What happened

Shares of Kingsoft Cloud Holdings (KC 3.29%) were down 18.7% as of 1:17 p.m. ET on Tuesday after the company delivered its second-quarter results. The Beijing-based cloud services provider reported that its revenues had decreased by 12% year over year, mostly due to weakening demand. 

The company also reported a non-GAAP (adjusted) loss of $67 million on adjusted revenue of $285 million. Tuesday's drop brings the stock's year-to-date decline to around 84%.

So what

Kingsoft is a leading cloud services provider in China -- the second-largest cloud market behind the U.S. Its revenues from public cloud services fell 17% over the year-ago quarter, while its enterprise segment reported a less than 1% decline. 

Management attributed the drop in public cloud revenue to the scaling down of its content delivery network. Excluding the content delivery network, management said that its revenue from computing and storage services in the public cloud increased by 5%. 

Through 2020, Kingsoft's revenue was consistently growing by more than 50% annually, but the growth significantly decelerated in the second half of 2021. Not only is the global economy weakening, but Kingsoft has also been dealing with ongoing pandemic-related disruptions this year. Nonetheless, investors shouldn't view the company's recent performance as resembling normal operating conditions.

Now what

The company's guidance calls for third-quarter revenue to increase by between 2.3% to 12.8% year over year. That would be a notable improvement over its second-quarter result. 

Management still sees the digital transformation in the economy as its greatest opportunity over the medium to long term. And according to the company, China's public cloud market is expected to triple in size over the next three years to $90 billion. 

While the shift to cloud services is well underway in the U.S., China was a bit later to get started in the process. Because of that, Kingsoft management sees abundant opportunities across the financial, healthcare, and public service sectors of the Chinese economy.