In August 2021, Samoyed Cloud Technology, China's "third largest" independent cloud computing service provider, launched a listing attack on Hong Kong stocks.
As the parent company of "Provincial Bei", Samoyed Cloud Technology was mainly engaged in credit card compensation business, and in September 2018, the original entity "Samoyed Financial Services" was listed on the US stock market without results, and after transforming into a "cloud service technology solution provider", it hit the capital market for the second time.
The concept of cloud computing was first proposed by Dell in 1996. In 2006, when Amazon first sold its elastic computing power as a cloud service, it marked the birth of a new business model of cloud computing. In the following ten years, many domestic and foreign enterprises joined the cloud battlefield, and new recruits and veterans fought hard.
In the eyes of industry insiders, the essence of cloud computing is to allow users to stand on the shoulders of giants to carry out business, avoid repeated wheel building, improve efficiency, and reduce costs. Now that the cloud service industry is ushering in a new era, cloud vendors are beginning to help more industrial users achieve digital and intelligent upgrading and transformation, and provide more landing solutions.
According to China Insight Consulting, the total expenditure on cloud service technology solutions in China has grown rapidly from 89.3 billion yuan in 2016 to 322 billion yuan in 2020 at a compound annual growth rate of 37.8%, and is expected to grow at a compound annual growth rate of 27.3% to 1.08 trillion yuan in 2025.
Judging from the current domestic cloud market pattern, the capital game continues under the broad prospects. The competitors in China's cloud service technology solution market are divided into three categories: cloud service technology solution providers with the background of Internet giants, cloud service technology solution providers with the background of industrial groups, and independent cloud service technology solution providers. Cloud computing giants such as Alibaba Cloud, HUAWEI CLOUD, Tencent Cloud, and Baidu Intelligent Cloud have grabbed most of the domestic market share. In 2020, all independent cloud technology solution providers accounted for only about 25% of the overall cloud service technology solutions market.
It should be noted that some enterprises that use cloud services and cloud service providers with industrial group backgrounds are themselves competitors, which hide mistrust and conflicts of interest. From this perspective, independent cloud service providers have the advantage of remaining objectively neutral in the market.
In May 2020, KC.US successfully listed on the NASDAQ, which defines itself as the "largest" independent cloud computing service provider in China. However, in the case of Kingsoft Cloud's gross profit margin of less than 10%, why does Samoyed Cloud Technology achieve a gross profit margin of more than 60%? Behind the listing, what are the potential problems of Samoyed Cloud Technology to be solved?
Samoyed Cloud Technology first cut into the credit card compensation business.
The founding team of Samoyed Cloud Technology mainly comes from the credit card and CMB consumer finance team, which is known as the "king of retail". Prior to its inception, the main founder, Lin Jianming, accumulated 14 years of experience in the financial technology industry. He served as the chief engineer of the credit card center of China Merchants Bank Co., Ltd., led the construction of the technical structure related to the credit card business, and participated in the establishment of Zhonglian Consumer Finance Co., Ltd. in 2013.
In June 2015, in a small residential building office in Shenzhen, Lin Jianming and 15 founders finalized tens of millions of venture capital investments; it took 30 days to launch Samoyed Cloud Technology's first product, Provincial, mainly for credit card compensation business.
Previously, when domestic credit cardholders were unable to pay off the current bill in full, they could only choose to make a bill instalment or minimum repayment at the Bank, and the interest rate on the installment was relatively high. The emergence of Shengbei has helped Samoyed Cloud Technology cut into the consumer financial market, if the user cannot pay off the current bill on time on the credit card repayment date, they can use the amount given by the province to pay off the bill in one lump sum, and then repay in installments in the province. Provincial bar is priced according to the user's risk, the better the user's credit, the higher the amount and the lower the interest rate.
Subsequently, Samoyed Cloud Technology engaged in credit services around the credit card ecosystem. According to the prospectus, Shengbei will connect the company with customers and end users, become a one-stop service platform for end users to enjoy consumption, entertainment, credit and financial management and virtual space services, and at the same time enable enterprises to access open traffic resources through content aggregation and traffic distribution platforms, creating a loan assistance service model based on scientific and technological strength without capital participation.
