Kingsoft Cloud, one of the leading cloud services providers in China, is scheduled to hold its US initial public offering (IPO) on Friday despite market uncertainty amidst the coronavirus pandemic.
China’s Kingsoft Cloud will push through with its US IPO on Friday even with the negative impact of the coronavirus pandemic and with US investors wary of Chinese companies following a high profile scandal involving Luckin Coffee.
Initial Public Offering
Kingsoft Cloud, which is being spun off from the software firm Kingsoft Corporation, has raised $510 million by offering 30 million shares priced at $17. It is expected to start trading on the Nasdaq stock exchange under the ticker KC.
The company’s chairman Lei Jun is known as the founder of smartphone manufacturer Xiaomi, which raised $4.7 billion in a highly anticipated 2018 IPO in Hong Kong.
According to the parent company, it will purchase up to $25 million worth of shares while Xiaomi expressed interest in buying up to $50 million.
Luckin Coffee scandal and skepticism toward Chinese companies
The cloud firm’s IPO will be the first Chinese listing in the US since Luckin Coffee, which debuted last year on the Nasdaq, but was overshadowed by a fraud scandal. The coffee company admitted in April that a large portion of its 2019 revenue was manipulated.
Following this revelation, Luckin Coffee’s shares fell by 89% for the year before trading was stopped. The firm’s chief financial officer was suspended while it underwent regulatory investigations and faced lawsuits.
The scandal has brought increased skepticism for Chinese firms entering the US market. Edward Au, a managing partner with Deloitte in China, said: "A scandal will absolutely affect perception by investors on companies."
Au added that the wariness is also being fueled by several high profile tech startups, including Uber and WeWork, which went public or tried to do so despite losing money or having no clear profitability plan.
Remaining positive for cloud market
On the other hand, Au explained that Kingsoft Cloud may be able to overcome the skepticism since tech remains a "very hot" sector because "investors want to invest because they see a big boom post Covid-19."
The new normal of remote working, gaming and learning online could benefit the firm like other cloud service companies. Bernstein pointed out that while the cloud market in China only comprises 4% of the global total, it is growing at a rapid pace.
Bernstein analyst David Dai wrote in a research note: "We believe China's cloud market potential is huge."
A Frost & Sullivan report commissioned by Kingsoft Cloud revealed that China’s cloud services market is forecast to triple from 2019 to 2024 to $79 billion. This report was cited in the firm’s filing to the US Securities and Exchange Commission (SEC) last month.
While Kingsoft Cloud has only captured 5.4% of China’s cloud market, it boasts of some big firms as clients, including Xiaomi and ByteDance, the Beijing-based startup behind popular apps TikTok and Douyin.
Currently, Alibaba controls nearly half of the country’s cloud market while Tencent has about a fifth of the market.
