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Why Kingsoft Cloud Stock Plunged Today

By Evan Niu, CFA – Updated Sep 23, 2020 at 1:34PM

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The Chinese cloud provider announced a stock offering and strategic partnership.

What happened

Shares of Kingsoft Cloud (KC 18.90%) have plunged today, down by 11% as of 12:05 p.m. EDT, after the company announced a secondary offering. Kingsoft Cloud separately reported a new strategic partnership.

So what

The Chinese tech company is looking to sell 8 million American depositary shares (ADSs), while existing investors from private equity and venture capital firms are simultaneously selling another 9.7 million ADSs. Each ADS represents 15 ordinary shares. Underwriters will have an option to purchase up to 2.7 million additional ADSs. The offering has not yet priced, but Kingsoft Cloud estimates that net proceeds will be approximately $298.8 million to $398 million, depending on whether underwriters exercise their option. The company will not receive any proceeds from the ADSs that existing shareholders are selling.

An illustration of a cloud connecting to data servers

Image source: Getty Images.

Kingsoft Cloud also said it had formed a strategic partnership with CEC D-Commerce Technology to expand healthcare cloud services. The company estimates that IT spending on healthcare-related cloud services in China will reach 17 billion yuan ($2.5 billion) by 2023.

Now what

In the prospectus, the company provided a breakdown of how it plans to use the proceeds from the stock offering. Around 35% will be allocated to upgrading and expanding infrastructure, 30% will go toward technology and product development, 25% will be used to expand Kingsoft Cloud's ecosystem through strategic partnerships, and 10% will help supplement working capital for general corporate purposes. It's common for stocks to fall on secondary offerings due to the dilutive effects.

Kingsoft Cloud says that the new partnership will allow the company to enter a market with "significant growth prospects."

Editor's note: A previous version of this article incorrectly stated that the selling shareholders were company executives.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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