Kingsoft Cloud Holdings Ltd (KC) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by for Kingsoft Cloud's First Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call, Ms. Nicole Shan, Investor Relations Manager of Kingsoft Cloud. Please proceed, Nicole.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's first quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com as well as on GlobeNewswire services.

On the call today from Kingsoft Cloud, we have our CEO, Mr. Yulin Wang; and CFO, Mr. Haijian Henry He. Mr. Wang will review our business operations and the company highlights followed by Mr. He, who will discuss the financials and guidance. We will be available to answer your questions during the Q&A session that follows. There will be [translating interpretation of all comments] and for reference purpose only. In case of any discrepancies, management's statement in original language will prevail.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. Please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB.

It's now my pleasure to introduce our CEO, Mr. Yulin Wang. Please go ahead.

[Interpreted] Thank you, Nicole, and welcome you all for joining our first quarter 2021 earnings call. In this quarter, we generated RMB 1.81 billion in total revenues, among which public cloud and enterprise cloud accounted for RMB 1.39 billion and RMB 420 million, respectively.

In addition to successfully executing our strategy of serving premium customers, we continued to improve our large-scale, highly stable and high-performance enterprise-level products and solutions that cater to growing demand across verticals, including the Internet, health care, financial services and public services sectors.

In terms of public cloud, for many years, we have offered secure, stable and comprehensive solutions to safeguard our customers' Spring Festival Gala campaigns, providing the massive viewership globally with smooth high-definition and interactive experience. We offered solutions, including live streaming, on-demand streaming and electronic red packet campaigns, where our value-added products such as [Smart HD] and KSC265 encoder were fully utilized. On new customer acquisition front, we won a big data hybrid cloud project for a certain mobile Internet unicorn company, providing the customer with products and services, including as a service, yet leading it to customers' burden on operation and maintenance achieves elastic capacity expansion as well as multi-server room hybrid cloud deployment and further reduces IT costs.

In this quarter, we also signed letters of intent with several large-scale Internet companies, which laid a solid foundation to our medium- to long-term revenue growth.

In addition, on gaming front, we are pleased to see revenue generation from cloud gaming. We signed an agreement with miHoYo to provide PaaS-level cloud gaming platform for blockbuster game, Genshin Impact. Together with miHoYo, we are dedicated to providing brand-new cloud gaming experience to gamers.

We also published our cloud-native product portfolio and launched 2 containers that enable customers to fully leverage the advantages of elastic and distributed cloud platforms free from underlying resources concerns.

In addition, we officially launched (inaudible), a unified data platform for the public cloud. It helps customers significantly improve data agility, reduce development and maintenance costs and build a data ecosystem in combination with other big data class products.

Meanwhile, we have been strengthening our value-added product capabilities, including audio and video, edge computing and other cloud-native technologies.

Moving to enterprise cloud. Market demand remains strong. We continue to dig deeper into select verticals and develop outstanding industry solutions. While much of the enterprise cloud services is project-based, we proactively seek to build and maintain long-term cooperation and continue to obtain business opportunities.

In the health care sector, during the quarter, we were selected to be the exclusive supplier for Phase 2 of the [Shenhe] municipality smart healthcare project. We will continue to provide services based on Phase 1, conduct capacity expansion and function upgrade while in the meantime, ensuring technical continuity, consistency and stability, all of which will help to further improve the digital health care capabilities of the region.

In addition, we efficiently delivered [Sichuan Chengdu] Healthcare Cloud and the second phase of the Changzhou Healthcare Cloud, which includes deploying and testing of our Galaxy platform as well as expanding the capacity of their existing cloud platforms. These offer critical guarantee to the official launch of [Kingsoft] Healthcare Cloud business and the construction of Jiangsu Province image cloud.

In the financial services sector, we continue to strengthen our data management solutions capabilities. According to the 2020 China data management solutions market report published by third-party industry research institute, Frost & Sullivan, among key market players, we are positioned in the first quadrant, leaders quadrant, together with top-tier global cloud computing competitors. As financial services companies increasingly focus on data security and stability, we proactively seize market opportunities, leveraging our position as the leading neutral cloud service provider.

During this quarter, we provided comprehensive cloud-based data services to the pension fund system of one of China's major state-owned banks. The project consists of data ingestion, sanitization, retrievable and processing. At the same time, we also successfully engaged with a leading Chinese Internet financial platform company, where we provide cloud delivery and security services to help reduce IT operating and maintenance costs.