In 2018, many platforms with credit card compensation as their main business have gone to the capital market. In June and July, Wearnes Jinke and 51 Credit Card were listed on the Hong Kong Stock Exchange, and in September, Xiaoying Technology was listed on the New York Stock Exchange. Samoyed Cloud Technology, which plays the role of a financial technology service provider, also launched an attack on the US stock market in September of the same year, but voluntarily withdrew its listing application in August 2019.
This may be the result of the superposition of many factors. In 2018, the overall environment of Internet finance under strong supervision was not good, and the business form of Samoyed Cloud Technology was related to changes in the regulatory environment and industry environment. Under strong pressure, negative public opinion was encountered, and the 2019 CCTV 315 evening party deeply exposed the chaos in the field of Internet finance, and Samoyed Cloud Technology was named to collect users' personal information in violation of the law and make harassing calls to promote loan products.
Under pressure, Samoyed Cloud Technology began its business transformation in the second half of 2018, transforming from a fintech service provider to a technology solution provider serving customers in different industries. On September 24, 2020, the company upgraded the "Samoyed Financial Services" brand to "Samoyed Digital", indicating that it would not directly participate in financial business transactions.
In its prospectus, Samoyed Cloud Technologies claims to be the third independent cloud service technology solution provider in China, providing solutions to Chinese financial institutions and enterprises in various industries, and delivers them in the form of SaaS (Software as a Service) and aPaaS (Application Platform as a Service) products. The company provides institutional customers with a complete value chain closed-loop ecosystem covering customer operations from generating and directing traffic to repeated purchases and providing value-added services, and the Digital Intelligence Satsuma Cloud Platform is at the heart of this ecosystem.
As of April 30, 2021, the cumulative number of registered users of Shengbei was about 73.7 million, and 43.6 million transactions were recorded in Shengbei. As of April 30, 2021, the Satsuma Cloud Platform connects approximately 73.7 million small and micro merchants and consumers, 50 financial institutions, 530 enterprises in different industries, 1,470 Internet platforms and 70 data providers.
According to the prospectus financial report data, the revenue of Samoyed Cloud Technology in 2018, 2019 and 2020 was 479 million yuan, 861 million yuan and 1.969 billion yuan respectively, with a compound annual growth rate of 102.6%; and increased from 484 million yuan in the first four months of 2020 to 922 million yuan in the first four months of 2021, an increase of 90.3% year-on-year. Gross profit growth is also significant, with gross profit compound annual growth rate of 100.6% from 2018 to 2020 and gross profit in the first four months of 2021 increasing by 171.7% year-on-year.
In the first four months of 2018, 2019, 2020 and 2021, Samoyed Cloud Technology's cash and cash equivalents amounted to $144 million, $104 million, $0.94 billion and $227 million, respectively; net operating cash inflows of $0.98 billion, $925 million, $286 million and $113 million, respectively; R&D expenses accounted for 13.3%, 7.5%, 3.2% and 3.4% of total revenue, respectively; net profit was -0.82 billion yuan, - 119 million yuan, 674 million yuan and 285 million yuan, the corresponding gross profit margins for the same period were 63.2%, 48.3%, 61.9%, 47.5% and 67.8% respectively.
In contrast, from 2017 to 2020, kingsoft cloud's gross profit margin was -9.6%, -9%, 0.2% and 5.6%, respectively. From 2017 to the first half of 2020, the gross profit margins of the other two independent cloud service providers, Qingyun Technology (688316.SH) and UCD (688158.SH), were 22.27%, 11.01%, 12.51%, 9.63%, 36.47%, 39.48%, 29.04% and 16.4%, respectively.
According to Samoyed Cloud Technology's analysis, its gross profit margin growth was mainly due to the support of strategic transfer, and the launch of a comprehensive set of end-to-end technology solutions to financial institutions and corporate customers made the revenue increase significantly. In 2019, gross margins decreased as major loans facilitated the transfer to cloud solutions and were still in the initial development phase.
In the view of Yu Baicheng, president of Zero One Research Institute, although Samoyed Cloud Technology and Kingsoft Cloud and Qingyun Technology all belong to the category of cloud services, in fact, the business direction is not the same. Kingsoft Cloud and Qingyun Technology are more inclined to cloud computing services, and Samoyed Cloud Technology is biased towards business solutions in financial and other segments. Product market competitiveness, added value, cost and expense structure, etc. will affect the level of gross profit margin. The final profit margin situation, in addition to the gross profit margin, also depends on factors such as period expenses.
Caijing New Media found that Kingsoft Cloud's business is mainly composed of three parts: public cloud, enterprise cloud and AloT solution, and the company has invested heavily in infrastructure, which is reflected in the IDC cost composed of broadband costs and rack costs. Qingyun Technology, which landed on the Science and Technology Innovation Board in March this year, is a platform-level hybrid cloud ICT vendor and service provider, with its main business as cloud products and cloud services, and has invested more in data center costs, fixed asset depreciation and other suppliers' own infrastructure costs, as well as outsourced hardware costs. The gross profit margin of UCCD is also affected by the reduction of the unit price of the main products and the increase in hardware investment.
The cost of Samoyed Cloud Technology mainly comes from the credit loss under the credit enhancement service contract, which has accounted for more than 70% of the year since 2019. According to the prospectus, depending on the service industry or scenario, the main forms of services provided by Samoyed Cloud to customers include financial cloud solutions, industrial cloud solutions and credit cloud solutions, and financial cloud solutions are still the most important business.
Revenue growth is mainly due to three points, one is the transformation from financing loans to financial cloud solutions, resulting in the growth of the number of customers and the overall business scale; the growth of the second industry cloud solution business line proves that the monetization ability of the ecosystem has improved; and the third is to continue to invest in research and development to increase the profitability of the pricing model.
The customers of financial cloud solutions and credit cloud solutions mainly include financial institutions such as consumer finance companies, commercial banks, trust companies and microfinance companies. The customers of industrial cloud solutions mainly include Internet platforms, information technology companies, consumer industry companies and financial institutions.
In the first four months of 2018, 2019, 2020 and 2021, Financial Cloud Solutions assisted in completing approximately 2.7 million, 3.7 million, 3.7 million and 1.8 million credit transactions, respectively. The credit transactions completed with the financial cloud solution were approximately $14.4 billion, $17 billion, $17.7 billion and $8.6 billion, respectively. During the same period, the cumulative number of paid customers of industrial cloud solutions was about 180, 360, 510 and 560 respectively.
It is worth noting that in 2018, 2019, 2020 and the first four months of 2021, the revenue attributable to the top five customers of Samoyed Cloud Technology accounted for about 54.5%, 62.5%, 73.1% and 79.5% of the total revenue, respectively, and the proportion of the largest customers was about 29.0%, 31.1%, 39.6% and 51.4%, and there was a risk of concentration of large customers.
For the four months ended April 30, 2021, Samoyed Cloud Technology's top five customers included two banks and three consumer finance companies, except for one information technology service company and one consulting and agency service company in 2018, the top five customers in the remaining years were banks and consumer finance companies. The current first major customer bank A has been on the top five customer list since FY2019, and other companies on the list have changed more frequently.
In addition, in line with the growth of credit cloud solutions, the amount of guarantee provided by Samoyed Cloud Technology for the issuance of loans has also increased. Guarantee liabilities increased significantly from $111 million as of FY2018 to RMB593 million in FY2019. Guaranteed liabilities for 2020 shrank to $303 million due to a reduction in the expected full-period credit loss on guaranteed related loans, and thereafter increased to $452 million as at April 30, 2021.
For the four months ended April 30, 2021, Samoyed Cloud Technology had a gearing ratio of 94.6%. In the previous three years, the asset-liability ratio was even higher than 100%.
In July 2021, Samoyed Cloud Technology received a financing of 5 million yuan from a financial company in Shenzhen with an annual interest rate of 4.9%, which was used for working capital and other general corporate purposes. The financing was repaid within 12 months of withdrawal and secured by a pledge to one of the patents. The company withdrew a loan of 5 million yuan in the same month.
