Cash-Strapped Qiniu Charges To Market To Seize On Hong Kong Rally

Key Takeaways:

• IPO candidate Qiniu lost more than 750 million yuan combined in the past three years, and saw its loss widen by 50.5% in the first quarter to 143 million yuan
• The audiovisual PaaS platform boasts a star-studded group of early investors, including Alibaba, Qiming and MPCi

By Fai Pui

It’s been a frantic three weeks on the Hong Kong Stock Exchange, where shares have suddenly awakened from a three-year slumber to surge more than 30% on hopes for a Chinese economic recovery. Not surprisingly, the surge is lighting a fire under a wave of IPO candidates rushing to ride the wave, including cloud services provider Qiniu Ltd., which passed its listing hearing with the Hong Kong Stock Exchange on Sept. 22.

The Mainland and Hong Kong stock markets were already rallying when the gains went on steroids after Beijing’s announcement of a new series of stimulus measures on Sept. 24. The Hong Kong Stock Exchange reported record turnover of HK$445.7 billion ($57.3 billion) on Sept. 27, as the benchmark Hang Seng Index surged by 2,373 points last week alone to cross the 20,000 mark.

Things are certainly looking positive for new IPOs like Qiniu’s. Shares of Midea Group (0300.HK) have risen steadily since their recent listing, and last week kitchenware maker Carote (2549.HK) also came charging out of the gate with strong first-day gains. Qiniu, which operates a cloud-based audiovisual platform as a service (PaaS) platform, is finally making it to market after two previously failed bids in Hong Kong, with mid-sized banks Shenwan Hongyuan and Bocom International as joint sponsors.

The company aims to raise about HK$457 million from the share sale, with the nearly 160 million shares being offered set to make their trading debut on Oct. 16.

Founded in 2011, Qiniu is China’s third largest audiovisual PaaS platform. Its PaaS model lets users access its suite of cloud-based hardware and software hosted on the company’s own servers. Qiniu’s offers two types of products, MPaaS and APaaS.

The former primarily focuses on providing cloud services in connection with audiovisual content, letting customers make their audiovisual products easier to use and more accessible. The latter offers a one-stop platform for users to develop, run and manage their applications. The company’s APaaS solutions currently cover five major application scenarios, including social entertainment, video marketing, visual networking, smart new media and the metaverse.

Qiniu’s revenue last year rose 16% to 1.33 billion yuan ($189 million) as semiconductor supply chains recovered slightly but were still below 2021 levels, according to its latest listing document. Revenue growth accelerated to 26.4% in the first quarter at 342 million yuan. MPaaS is currently the company’s largest revenue source, accounting for nearly 73% of its total last year. Revenue from APaaS is rising fast, growing from 1.7% of the total in 2021 to 24.3% at the end of March this year.

Qiniu’s biggest headache right now is its continual losses. It lost 220 million yuan in 2021, which dropped slightly to 213 million yuan in 2022, before jumping to 324 million yuan last year. The loss widened by a further 50.5% to 143 million yuan year-on-year in the first quarter of 2024.

Like most of its PaaS peers, Qiniu’s losses stem from rising costs and fair value losses on its convertible redeemable preferred shares. The company laid out “a path to profitability” in the listing documents. It said it will start by sharpening its focus on the more profitable APaaS business, whose gross margin of 30.1% last year was well ahead of the 19.3% for its older MPaaS business. As APaaS ramps up, the number of newly paying users for that business grew from 8,079 in 2021 to around 245,000 last year.

Qiniu said it will also work to make its MPaaS more competitive, expand its user base and cut costs by optimizing management and sales and simplifying business procedures.

Founder Xu Shiwei, who is only 46, was previously a technical director at Kingsoft (3888.HK), where he supervised the establishment of a lab dedicated to developing distributed storage technologies. Afterwards, he worked as a senior researcher at former gaming and media giant Shanda Interactive, where he led the launch of Shanda NetDisk and the Shanda Grand Cloud web platform.

Big-Name Backers

Xu’s status as a seasoned industry veteran has helped him to attract a constellation of deep-pocketed investors to his company. Between 2011 and 2020, Qiniu completed six financing rounds that raised a total of over 3 billion yuan from shareholders including Alibaba (BABA.US; 9988.HK), Yunfeng, Qiming, MPCi, Bocom and state-owned Structural Adjustment Fund Co.

Xu holds about 18% of Qiniu’s shares pre-IPO, while Alibaba’s Taobao is the second biggest shareholder with 17.7%. Yunfeng’s Magic Logistics held 12.4%.

Before settling on Hong Kong, the company applied for a U.S. listing in February 2021 but didn’t succeed. “We voluntarily withdrew our U.S. listing application due to unfavorable capital markets conditions in the U.S. at the time,” it explained in its Hong Kong listing document. “We experienced no difficulty in addressing the SEC’s comments,” it added, referring to the American securities regulator.

Qiniu is also no stranger to the Hong Kong Stock Exchange either. It applied for a Hong Kong IPO for the first time in 2023 but didn’t succeed, then reapplied again in March this year. That application expired in September, bringing us to the present where its latest application passed its listing hearing.

The company looks likely to cross the finish line this time, not only to seize on the recent market momentum but also to give its early investors a way to cash out. It could also use some fresh cash to supplement its relatively meager 148 million yuan at the end of July.

The company’s valuation reached $683 million after its last funding round in 2020. Its latest valuation would be slightly higher, around $721 million, if the shares price in the middle of their IPO range. But we should also note that cloud service stocks have done poorly in Hong Kong lately, which could pressure its valuation. Ming Yuan Cloud (0909.HK) is down nearly 20% over the past year and Bairong (6608.HK) is down around 10%, valued at HK$5.08 billion and HK $4.29 billion, respectively, as of last Friday.

Ming Yuan Cloud currently trades at a price-to-sales (P/S) ratio of 2.9 times and Bairong at a mere 1.4 times. Qiniu trades at 3.8 times, based on calculations using last year’s revenue and its latest IPO valuation, which is much higher than its two peers. That seems to show investors are confident in the company’s big-name founder and backers. Those investors could stand to make some big gains if the company can make it to market while the current rally continues.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.