In the public services sector, our flagship projects are helping us attract more business. As of latest, we have signed strategic corporation agreements with 35 regions to facilitate their digitalization process.

During the first quarter, we successfully completed our cloud project for the information center of the Beijing Municipal Commission of Housing and Urban-Rural Development, helping the customer improve their digital capabilities and achieve secure and stable operation of their systems.

We also want to bid for Jiangsu Province's big data cloud project, which aims to realize integrated management capabilities across multiple cloud platforms, including big data cloud as well as provincial- and municipal-level government cloud.

In addition, we also want to build a cloud platform for the Chengdu Industrial Internet Public Service System. The system will provide a full range of smart cloud services to industrial enterprises in Chengdu and the surrounding areas.

Finally, in April, we published both our first annual report and our first ESG report post our IPO. As the leading neutral cloud service provider, we attach great importance to corporate governance, our environmental and social responsibilities as well as our sustainable development.

We took the initiatives to disclose our ESG progress in less than a year after we went public, even though it is not a mandatory disclosure requirement in the U.S. The report focuses on topics such as corporate governance, privacy and data security, human capital and other progress we made throughout 2020 on our path to address the sustainable development of our business.

This speaks to our commitment to integrate ESG practices into our day-to-day business operation and to constantly improve the management of our business.

Next, I will now pass over to our CFO, Henry, to go through our financial performance for the first quarter. Thank you.

Thank you, Yulin. Thanks, everyone. I will now discuss our financial performance for the first quarter of 2021. Please be reminded that all numbers quoted here are in RMB. Please also refer to our earnings release for our detailed financial results.

To begin with, I would like to highlight the following points. First of all, our total revenue were RMB 1.81 billion this quarter. Revenue from public cloud services were RMB 1.39 billion. Due to our high-quality services and robust relationships with our premium customers, revenue from public cloud services has been increasing for 5 consecutive quarters. Our enterprise cloud revenue were RMB 420 million, representing an increase of 131.3%. year-over-year.

Second, we achieved record-high quarterly adjusted gross profit of RMB 122 million in Q1. Our adjusted gross margin for this quarter increased from 4.9% last quarter to 6.7% this quarter.

The margin improvement was mainly due to the benefits received from investments into major enterprises cloud verticals last quarter, such as health care, financial services and stable contributions of public cloud revenue and margin.

Third, we expect our total revenue to be between RMB 2.13 billion and RMB 2.23 billion for the second quarter of 2021, representing a year-over-year increase of 39% to 45%, implying a reacceleration in Q2 2021. It reflects our success at engaging new customers and expanding our scope of services with existing customers.

By December last year, our backlog of enterprise cloud revenue was CNY 2.8 billion. With the advancing of customers' procurement process after Chinese New Year holidays, our backlog number keeps increasing. Certain new projects such as projects in health care, financial services has been the additions to the backlog number mentioned above.

Lastly, our business is sufficiently funded at this moment as of March 31, 2020 -- 2021, our cash position was RMB 5.46 billion.

Now I will go through the financial results in greater detail. Our public cloud services revenue reached RMB 1.39 billion due to high-quality services and robust relationships with our premium customers. The usage of our premium customers has been increasing steadily and the revenues from public cloud services has been increasing for 5 consecutive quarters during the first quarter, compared with a faster growth rate in the same period of last year, while daily Internet users jumped significantly during COVID-19 outbreaks last year. We saw a moderate year-over-year increase of Internet usage in the industry in general.

In addition, the recent headwinds in the Internet industry in China in general, particularly in streaming education, e-commerce and other verticals. And many of those companies are taking cautious stance on promotional efforts, than the previous industry expectations in tightening regulations, weighing on our growth in the public cloud segments in Q1.

During the quarter, enterprise cloud revenue increased by 131.3% to RMB 420 million, mainly reflecting the rapid growth in demand for our enterprise cloud services and partially offset by the impact of Chinese New Year holiday season in this year and also the late timing of procurement timetable compared with the previous year.

Cost of revenue increased by 28.5% year-over-year to RMB 1.7 billion. IDC costs increased by 21% year-over-year to RMB 1.11 billion. As a percentage of total revenues, IDC costs decreased from 66.2% in Q1 last year to 61.4% in this quarter. Overall, we are achieving greater economic scale and improving resource efficiency.

Depreciation and amortization costs were RMB 174.8 million. Other costs consist of third-party software purchases and outsourcing costs associated with both public cloud and enterprise cloud as well as other equipment costs related to our enterprise services. Other costs were RMB 394.0 million and staffing costs were RMB 15 million.

