Release Date: November 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kingsoft Cloud Holdings Ltd (KC, Financial) reported a 16% year-over-year revenue growth, outpacing the industry average.
- The company's profitability is improving, with EBITDA margin reaching 10% this quarter.
- AI revenue has shown consistent triple-digit year-over-year growth, with a 6.9-fold increase compared to last year.
- Revenues from the Xiaomi and Kingsoft ecosystem increased by 36% year-over-year, highlighting strong strategic partnerships.
- The company achieved a net operating cash inflow of RMB228 million, demonstrating strong cash-generating ability.
Negative Points
- The CDN business faced profitability fluctuations, impacting the overall gross margin.
- Depreciation and amortization costs increased due to newly acquired GPU services, affecting overall expenses.
- The company is scaling down CDN services due to higher bandwidth costs and price adjustments.
- Adjusted R&D expenses increased by 16.1% from last quarter, driven by higher personnel costs.
- The company is not providing formal guidance for the timing of achieving a positive operating margin.
Q & A Highlights
Q: Can you discuss the growth potential of strategic customers like Xiaomi and Kingsoft Group and your service strategy for them?
A: The business opportunities from the Xiaomi and Kingsoft ecosystem have been increasing rapidly, driven by AI advancements. Xiaomi's strong results, particularly in EV delivery, have bolstered cloud service utilization. The growth in AI-related functions and paid customers for AI services is driving cloud usage, providing a solid foundation for Kingsoft Cloud's revenue growth. We are optimistic about continuing this momentum.
Q: What is your outlook on adjusted EBITDA margin and operating margin, considering depreciation, amortization, and AI-related CapEx?
A: We are seeing continued expansion from gross margin to EBITDA margin, then to operating profit. Our gross margin has improved significantly from around 3% in 2022 to a much higher level now. EBITDA margin has also turned positive, reaching around 10% this quarter. We expect faster expansion in EBITDA margin compared to gross margin, driven by AI's contribution to revenue. Operating margin improvements are supported by cost control and operational efficiency.
Q: How does the margin profile of your AI business compare to the overall public cloud margin?
A: AI-related products deliver higher gross margins compared to traditional public cloud services. Our public cloud gross margin is generally higher than enterprise cloud. AI contributes significantly to both gross and EBITDA margins, outperforming traditional services. The scaling down of CDN services has been effective, aligning with our budget and improving margins.
Q: What is your CapEx outlook for this year and next, and how do you plan to fund AI business growth?
A: We have secured additional CapEx resources through banks, financial leasing companies, and state-owned enterprises. We are applying for a cap of RMB11.3 billion in related party transactions with Xiaomi and Kingsoft over the next three years. We aim to avoid diluting public shareholders and will leverage strong support from major shareholders for business growth and margin expansion.
Q: How do you plan to manage leverage and investment speed in AI?
A: We are committed to maintaining a robust financial position, balancing leverage and investment speed in AI. Our internal discussions and annual budget meetings focus on managing these aspects effectively to support sustainable growth and margin improvements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
