Amazon founder Jeff Bezos proposed in his first letter to shareholders in 1998 that “everything is about the long term”, which has become the source of the “long-term doctrine” widely spread and numerous supporters. Especially for the cloud computing field with heavy assets and high investment, long-term doctrine is more regarded as the standard. As for AWS (Amazon cloud technology), it took nearly 10 years to realize the first $10 billion revenue from scratch to 2016.
The reporter of China business daily noted that Ucloud Technology Co.Ltd(688158) ( Ucloud Technology Co.Ltd(688158) . SH), Qingcloud Technologies Corp(688316) ( Qingcloud Technologies Corp(688316) . SH) and Jinshan cloud (NASDAQ: KC), which were established late in China’s mainstream cloud computing manufacturers, have ushered in their 10th anniversary this year. However, aliyun, which was established in 2009 and has the largest market share in China, has roughly the same revenue volume in 2021 as that of AWS in the past ten years, and has reached the profit inflection point in the fourth quarter of 2020. However, it is affected by many factors, There is still a distance from large-scale profitability. From the financial reports handed over by cloud manufacturers in recent days, it can be seen that most Chinese cloud service enterprises are still in a state of loss, and continue to increase investment to seize the market, waiting for the day when long-term ism bears commercial fruits.
Can Chinese cloud service providers achieve the same profitability as international cloud service providers? How can low-cost cloud services achieve scale effect and positive business cycle? In response to these concerns and questions about the development of cloud computing in China, our reporter comprehensively compared the latest financial report data of cloud service manufacturers, and interviewed industry participants and third-party experts.
transcript released: scale problem
At present, the participants in China’s IAAs (infrastructure as a service) cloud service market can be roughly divided into several forces. One is the “big manufacturers” of communication and Internet, such as Alibaba, Tencent, Baidu, Huawei, etc; Second, China Telecom Corporation Limited(601728) , China Mobile, China United Network Communications Limited(600050) and other telecom operators; Third, cloud manufacturers that focus on “neutrality”. Ucloud Technology Co.Ltd(688158) , Qingcloud Technologies Corp(688316) , and Jinshan cloud, which have completed IPO in recent two or three years, are typical representatives. Fourth, foreign-funded enterprises including Amazon, Microsoft and Google. According to the statistics regularly released by canalys, Gartner, IDC and other commercial institutions, more than half or even 70% of the market share of IAAs and IAAs + PAAS (platform as a service) in China is occupied by the first two forces.
Based on the publicly disclosed financial report data, the reporter collated and compared the revenue of cloud service manufacturers. In 2021, most cloud manufacturers maintained a significant growth, such as China Telecom Corporation Limited(601728) the revenue of Tianyi cloud and China Mobile’s mobile cloud was 27.9 billion yuan and 24.2 billion yuan respectively, an increase of 102% and 114% compared with the previous year; Through manual calculation, Alibaba cloud’s revenue in 2021 natural year (not the reporting period of fiscal year 2021) is about 72.4 billion yuan, an increase of 29% year-on-year; The revenue of HUAWEI cloud and Baidu Intelligent Cloud were 20 billion 100 million yuan and 15 billion 100 million yuan respectively, up 34% and 64% respectively over the previous year. Jinshan cloud’s revenue last year was 9.1 billion yuan, a year-on-year increase of 38% Ucloud Technology Co.Ltd(688158) unaudited performance express showed that the annual revenue of 2021 was 2.908 billion yuan, an increase of 18.46% over the previous year.
According to the financial report, Alibaba cloud had a revenue of 55.597 billion yuan and an operating loss of 5.765 billion yuan in the first three fiscal quarters (nine months) of fiscal year 2022 as of December 31, 2021. The adjusted EBITA (excluding interest, tax and income before amortized sales) made a profit of 870 million yuan, and the adjusted EBITA profit margin was 2%. It should be noted that Alibaba cloud achieved adjusted EBITA profit for the first time since the third quarter of fiscal year 2021 (i.e. the fourth quarter of 2020).
Different from Alibaba cloud’s profitability, the losses of neutral cloud manufacturers continue to expand. According to the announcement, Ucloud Technology Co.Ltd(688158) in 2021, the net loss attributable to the owner of the parent company was 600 million yuan, the loss increased by 75.06% year-on-year, and the gross profit margin of main business also decreased by 4.79 percentage points year-on-year Qingcloud Technologies Corp(688316) the net loss attributable to the owners of the parent company was 281 million yuan, an increase of 72% year-on-year; Jinshan cloud’s net loss attributable to the shareholders of the parent company was 1.589 billion yuan, an increase of 65.10% year-on-year, and the sales gross profit margin was only 3.88%.
Ucloud Technology Co.Ltd(688158) said that in 2021, some leading customers in the Internet segment industry were introduced, with little bargaining space and lack of other customers of the same scale to improve the resource reuse rate, so the profit level was low. The company’s R & D expenses, sales expenses and other expenses also increased by about 35% year-on-year. According to the disclosure of Jinshan cloud, its marketing, sales and management expenses and R & D expenses are also increasing significantly, of which R & D expenses increased by 34.66% year-on-year Qingcloud Technologies Corp(688316) in the performance announcement, the R & D expenses in 2021 increased by 74.29% ~ 82.22% year-on-year, and the sales expenses increased by 66.11% ~ 75.23% year-on-year.