We achieved a record-high quarterly adjusted gross profit in Q1. It increased by 64.4% from RMB 74.2 million in the same period of last year to RMB 122 million this quarter. Our adjusted gross margin for this quarter increased from 4.9% last quarter to 6.7% this quarter. The margin improvement was mainly attributed to the benefits received from investments into other major enterprise cloud verticals, such as health care, financial services last quarter and the stable contribution of public cloud revenue and margin.

Total operating expenses were RMB 468.6 million, up 30.3% from Q1 last year, mainly due to increase in share-based compensation, staffing salary adjustments and failing of adjustments of social insurance favorable policy expenses of talent hiring. Excluding share-based compensation, adjusted R&D expenses were RMB 202.0 million.

As a percentage of revenue, R&D expenses decreased from 13.3% in Q1 last year to 11.1% this quarter. Adjusted selling and marketing expenses were RMB 83.5 million. As a percentage of revenue, adjusted selling and marketing expenses decreased from 5.6% in Q1 last year to 4.6% this quarter. Adjusted G&A expenses were RMB 65.6 million.

As a percentage of revenue, they decreased from 4.2% in Q1 last year to 3.6% this quarter. Our adjusted net loss was RMB 218.4 million compared with an adjusted net loss of RMB 243.4 million in Q1 last year. Adjusted net margin improved from negative 17.5% in Q1 last year to negative 12% this quarter. Our adjusted EBITDA was negative RMB 48.6 million compared with negative RMB 39.4 million in Q1 last year. Our adjusted EBITDA margin slightly improved from negative 2.8% in Q1 last year to negative 2.7% this quarter.

As of March 31, 2021, we had cash and cash equivalents at RMB 5.46 billion. During this quarter, capital expenditure were RMB 213.4 million. CapEx as a percentage of total revenue decreased from 30.3% in Q1 last year to 11.8% this quarter.

Moving to the outlook. As we mentioned earlier, for the second quarter of 2021, we expect our total revenue to be between RMB 2.13 billion and RMB 2.23 billion, representing a reacceleration on a year-over-year basis of 39% to 45% compared with the first quarter. This is based on our current and preliminary views on the market and operational conditions, which are subject to change.

This concludes our prepared remarks. Thanks for your attention. We are now happy to take your questions. Please ask your questions in both Mandarin and English, if possible. Operator, please go ahead. Thank you.

(Operator Instructions) Our first question comes from the line of Brian Gong of Citigroup.

My first question is regarding the public cloud. So the growth seems slowed down in first quarter. And I understand that last year was a high base and that there was some regulatory issue in first quarter this year. But does management think that the whole public cloud industry is slowing down?

And for us, I just heard that we have partnered -- we have just signed some contracts or partnership with some big Internet companies, millennial. What verticals are those new customers eyeing? And this is my first question.

And my second question is that the management share the backlog order amount for our enterprise cloud. And do you think with slowdown on public cloud industry, our competitors could become more aggressive in underpriced cloud sector? (foreign language)

(foreign language)

Thank you, Yulin. So thank you, Brian, for your question. So on the first question, you're probably right. You're right that the high base of the public cloud revenue last year was probably one of the reasons when you look at the year-over-year growth of the public cloud revenue in Q1 this year. However, what we want to highlight there is our revenue from our core base of our premium customers, especially our top streaming customer has been very solid and robust. And in addition, we also made some good progress in engaging with the new customers in our public cloud segment.

So that's why as a result, our public cloud revenue has expanded and grown sequentially for 5 consecutive quarters, as we mentioned. However, as you probably also noticed that in the industry in general, Mainland China, the regulatory environment, especially in Q1 has been quite volatile and has certain impact to the revenue in the public cloud segments, especially as a few examples, for example, the content review of certain mechanics from a regulatory perspective has some impact to our streaming clients, which actually indirectly will affect the usage of public cloud resources. And also, as you know, the policies in the -- on education verticals also made many of our customers pretty much very cautious and prudent in adopting new promotional efforts, which actually should have increased our demand from end user perspective.

By the way, we do believe those impact will be short term. And we do see there's a signal that in Q2, for our public cloud revenue and usage, we'll see kind of reacceleration in Q2 coming forward as many of the factors we mentioned were short term and kind of seasonal impact. And speaking about enterprise cloud, so in Q1, we delivered over 130% on year-over-year growth, which we do believe is kind of highest level compared -- even compared with the peers in the industry. The demand from the digitalization across different verticals has been kind of solid and very strong, including the public services, health care and financial services.

