Recently, Qiniu Limited (referred to as Qiniu Cloud) submitted an IPO application to the Hong Kong Stock Exchange and plans to list on the main board. Shenwan Hongyuan Hong Kong and BOCOM International are the joint sponsors.

Qiniu Cloud previously submitted an F-1 registration document to the US Securities and Exchange Commission in April 2021, intending to list on NASDAQ. In September 2022, the company announced the withdrawal of its US stock IPO prospectus.

For this Hong Kong IPO, the company plans to use the funds raised for "penetrating and consolidating the company's APaaS business's application scene's share and developing and expanding customer base", "expanding overseas business in the next 36-60 months", "enhancing the company's research and development capabilities and improving technical infrastructure", "selecting mergers, acquisitions and strategic investments", and "operating capital and general purposes".

1. Taobao, MatrixPartners China invest in the company.

Qiniu Cloud's history can be traced back to 2011, when the company began providing video and audio cloud services in China through Qiniu Information. It is one of the earlier service providers in China.

From 2012 to 2020, the company received multiple rounds of investment, with a total financing amount of approximately 0.166 billion US dollars, from well-known capital institutions such as MatrixPartners China, Yunfeng Fund, and Qiming Venture Partners.In addition, the company has also been favored by Alibaba. In December 2017, Taobao China invested 85 million US dollars in Qiniu Cloud.

(Qiniu Cloud's investor situation, picture source: prospectus)

According to the prospectus, Qiniu Cloud currently has no controlling shareholder. Founder Xu Shiwei holds 17.96% of the company's shares through Dream Galaxy; Taobao China holds 17.69% of the shares and is the largest external investor; Yunfeng Fund, MatrixPartners China, Yong Lue, and Qiming Fund hold 12.44%, 7.97%, 7.32% and 6.83% of the shares, respectively.

(Equity structure, picture source: prospectus)

Therefore, *ST Xinfang and *ST Zhongqi may also experience a sharp sell-off tomorrow, and investors should be cautious. Taobao China has a triple identity, not only as the company's shareholder, but also as the main supplier and customer.

From 2020 to 2022, the company's top five suppliers accounted for 75.6%, 63.5%, and 52.4% of the total annual purchases, respectively, which is relatively high, posing the risk of depending on major suppliers.(Supplier situation for the top five suppliers in 2022, picture source: prospectus)

Among them, customer-supplier group D, one of the company's shareholders, Taobao China, was the fourth and fifth-largest customer of the company in 2020 and 2021, respectively. The company mainly provided MPaaS (including Dora, QCDN, and Kodo products) to it. At the same time, the company also purchases cloud computing services and electric appliances from it.

2. The company has lost more than 0.3 billion in three years.

Qiniu Cloud's main products and services includeMPaaS product.(A series of audio and video solutions, including proprietary content distribution network QCDN, object storage platform Kodo, interactive live broadcast products and intelligent media data analysis platform Dora, mainly serving customers with strong R&D capabilities and strong flexibility);APaaS solution (based on the company's MPaaS capabilities and the use of a low-code platform for scenario-based audio and video solutions aimed at allowing customers to quickly call different functions and achieve business goals with simple deployment).(Company revenue details from 2020 to 2022, source: prospectus)

As of December 31, 2022, the company has over 1,350,000 registered users, mostly developers or developer teams from various enterprises. In 2022, the company had over 80,000 paid customers.

Among them, the number of paid MPaaS customers of the company increased from 61,502 in 2020 to 83,970 in 2022, with a customer retention rate of over 70%. APaaS solution is a new business launched in 2019, and the number of its paid customers increased from 1,319 in 2021 to 1,967 in 2022, with a retention rate as high as 88.8%. (Source: Prospectus)

According to iResearch, in 2022, the market size of China's audio and video APaaS was RMB 1.6 billion, and it is expected to reach RMB 16.2 billion in 2027, with a compound annual growth rate of 58.3%.