In view of the differences and differentiation between China and the United States in the cloud service market, Citic Securities Company Limited(600030) analysts pointed out in the research report that the short-term growth of China’s cloud computing industry is restricted by many aspects. On the one hand, with the peak of Internet penetration and average online time of users, China’s Internet industry has stepped from a high growth stage to a mature stage, and the growth of Internet enterprises’ demand for cloud computing has gradually slowed down. On the other hand, since 2021, traditional large and medium-sized enterprises “going to the cloud” has gradually become the core driving force to promote the development of cloud computing in China. However, the overall digital platform of traditional enterprises is weak and needs to be cultivated. In addition, they have stronger concerns about data security, and have higher requirements for the integrated solution service ability of cloud manufacturers and the solution of hybrid cloud, which also hinders the process of going to the cloud to a certain extent.
Overall, the product structure, R & D investment and special national conditions have raised the short-term cost and expense rate of Chinese cloud manufacturers. In order to seize the market, the price profit space is greatly compressed, making the competition of Chinese cloud manufacturers increasingly fierce.
According to Zheng Lei, chief economist of Baoxin financial group, cloud computing services belong to the heavy asset industry. It takes a long time from the beginning of investment to the hardware investment to reach the economic scale. This process requires a long-term process to achieve profit and loss balance. Both AWS and Alibaba cloud can be regarded as the first batch of cloud computing players who invested earlier. The scale effect has been highlighted, and then the powerful Internet enterprises come in, It can also catch up quickly by accelerating hardware investment and technological advantages. However, for those small-scale participants, due to high market concentration and squeezed living space, it is still a difficult problem to make profits in the short term.
Zhang Xiaorong, President of the deep science and Technology Research Institute, pointed out that the concentration of the cloud computing market may be further improved in the future, which compresses the development space for small and medium-sized cloud service manufacturers, and it may be more difficult to enter the positive business cycle.
to B long run: Digital dividend
Although there are many concerns and doubts about the development of cloud computing in the industry, our reporter noted that both Alibaba cloud, Huawei cloud, Tencent cloud and operators, as well as neutral cloud service providers, have increased their investment in R & D, management and marketing without exception.
For example, Alibaba cloud and Tencent cloud are building platform ecological strategies, from IAAs layer to PAAS layer, and then to SaaS (software as a service) layer. Neutral cloud service providers are developing in depth and seizing opportunities for cloud development in the industry. In order to open fund-raising channels, Ucloud Technology Co.Ltd(688158) , Qingcloud Technologies Corp(688316) and Qingcloud Technologies Corp(688316) landed on the A-share science and innovation board in January 2020 and March 2021 respectively.
Qingcloud Technologies Corp(688316) Vice President Lin Yuan disclosed to our reporter that before listing, the industry had been worried about “whether you can survive in the fierce competition in the cloud computing industry”, but now there is no such problem. At the same time, the company has invested more resources and potential customers in the market. In the next ten years, Qingcloud Technologies Corp(688316) will focus on the original cloud, continue to digitize the deep industry, and promote the implementation of national strategies such as digital computing from the east to the west, new digital infrastructure and “double carbon”.
“To B must be a long-term thing. Qingcloud Technologies Corp(688316) has been doing IAAs public cloud for ten years, and has invested in storage, container, network and other underlying technologies for many years. All to B fields, especially underlying technologies, must require patience and continuous investment.” Lin Yuan said.
In Lin Yuan’s view, industrial development has caught up with a good opportunity. Whether it is digital economy, new infrastructure, calculation from the east to the West and “double carbon”, with the support of national policies, the market demand for industrial digitization has sprung up. This track is long enough and the market is large enough. “To B must be a long-distance race. It depends on whether we can make long-term investment in the underlying technology, especially the really valuable underlying technology of society, enterprises and industries. If we continue to invest, we will have output.” Lin Yuan said.
Coincidentally, Gu fan, general manager of Strategic Business Development Department of Amazon cloud technology Greater China, previously pointed out in an interview with our reporter that the data report of Gartner 2020 it key indicators shows that global cloud computing is still in the early stage of development. In the overall it expenditure, cloud expenditure accounts for only 4%, which means that the market sector is still large.
According to the latest 2021 China cloud computing market report released by canalys in March, China’s cloud infrastructure market has reached US $27.4 billion. Black Murray, a research analyst at canalys, said that enterprises’ investment in digital transformation continues, creating huge opportunities for cloud manufacturers. Canalys predicts that the scale of China’s cloud computing market will reach US $84.7 billion in 2026, and the compound annual growth rate (CAGR) from 2021 to 2026 is expected to remain at 25%.
In this regard, Cheng Yu, a professional investor and researcher of understanding Research Institute, pointed out that cloud service is an important infrastructure in the development of digital economy. It must form a benign ecological application environment with industries in order to form the market competitiveness of cloud services. The combination of China’s cloud services and industrialization is in the ascendant. From the perspective of the long-term development potential of the market, it is worth looking forward to China’s cloud service manufacturers to make profits and even earn a lot.
