The Chinese version of “Twilio” -- Cloud Communications Leader Ronglian Cloud is here!

The Chinese version of “Twilio” with strong institutional support, with multiple rounds of support from Sequoia

Ronglian Cloud's performance has grown rapidly since its launch in 2013.It has grown into the largest cloud communication service provider in China. The high-quality high-potential track+first-mover advantage made institutional investors very optimistic. Sequoia Capital has invested in many rounds in China.

Prior to its IPO in the US, Rong Lianyun completed Series F financing of 125 million US dollars in November 2020, led by China's State-owned Capital Venture Capital Fund (“China Venture Capital Fund”), followed by institutions such as New Oriental Industrial Fund. Tencent also participated in this round of financing through its investor Image Frame Investment (HK) Limited.

Although Twilio wasn't profitable, its success validated the track's potential and the viability of the business model. In summary,The appeal of going to the cloud is high growth, high gross profit, and high stickiness.

Growth: Pay-as-you-go cloud communications leader in China

With the rapid development of mobile Internet, cloud communication is more popular among enterprises due to its cross-platform, flexible and expandable, and low cost characteristics.

Ronglian Cloud mainly provides customers with three types of services: CPaaS (Communication Platform as a Service), Cloud-based CC (Cloud Customer Service and Cloud Contact Center), and Cloud-based UC&C (Instant Messaging Cloud Platform, Video and Conference).

Source: Ronglian Cloud prospectus

According to CIC data, China's cloud communications market reached RMB 35.7 billion in 2019, and will grow at a compound growth rate of 23.3% to RMB 101.5 billion in 2014. Meanwhile, Ronglian Cloud's revenue in 2019 was 650 million yuan. In terms of revenue, it is already the leader in this field in China.

As the penetration rate of cloud communication increases in the future and the gradual integration of the market, there is still a lot of room for growth in Ronglian Cloud.

Gross profit: Overall stable, and the gross margin level of the CPaaS business has increased

Previously, operators generally required pre-recharging before consumption, while Ronglian Cloud integrated the communication needs of enterprise users and paid monthly according to the amount of SMS and call usage. More than 70% of the cost side is payment to the communication operator according to the unit price and actual usage specified in the annual contract.

The gross margins for 2018, 2019, and the first three quarters of 2020 were 37.6%, 41.1%, and 40.5%, respectively, and there is still a gap with Twilio's level of over 50%. Currently, Ronglian Cloud still relies on CPaaS for more than half of its revenue. This part of phone calls and SMS usage is strongly dependent on operators, and bargaining power is weak. However, as the volume increased, the gross margin of this part of the business improved.

Source: Company prospectus

In the future, as the bargaining power of the CPaaS business increases and the share of high-margin revenue from cloud-based CC and cloud-based UC&C increases, the gross profit level of Yonglian Cloud is expected to improve.

In terms of net profit, SaaS vendors are generally in the early stages. Facing high customer acquisition and marketing expenses and R&D investment, Ronglianyun's cumulative losses in the past three years from 2018 to September 2020 were 543 million yuan.

Stickiness: 1% of major customers contribute more than 70% of revenue, customer industry structure optimization is ongoing

Twilio raised market concerns in 2017 when its largest customer, Uber, switched to a self-built cloud communication platform, but Twilio proved that even as Uber's revenue declined, other customers were quick to fill the gap.

According to Ronglian Cloud's prospectus, in 2018, 2019, and September 30, 2020, the number of active customers of the company was 10,245, 11,537, and 12,048, respectively. The number of major customers (with an annual consumption amount of more than 100,000 US dollars) increased steadily, and the corresponding revenue contributions of major customers were 70.7%, 73.3%, and 75.7%, respectively.

Judging from the official website, customers cover industries such as finance, the Internet, government and enterprises. The financial industry covers major banks such as Guangfa Bank and SPD Bank, as well as Lujin and AXA Tianping Internet Finance.

The dollar-based net expansion rate (dollar-based net expansion rate) achieved 135.7%, 102.7%, and 94.7% in 2018, 2019, and the nine months ending September 30, 2020, respectively.This is mainly due to the fact that in the context of China's tightening supervision of P2P online lending platforms, Ronglian Cloud voluntarily terminated some related cooperation, while the decline in 2020 was due to the exodus of some small-scale customers due to the impact of the pandemic.

At present, Ronglian Cloud is still in the early stages of rapid development and is still actively acquiring customers. As the customer structure is optimized and high-quality customers continue to be acquired, stickiness is expected to pick up and stabilize in the future.