I think speaking about competitive strength and a unique kind of strength and value add from a Kingsoft Cloud perspective is about client engagement, about capability of delivery, deployment and implementation. It's not really about the sales contact, it's not really about the pricing competition especially in the enterprise class segments.

So that's why given the demand is very robust, and I don't -- we don't think that the competition has been head-to-head in the enterprise cloud segments.

And as you know, by December last year, we have RMB 2.8 billion backlog in enterprise cloud alone. And this number has not included any new engagement and the biddings we have won in Q1 this year. For example, as we mentioned in a bigger Healthcare Cloud projects in Hubei Province, Hubei (foreign language). For that project alone based on the public data, which we kind of saw the public announcement recently, that project alone will deliver over RMB 70 million revenue alone, which has not been included in the backlog number. However, we want to see that on a quarterly basis going forward, we will not disclose detailed backlog number, given the sensitivity around the pipeline and client competition. But I think we can share that our backlog has been growing and also the ongoing implementation of the existing backlog has been well on track. I think that conclude a few colors, hopefully helpful. Thank you, Brian.

Our next question is from the line of Xiaodan Zhang of CICC.

(foreign language) So my first question is regarding the public cloud business. So as we can see that the acquisition of new customers in the first quarter was undergone the headwinds from the regulatory in the Internet industry. So what will be our major focus for product diversification for the public cloud business?

My second cloud is regarding the enterprise cloud business. So the enterprise cloud business recorded a solid growth in the first quarter. So what do we think of the growth potentials for the 3 main segments for enterprise cloud, i.e., the health care, financial services and public sector? And what will be an ideal business structure and gross margin profile for the 3 segments?

And my third question is regarding the gross margin. So what will be our expectation for the gross margin going onwards for the next few quarters?

(foreign language)

[Interpreted] Thank you, Yulin. Thank you, Xiaodan, for those 3 questions. I'll translate the first 2, and I'll take on the last one. First one regarding the public cloud, I think you probably already mentioned that there was seasonal kind of regulatory impact on Q1. But we want to highlight that our engagement and progress to the new customers, even some of them are starting with a low and small volume. But they are actually strategically important for our new customer strategy. We are making those progress on track in Q1, Even though, as we mentioned, the initial first phase of the testing or the initial trial version volume has been small. But we are seeing great progress in connecting with the new and important customer with us.

So speaking about the diversification of the product lines and the services. I just want to use a few examples, right? For example, in Chinese New Year, live show performance events. As you know, it not only captured live show video content, but also there's a lot more interaction components in those events such as the red packet events and such a kind of massive and scalable multiline connections, direct connections in the Chinese New Year event, i.e., in the maximum peak times, we do see over 15,000 lines of direct connections in those video services. And those end user scenarios has helped us to diversify our product services because these are the end demand from our customers.

So to add one more data point, as addition, as you know, our cloud delivery revenue last year -- the first 2 quarters last year was over 50%, and we do see as a percent of total revenue, our cloud delivery revenue has dropped below 50%. And we do see that trend will further trending down, which was actually going to be a positive factor to have better diversification across delivery, computing and storage.

And speaking about the second point on the enterprise cloud, I'll go one by one. On the financial services vertical, it is all about the technology. So by extending our know-how and experience in certain core technology capabilities to the major banks in China, it helped us to strengthen our forte in those areas. For example, for those major banks, the big analytical platform based on the cloud-native technology has been very important for them, and it is a must-have technology for those big banks in China. And by our proven experience in those areas but delivering the capabilities to the clients, we can engage in and also enjoy incremental demand and revenue opportunity from those clients service all technology and demand-driven business.

Second, on the health care. As you know, we do believe that we do have a first-mover advantage in health care. And given our real experience in many important cases and important areas such as the city level and provincial level, Healthcare Cloud in Wuhan and also in Hubei Province, we do have accumulated enough resources and capability and first-hand experience in those areas. And by pioneering those experience in 1 or 2 areas and extending that into other provinces in China, such as Tianjin and Jiangsu provinces, we can replicate our experience and seeing good benefits of economic scale and have recurring revenue from those plans given the solution itself is highly leverageable.

And the third part on the public sector. And as you know, we do focus a few areas such as Beijing, Hubei, Jiangsu, Gansu and those provinces. The kind of strategy and the play part or the playbook for the business over there is we do want to establish a complete and deploy high-quality projects for those clients and make sure in those important areas and important plan, we can be the pioneer also, the top-tier vendor for them who can be trusted to deliver high-quality projects and execution capabilities.

