Parent company Kingsoft Corporation said it would purchase up to $25 million worth of shares, and Xiaomi was interested in purchasing up to $50 million.
The cloud company’s market debut will mark the first Chinese listing in the United States since shares in Luckin Coffee, which debuted last year on the Nasdaq, were decimated following a fraud scandal.
The Chinese Starbucks challenger revealed last month that a large portion of its 2019 revenue was fraudulent, sending shares down 89% for the year before trading was halted. The company has suspended its chief financial officer, and is facing regulatory probes and multiple lawsuits.
Given the debacle, there is increased skepticism for Chinese firms.
“A scandal will absolutely affect perception by investors on companies,” said Edward Au, a managing partner with Deloitte in China.
Still, Kingsoft Cloud may be able to overcome the skepticism.
Au said that tech remains a “very hot” sector because “investors want to invest because they see a big boom post Covid-19.”
Like other cloud services companies, it could benefit from the new normal of remote working, gaming and learning online. While China’s cloud market is only 4% of the global total, according to Bernstein, it is growing fast.
“We believe China’s cloud market potential is huge,” Bernstein analyst David Dai wrote in a research note on Tuesday.
From 2019 to 2024, the country’s cloud services market is expected to more than triple to 563.3 billion yuan ($79 billion), according to a Frost & Sullivan report commissioned by Kingsoft Cloud and cited in the company’s filing to the US Securities and Exchange Commission last month.
But Kingsoft Cloud boasts some heavy hitters as clients, including smartphone maker Xiaomi and ByteDance, the Beijing-based startup behind popular apps TikTok and Douyin. ByteDance has seen huge user growth and a record revenue haul during the pandemic.
Kingsoft Cloud reported 3.96 billion yuan ($560 million) in revenue in 2019, up about 80% compared to the previous year. But it is not yet profitable: It booked an operating loss of about 1.14 billion yuan ($161 million) last year.