Internet & Tech

Lei Jun’s big bet

Why Kingsoft Cloud is seeking a dual listing in Hong Kong


Lei Jun: the Xiaomi boss is also a big shareholder in Kingsoft Cloud

Can Lei Jun be counted on to win his wagers? On the surface, the Xiaomi founder does not have a great track record.

In 2013, he famously bet Gree chairwoman Dong Mingzhu Rmb1 billion ($150 million) that his consumer electronics and smart manufacturing company would be generating bigger revenues than hers within five years despite recording four times less sales at the outset. She just pipped him to the post, prompting the two entrepreneurs to extend the bet for an indeterminate period.

However, it did not take Lei long to win the follow-up bet. Xiaomi overtook Gree the very next year and at the end of 2021, it was recording $47.94 billion in revenues to Gree’s $24.56 billion. It has yet to become more profitable, however, with Gree recording $3.2 billion in 2021 net profits to Xiaomi’s $2.97 billion.

And now the Chinese press are pulling apart another Lei gamble, this time one he made as chairman of Kingsoft. The same year that he placed a bet against Gree, he also said that Kingsoft’s “group-level bet for the next 10 years will be on Kingsoft Cloud”. Kingsoft CEO Wang Yulin also predicted that the cloud company would be profitable in three years.

For a while, things seemed to be going Lei’s way, although profitability was elusive (and still is). After Kingsoft Cloud was hived off as a separate entity, it went on to become China’s third largest public cloud provider by 2017, second only to Alibaba and Tencent. In May 2020, it made a highly successful listing on the Nasdaq. Its share price spiked 40% to $23.84 on its debut trading day before soaring to an all-time high around the $72 level the following February.

Since then, cracks have begun to show. The group’s US-listed shares are trading around the $2.86 level.

It is now banking on a dual primary listing in Hong Kong to hedge its position against the risks of Sino-US geopolitics and tap into domestic demand (pending the addition of dual primary shares through the territory’s Stock Connect schemes with mainland China).

But there have also been questions about Kingsoft Cloud’s business model. According to IDC, the company ranked eighth domestically behind Alibaba (38.24%), Tencent (10.92%), Huawei (10.74%), China Telecom (8.98%), AWS (7.23%), Baidu (3.97%) and China Mobile (3.22%), as of the third quarter of 2021. It held a market share of just 2.63%.

Lei has always said that he doesn’t fear competition from tech behemoths like Alibaba, Tencent and Huawei. “The giants eat meat and we drink soup,” he once said, implying Kingsoft is competing for a different type of customer. However, over the last few years, Kingsoft Cloud has found that clients have decided they can make their own soup just as well.

Back in 2020, for example, Bytedance accounted for 28% of the company’s revenue. By 2021, it had set up its own cloud business. So Kingsoft Cloud is now trying to diversify its client base beyond video and financial services as well as trying to sell higher-margin services. As Yu Baicheng, Dean of the Zero One Research Institute told 36Kr, “The public cloud business is relatively standardised, requiring high investment and subject to fierce competition.”

Yet DBS analyst Tam Tsz-wang believes that Kingsoft Cloud will be able to differentiate itself from rivals, as more Chinese companies become multi-cloud adopters (i.e. have more than one cloud partner). He points out that whereas 85% of US companies are multi-cloud, the figure is only 26% in China. Enterprise IT spending in China still only accounts for 1.5% of GDP, compared to 3.2% in the US.

Lei recently told employees that the challenges and opportunities are similarly immense in the sector. The same is true of another big bet he is making in robotics. In 2021, Xiaomi unveiled a CyberDog and this year it has launched a robotic humanoid, CyberOne. Can it live up to expectations for Lei who is sometimes criticised for offering spin rather than substance? As we wrote in WiC507, netizens are apt to make comments such as “Lei Jun dresses like Steve Jobs with his T-shirts and jeans, but his company is nothing like Apple. There’s no tech or design, just low prices”.

At roughly $100,000, CyberOne certainly isn’t cheap. Its tagline also sums up Lei’s own attitude to business: “Always believe that something wonderful is about to happen.”

The years since the pandemic began have certainly put that upbeat maxim to the test…

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