So for the mid to long term, I think we feel confident that those experience and execution quality of Kingsoft Cloud carrying our [all solid asset to the DNA] will gain enough and further trust from clients and expanding more business over there. And Xiaodan, you are right, that the gross margin from our suppliers has been a very positive factor to improving the company's gross margin overall. And we do see the repeating and recurring revenues and also high-quality solutions. We have been servicing our client but also can serve a big positive factor for us as well.

So on the third point regarding the gross margin, I think you are right. And as we discussed in Q4 last year, our strategic investment and front-end certain costs in Q4 was the reason, but we do see the positive results as you see that. We're successfully winning the bid of a few major projects. I think our investment and -- from past last year was fine doing that and have been improving also the skills that we're picking the right clients to work on, even the kind of the first stage we always carry with a certain testing version and kind of front-end services.

So as a result, I think we do keep kind of same and unchanged views regarding this year's gross margin on a company level overall. And I think over the next few quarters, maybe on a quarterly basis, the gross margin is on a percentage point. On the value of dollar perspective, we have certain volatilities. But overall on a full year basis, we do believe, hopefully, we can improve 5% to 6% of the gross margin compared with last year, compare 2021 to 2020. And I think for the long term, the gross margin reflecting our fundamental efficiency and improving product diversification and client diversification as well.

Next question is from the line of Joel Ying of Nomura.

(foreign language) So my first question is what is current -- the contribution from the 3 biggest customer from our public cloud sector? And what about the CDN contribution for our company in 1Q? Because we think the overall Chinese cloud market is going to slow down a little bit, come down a little bit for 2021, so any potential changes or structure strategy we have to help us to gain better growth from public cloud, especially in 2021?

(foreign language) So my second question is about adjusted EBITDA margin. I think the adjusted EBITDA margin has been broken even in 1 month, maybe December in 2020, but it still go negative for 1Q '21. So I guess is that about like bonus or something related to personnel expenses? And what should we expect for full year and for second quarter 2021?

(foreign language) So my third question is about the market competition dynamics. I think while we move up quickly in public cloud market last year in China, gaining market share, so does companies think that will be a major competitor or major threat to the cloud market, the public cloud market or enterprise cloud market as well for Huawei considering probably as a major competitor threat to the peers?

(foreign language)

[Interpreted] Thank you, Joel, for question. I'll go through the first question and translate for Yulin, and take the question on EBITDA margin.

So for the top-tier customers, as we mentioned, the usage of our top premium customers has been stable in Q1. Given our public cloud revenue sequentially, you see some growth. So as a percentage of the total revenue of public cloud, those top premium customers as a percentage will see slowly decline as a percentage point.

So on a CDN perspective, and as you know, the more and more customers are actually diversifying their demand across different business lines, including storage, computing and delivery. And the CDN revenue as a percentage of total revenue has also seen gradually decline as well. So I think that's one of the point I want to highlight is from Q1 last year to Q1 this year, the CDN revenue as a percent of total revenue has declined around about 8% to 10% on a percentage point.

Second point on the growth. So as you know, we are making progresses of the new customers and we're engaging with them. And given the value of independency and the neutrality, we are engaging with new customers that actually who value our position as independent cloud provider. And for Q2, we seem confident that those conversations and initial engagement with new customers will gradually monetize and gradually become a revenue in the public cloud sector. And I think these are the major efforts that we are making in Q1 and will carry for the results for the following quarters.

And the third point regarding the competitive landscape, I think the key line, and I want to mention is it's really about kind of strengthening and improving the capability, not only from our technology solutions but also about implementation, execution and services and maintenance for our enterprise cloud business. And there's no doubt that the digitalization market in China across all traditional sectors has been very strong, the same. And the key play part is really improving our capability. And especially in the financial services and health care, these are the 2 verticals required industry know-how and will require a specialized experience and the first-hand experiences. So that's why you probably can understand that, have a good client sales relationship doesn't always equal to a monetization of the client revenue. And the know-how and understanding our client demands and know our challenges and can help them solve their questions will be more important to engaging with a trusted client relationship with them.

And for the public sector services, as we mentioned, we do have some great advantage in a few areas and provinces and cities, as we mentioned. But the key is to really deliver kind of pace by pace and phase by phase of the projects we're already in and seeing the execution and implementation of the keys for all the enterprise cloud peers, including us and other peers as well. But I think on those areas, we remain confident that given we are already working with them and some of the time we are already working on the Phase 2 or Phase 3. I think we do have a robust pipeline for not only the backlog, but also implementation timetable.

