Network Technology Co., Ltd., or Kingsoft Cloud Network, through which we obtained control over Zhuhai Kingsoft Cloud. In addition, Yunxiang Zhisheng entered into a series of contractual arrangements with Kingsoft Cloud (Beijing) Information Technology Co., Ltd., or Kingsoft Cloud Information, and its wholly-owned subsidiary, Beijing Jinxun Ruibo Technology Co., Ltd., or Jinxun Ruibo, which enable us to obtain control over the Kingsoft Cloud Information to operate value-added telecommunication services. As a result, we are regarded as the primary beneficiary of each of Zhuhai Kingsoft Cloud and Kingsoft Cloud Information. We treat them as our consolidated affiliated entities under U.S. GAAP and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP. We refer to Beijing Kingsoft Cloud and Yunxiang Zhisheng as our wholly foreign owned entities, or WFOEs, and refer to Zhuhai Kingsoft Cloud, Kingsoft Cloud Information and their subsidiaries, as our variable interest entities, or our VIEs, in this prospectus. For more details and risks related to our VIE structure, please see “Corporate History and Structure—Contractual Arrangements with Our VIEs and the Their Respective Shareholders” and “Risk Factors—Risks Relating to Our Corporate Structure.”
The following diagram illustrates our corporate structure, including our significant subsidiaries and VIEs, immediately upon the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional ADSs.
Notes: