Produced by | At the forefront of entrepreneurship
Author | Duan Nannan
Edit | Feng Yu
American Editor | Li Yufei
Audit | Ode
Recently, Kingsoft Cloud Holdings Co., Ltd. (hereinafter referred to as "Kingsoft Cloud"), which has high hopes for Lei Jun, announced its 2023 results. Following 2022, Kingsoft Cloud's revenue in 2023 will decline again, and in addition, Kingsoft Cloud's loss in 2023 will exceed 2 billion yuan again.
In the past year, in the face of the encirclement and suppression of cloud computing giants such as Alibaba Cloud and Huawei Cloud, Kingsoft Cloud had no choice but to start a price war, but the actual effect was not ideal. In the capital market, Kingsoft Cloud's share price fell by more than 95% from its highest point, leaving many investors with no money.
Under the encirclement and suppression of giants, Kingsoft Cloud pinned its hopes on AI, and can Kingsoft Cloud take advantage of AI to break through smoothly?
1. Revenue has declined year after year, and the stock price has fallen by more than 95%
In 2012, Kingsoft spun off its fast disk business to its newly established subsidiary, Kingsoft Cloud, and officially entered the field of cloud computing. With the aura of Lei Jun behind it, coupled with the popularity of cloud computing at that time, Kingsoft Cloud has obtained more than 100 million US dollars in financing from its parent company Kingsoft Software, Xiaomi Group and IDG Capital just a few years after its establishment.
With the support of capital and the explosion of the cloud computing industry, Kingsoft Cloud's revenue has grown rapidly. In 2018, Kingsoft Cloud's revenue was 2.218 billion yuan, which increased to 9.061 billion yuan in 2021, with a compound annual growth rate of nearly 60%.
In 2020, Kingsoft Cloud ushered in its own highlight moment, and the company was successfully listed on the U.S. stock market at a price of $17 per share. On the first day of listing, Kingsoft Cloud's share price rose by more than 20%. In 2021, Kingsoft Cloud's share price once rose to more than $74 per share, and its market value once exceeded $17.6 billion.
The good times did not last long, as the capital market's pursuit of cloud computing declined, and Kingsoft Cloud's revenue began to decline, Kingsoft Cloud's stock price began to fall in an avalanche.
As of April 12, 2024, Kingsoft Cloud's share price closed at $2.70 per share, down more than 95% from its peak and more than 84% from the issue price, which also means that many investors such as Lei Jun have suffered heavy losses.
The external cause of the avalanche of Kingsoft Cloud's stock price is the abandonment of capital, and the internal cause is the decline in the company's own revenue. In 2021, Kingsoft Cloud's revenue reached a record of 9.061 billion yuan, and Kingsoft Cloud's revenue has not exceeded 9 billion yuan since then.
In 2022, Kingsoft Cloud's revenue will be 8.108 billion yuan, a year-on-year decrease of 9.72%, and the company's loss will also expand from 1.589 billion yuan in 2021 to 2.658 billion yuan. In 2023, Kingsoft Cloud's revenue will be 7.047 billion yuan, a year-on-year decrease of 13.85%, and the company will lose 2.176 billion yuan.
From the perspective of revenue, Kingsoft Cloud's revenue is mainly divided into two parts: public cloud services and industry cloud services. In 2023, Kingsoft Cloud's public cloud service revenue will be 4.382 billion yuan, accounting for 62.18% of revenue, making it Kingsoft Cloud's largest business.
The decline in public cloud service revenue is also an important reason for the decline in Kingsoft Cloud's revenue, which will be 5.360 billion yuan in 2022 and 4.382 billion yuan in 2023.
(Photo / Kingsoft Cloud revenue details)
The company's public cloud services mainly include cloud computing, cloud storage, and cloud distribution, among which cloud distribution accounts for the highest proportion of revenue in the public cloud. Cloud distribution relies on CDN (Content Delivery Network) to ensure that images and videos can be loaded quickly.
In essence, CDN has almost no technical barriers, and having more CDN nodes to ensure user browsing speed is the only competitive advantage for related enterprises.
The establishment of CDN nodes requires a large amount of financial support. According to the data, in 2023, Alibaba Cloud will have 3,200 global nodes, Tencent Cloud will have more than 2,800, and Huawei Cloud will have more than 2,800, compared to Kingsoft Cloud, which will have a lot fewer nodes, with only 1,700 nodes in the world.
Compared with large manufacturers such as Alibaba Cloud and Tencent Cloud, Kingsoft Cloud is obviously at a significant disadvantage in terms of capital and business scale. Under the attack of many large cloud service providers, it is not surprising that Kingsoft Cloud's revenue has declined.
2. The involution of the industry is intensifying, and it is difficult to expand customers
"Entrepreneurship Frontline" found that the cloud computing industry is becoming more and more involuted.
According to data released by IDC, the market size of China's public cloud service IaaS + PaaS in the first half of 2023 will be US$14.58 billion, a year-on-year increase of 15.9%, a new low year-on-year growth rate in the past three years.
The growth rate of the industry has declined, and in order to attract more customers, major cloud service providers have begun to roll in. In April 2023, Alibaba Cloud launched the largest price reduction in the market, with the price of core products being reduced by 15% to 50% across the board, and the price of storage products being reduced by up to 50%.
Subsequently, large cloud service manufacturers such as Tencent Cloud, Mobile Cloud, and e Cloud also reduced prices, and e Cloud even published a header advertisement on the homepage, saying that some products were as low as 1% off.
(Photo / Photo Network, based on VRF protocol)
In order to cope with the involution of the industry, Kingsoft Cloud has also started to reduce prices, and the price of the company's CDN business and cloud database Reds products has been reduced by as much as 50%.
Interestingly, under the influence of the price war, private enterprises such as Alibaba Cloud and Kingsoft Cloud did not take advantage, but the cloud services of the three major operators such as e Cloud quickly "stook their ground" in the industry.
In 2023, the cloud computing business of the three major operators performed very well, with e Cloud achieving revenue of 97.2 billion yuan, a year-on-year increase of 67.9%, mobile cloud achieving revenue of 83.3 billion yuan, a year-on-year increase of 65.6%, and China Unicom Cloud achieving revenue of 51 billion yuan, a year-on-year increase of 41.6%.
In contrast, Alibaba Cloud's revenue in 2023 will be 105.396 billion yuan, a slight increase of 3% year-on-year. Kingsoft Cloud is even more miserable, with a year-on-year decrease of 13.85% in revenue in 2023. This also means that Kingsoft Cloud's business strategy of cutting prices to grab customers has not worked, which also makes investors worry about whether Kingsoft Cloud has lost its competitiveness.
According to the "White Paper on the Development of China's Cloud Computing Industry", the cloud migration rate of the Chinese government and enterprises will reach 60% in 2023, and the industry growth rate will slow down further.
At the level of government and state-owned enterprises, the three major operators have natural advantages, and the three operators have more data outlets and higher stability. At the level of the government and state-owned enterprises, private enterprises such as Kingsoft Cloud naturally have disadvantages, so it is difficult for Kingsoft Cloud to make breakthroughs at the level of the government and state-owned enterprises.
In the enterprise field, due to the convergence of service content of major cloud service providers, it is difficult for customers to replace the original cloud service provider unless the original cloud service provider has a large-scale downtime event.
In view of the fact that vendors are prone to security incidents such as data leakage when migrating different cloud servers, users generally do not easily change service vendors, which is also the reason for the high customer retention rate of cloud service vendors. This also means that even if the price war starts, it will be difficult for Kingsoft Cloud to leverage other customers.
(Photo / Photo Network, based on VRF protocol)
A large number of enterprises that do not use cloud computing are not very interested in cloud computing, especially manufacturing enterprises, and some manufacturing SMEs will not purchase cloud computing services due to cost issues.
For Kingsoft Cloud, it is undoubtedly difficult at this stage. In the stock environment, under the encirclement and suppression of the three major operators and large cloud service providers such as Alibaba Cloud, it is very difficult for Kingsoft Cloud to expand outward.
And under the offensive of the price war of large cloud service providers, Kingsoft Cloud has lost cities and losses one after another, which can also be reflected in the continuous decline in revenue of Kingsoft Cloud. In the face of difficulties, Kingsoft Cloud said that it would strengthen cooperation with customers related to Xiaomi Group and Kingsoft Software. Relying on the support of affiliated enterprises, Kingsoft Cloud may still have a glimmer of life.
3. Bet on AI large models, but have limited financial strength
Due to its own poor operation, Kingsoft Cloud is also actively seeking transformation.
In 2023, due to the popularity of ChatGPT, major cloud service providers will accelerate their AI layout, such as Baidu Cloud, which has added a lot of color to its products under the strategy of "cloud intelligence integration", and Alibaba Cloud has also begun to access the Tongyi Qianwen AI model.
At present, major cloud service providers are increasing the research and development of AI large models, and the vigorous "100-model war" has begun. According to public data, there are more than 200 AI large models in China so far.
Kingsoft Cloud is no exception, releasing three generative AI large model images as early as 2023. In March 2024, Frost & Sullivan, a global growth consulting firm, released the "2024 China Large Model Capability Assessment", which conducted an authoritative evaluation of 15 mainstream large models in China.
Baidu's Wenyan Yixin and Tencent's hybrid model belong to the first echelon, while Kingsoft Cloud-related large-scale model products have not even entered the evaluation scope.
Whether it is cloud computing or large-scale model research and development, a large amount of capital is required as the basis for research and development. Previously, the surging news reported that it would take 200 million to 300 million yuan to train a large model in the initial stage, and due to the increase in computing power prices, it may take 500 million yuan to train a new large model.
(Photo / Photo Network, based on VRF protocol)
Previously, Guosheng Securities predicted that the cost of GPT-3 training in China is about 1.4 million US dollars, and the training cost of large language models is even higher, with the training cost between 2 million US dollars and 12 million US dollars.
As a small and medium-sized cloud service provider, Kingsoft Cloud is not rich in funds. As of the end of 2023, Kingsoft Cloud's cash and cash equivalents were 2.255 billion yuan.
It is worth noting that from 2022 to 2023, Kingsoft Cloud's operating losses will be 2.658 billion yuan and 2.176 billion yuan respectively, which also means that the company's existing funds are only enough for Kingsoft Cloud's normal loss for one year.
If the research and development of AI large models is increased, Kingsoft Cloud's losses are bound to further expand. In fact, due to the decline in revenue in the past two years, Kingsoft Cloud has not only not increased its R&D efforts, but is also cutting R&D spending. From 2021 to 2023, Kingsoft Cloud's R&D expenditure will be 1.044 billion yuan, 971 million yuan, and 785 million yuan respectively, showing a downward trend year by year.
(Photo / Photo Network, based on VRF protocol)
Continuous investment in R&D funds is the basis for the continuous iterative optimization of large models, but from the perspective of Kingsoft Cloud's monetary funds and R&D investment, the company does not have the ability to continuously iterate.
For Kingsoft Cloud, the traditional cloud computing business is struggling under the encirclement and suppression of large cloud service providers. If you want to overtake with the help of AI and are limited by your own insufficient funds, perhaps, as Kingsoft Cloud said, only by continuing to embrace Kingsoft and Xiaomi Group can Kingsoft Cloud win a glimmer of life under the cruel industry involution.
*Note: The title image in the article is from the photo network and is based on the VRF protocol.