Based on the 2022 income calculation, Qiniu Cloud is the third largest audio and video PaaS service provider in China, with a market share of 5.7%; based on the 2022 APaaS income calculation, the company is also the second largest audio and video APaaS service provider in China, with a market share of 11.9%. (Source: Prospectus)

In terms of operating performance, during the reporting period, Qiniu Cloud's revenue was RMB 1.089 billion, RMB 1.471 billion, and RMB 1.147 billion, respectively. Corresponding net gains for the year were RMB 99.406 million, -0.22 billion, and -0.213 billion, respectively. The company's income fluctuated to some extent, with a cumulative loss of about RMB 0.333 billion in the past three years. (Simplified income statement, source: prospectus)

The company's significant losses are due to large expenditures on various expenses. During the reporting period, the company's sales and marketing expenses accounted for 9.7%, 13.1% and 12.9% of its revenue, respectively; administrative expenses accounted for 7.0%, 8.1% and 9.7% of its revenue, respectively; and R&D costs accounted for 8.8%, 9.7% and 11.2% of its revenue, respectively.

Regarding the current situation of sustained losses, Qiniu Cloud stated that due to the fact that China's audio and video cloud service market is still in the early stage of development, it prioritizes expanding and increasing market share rather than short-term profitability. According to the prospectus, the company expects to gradually reduce net losses after adjustments in 2023 and 2024.

(2020-2022 adjusted net losses (including the impact of fair value changes of convertible redeemable preferred shares, fair value gains of financial assets calculated based on fair value, and share-based payments), unaudited: -20.264 million yuan, -0.143 billion yuan, -0.15 billion yuan)(Source: prospectus).

The company's adjusted net loss (unaudited) from 2020 to 2022 (including the impact of fair value changes of convertible redeemable preferred shares, fair value gains of financial assets calculated based on fair value, and share-based payments) was -20.264 million yuan, -0.143 billion yuan, and -0.15 billion yuan, respectively. (Source: prospectus)

The company's adjusted net loss (unaudited) from 2020 to 2022 (including the impact of fair value changes of convertible redeemable preferred shares, fair value gains of financial assets calculated based on fair value, and share-based payments) was -20.264 million yuan, -0.143 billion yuan, and -0.15 billion yuan, respectively. (Source: prospectus)The company's significant losses are due to large expenditures on various expenses. During the reporting period, the company's sales and marketing expenses accounted for 9.7%, 13.1% and 12.9% of its revenue, respectively; administrative expenses accounted for 7.0%, 8.1% and 9.7% of its revenue, respectively; and R&D costs accounted for 8.8%, 9.7% and 11.2% of its revenue, respectively..

Regarding the current situation of sustained losses, Qiniu Cloud stated that due to the fact that China's audio and video cloud service market is still in the early stage of development, it prioritizes expanding and increasing market share rather than short-term profitability. According to the prospectus, the company expects to gradually reduce net losses after adjustments in 2023 and 2024.

In terms of operating performance, during the reporting period, Qiniu Cloud's revenue was RMB 1.089 billion, RMB 1.471 billion, and RMB 1.147 billion, respectively. Corresponding net gains for the year were RMB 99.406 million, -0.22 billion, and -0.213 billion, respectively. The company's income fluctuated to some extent, with a cumulative loss of about RMB 0.333 billion in the past three years. (Simplified income statement, source: prospectus)Based on the 2022 income calculation, Qiniu Cloud is the third largest audio and video PaaS service provider in China, with a market share of 5.7%; based on the 2022 APaaS income calculation, the company is also the second largest audio and video APaaS service provider in China, with a market share of 11.9%. (Source: Prospectus).

Expected to achieve profitability in 2025.Specifically, the company plans to improve its financial performance by focusing on APaaS business, deepening user engagement, effectively managing costs and expenses, and expanding its customer base.Cloud computing service for application platform as a service (APaaS) is our main focus business.To improve the company's financial performance, we plan to deepen user engagement, effectively manage costs and expenses, and expand our customer base.

During the reporting period, the company...The company's gross margins for the entire business were 21.7%, 19.8%, and 19.9%, respectively.The decline in gross margins was more pronounced in 2021 due to the increase in demand for MPaaS caused by the epidemic in 2020, which in turn increased the company's bargaining power. However, in 2021, more audio and video cloud service providers entered the market and the gross margin of MPaaS decreased from 21.1% to 17.9%.

(The company's gross margin during the reporting period, picture source: prospectus)

3. Conclusion

Overall, the audio and video cloud industry is in a stage of rapid development, and market competition is becoming increasingly fierce. For Qiniu Cloud, the company is facing competition from industry giants and emerging players. Finding a balance between open source and cost savings or achieving sustainable development is key.