As far as its suppliers are concerned, they mainly include traffic providers, data providers, information technology services and infrastructure providers, and credit management service providers. Purchases from the five major suppliers accounted for 32.9%, 18.6%, 25.5% and 19.0% of the total procurement volume for the years ended December 31, 2019, 2020 and the four months ended April 30, 2021, respectively, and the purchases from the largest suppliers accounted for 11.5%, 6.4%, 7.6% and 5.1% of the total procurement volume for the same period, respectively.
To steadily develop financial technology, we must attach importance to data security and privacy protection, and prevent telecommunications and payment fraud. At the same time, it is also necessary to consider reducing the risks of money laundering and terrorist financing brought about by the operation of new technologies. Although there is no risk of concentration of major customers, there are significant uncertainties in the credit reporting business.
Samoyed Cloud Technology said in the prospectus that in the process of providing credit cloud solutions, the company provides financing guarantee services to financial institutions and borrowers, collects and analyzes the borrower's personal information (including his name, address and identity card number), and shares relevant information and analysis results with financial institutions for reference in the process of assessing the borrower's credit risk and approving loans.
According to the Measures for the Administration of Credit Reporting Business (Draft for Solicitation of Comments) drafted by the Central Bank of China in 2021 and the current relevant laws and regulations, entities or individuals may not engage in personal credit reporting business without the approval of the Chinese Bank. Entities engaged in personal credit reporting business without approval may be punished with penalties such as prohibiting business, confiscating income related to personal credit reporting business, imposing fines of between RMB 50,000 and RMB500,000, or pursuing criminal liability.
Samoyed Cloud Technology said Chinese legal counsel believes it is unlikely to be seen as a credit reporting agency and its business is unlikely to be considered a credit reporting service or activity. "The reason is that our financing guarantee company does not provide independent credit information or credit rating retrieval services to third parties, and all the information collected by our financing guarantee company and transmitted to financial institutions is based on the financing guarantee services it provides, that is, to analyze whether potential borrowers are eligible for guarantees and to share the results with financial institution customers only if they are accepted to provide guarantee services to potential borrowers."
Since the beginning of this year, in view of the prominent problems prevalent in the current network platform enterprises engaged in financial business, the financial management department has put forward rectification requirements in terms of payment, licensed credit information, standardized management of key links, and strengthening the protection mechanism of financial consumers, and insisted that all financial activities be included in financial supervision, and financial business must be operated by licenses.
New chinese regulations in the future may require Samoyed Cloud Technologies to obtain additional licenses or licenses to continue to operate its business operations and maintain current and future solution offerings. Samoyed Cloud Technology admits that it cannot guarantee that it can maintain the existing licenses, licenses or approvals, or obtain other licenses necessary to expand its business, which will undoubtedly have an impact on business operations and prospects.
Yu Baicheng analyzed the new media of Caijing, this year's data security law and personal information protection law landing, for data-related enterprises and service providers will have an impact, on the one hand, based on regulatory requirements to build a compliant data system and norms, compliance costs increase; on the other hand, data acquisition and use costs rise, some interoperability problems can be solved through privacy computing and other technologies, but the overall data business model will have an impact.
Samoyed Cloud Technology may also face traffic challenges. It mainly generates user traffic through provincial and various third-party Internet platforms. As the competition for user traffic becomes more intense, additional expenses and significant resources may be required in the future.
For Samoyed Cloud Technology, which has achieved a business turnaround with its old advantages, although it has become the third largest independent cloud service technology solution provider in China, its market share is still less than 3%, and it has not yet opened up the gap with other similar independent service providers.
In terms of the stock price performance of similar companies after listing, the opening price of Kingsoft Cloud on the first day of listing was 20.37 US dollars / share, which soared by more than 40% on the same day. As of the close of trading on September 28, 2021, it was trading at $29.45 per share.
Qingyun Technology and Youkede have all been broken. Caijing New Media noted that the issue price of Qingyun Technology was 63.70 yuan / share, and the first day of listing closed at 82.13 yuan / share, and the current stock price is hovering around 56 yuan. The issue price of Yonede was 33.23 yuan / share, up 119.5% on the first day of listing, and the stock price once soared to 125.9 yuan / share in the first month, but the current stock price has fallen to near 33 yuan.
Whether Samoyed Cloud Technology can successfully land on the capital market and how the stock price will perform remains to be observed in the future.