All right. So for the last question regarding EBITDA, I think I want to highlight 3 or 4 major reasons. The first reason is regarding certain adjustments regarding the social tax in [China's policy engine] and the (inaudible) policy in China. So as you probably know, in coming last in Q1, governments in certain cities has -- at that time announced they will make either for return or partial for favorable policy on the social security taxes for 2020 and 2021, for certain industry and certain companies. However, for Q1 this year, given the new policy actually revised back to the normal status. So we basically will have an impact have to pay a normal rate of certain tax and certain revised back to the normal tax policy. So those will have around about 1.5% to 2% of the total revenue will have additional impact on the cost of the human capital.

And the second reason is, as you know, as we are expanding our revenue base and expanding the call of our client base, we are engaging and hiring more talent across different product lines especially for the important strategic verticals. And the new hiring talent, many of them are the good and more experienced people, and those were reflecting higher compensation level for certain employees. So as a result, the human capital-related costs were adding to the impact that you mentioned sequentially see a drop on the EBITDA margin. But those impact will be on a onetime basis, which means that as we're seeing higher revenue base going forward and more dollar value of the profitability, we'll have the better impact to our EBITDA margin. So I think it's really about the timing impact, and we stay the same, unchanged that hopefully for 2021 on a full year basis, our non-GAAP EBITDA margin will be profitable, but it's all about the timing when they will get there.

So hopefully, as we are seeing better and high-quality projects to be implemented and executed, and our EBITDA margin will turn positive in second quarter in this year. Thank you.

Next question is from the line of Kyna Wong of Crédit Suisse.

(foreign language) The first one is actually wanted to look at the overall China product cloud growth in the first quarter. And given that the company has been outgrowing their peers, major peers in the market, just wanted to see if like this trend or this performance will continue in the first quarter.

The second question is about the new customers gained in the first quarter, given the company has shared with us about some new customer needs. And so we could check the momentum on the new customer contribution.

And the third thing is about -- because given the regulatory tightening in the Internet sector in China, if there's any like impact to the long-term investment for the company, et cetera, in the CapEx side.

(foreign language)

Thank you, Kyna, for the questions you just asked. On the first one, I think we -- you are right, we have been growing faster compared with the peers in the public cloud segment for Q1. Given the reasons we already mentioned, we think that our business progression have been in line with the industry of the public cloud market in China in general. And I think for certain peers, I think we are -- even Q1, I think we are still growing marginally faster than them.

And looking forward, I think we do want to position ourselves as one of the player in the public cloud market, we can grow relatively faster than the selective peers as well.

So for the second question is related to this point as well is probably we can understand for certain confidentiality and sensitive reasons, we may not disclose the names. But certain new accounts we are talking to are expanding from the live streaming video, the localized services, e-commerce and education. And we are making certain progress with them, even though the revenue opportunity and usage in Q1, given those clients are relatively prudent and cautious. So it has not fully converted into a full revenue opportunity. But given we already have the client and commercial relationships and for some of them, we already have the technology testing completed, hopefully, for the following quarters, you will see a reacceleration of the public cloud revenue going forward.

So on the third question regarding the CapEx, you probably noticed that in Q1, on a dollar value perspective, our CapEx was lower than Q4 last year. That was our prejudgment about certain impacts in Q1, including the holiday seasons, but also including potentially about logistics and supply chain issues. We have the prejudgment call that we actually purchased enough and sufficient hardware equipment service back in Q4, primarily last year. So that's why if you remember in Q4 last year, our CapEx was above CNY 4 billion. So that will be basically prepared for enough inventory for this year's public cloud infrastructure and for the leading sales opportunities of the public cloud clients as well. So these are actually reflecting together. And for the plan for this year's CapEx, we think that there's also the same level as we previously communicated, we think around CNY 1.5 billion CapEx will be a reasonable level to expect for this year. Thank you.

The next question is from the line of Thompson Wu of UBS.

(foreign language) The first question is, in your 2Q guidance, can you give us a firmer range for the growth in your premium and enterprise cloud revenue growth?

(foreign language) Last week, Ali talked about a large customer loss in their public cloud business in their international markets. Is there any impact for Kingsoft Cloud in your domestic public cloud business?

(foreign language) The third question is there has been recent developments in China's, I guess, reseller or system integration or distribution of CDN business. Can you talk about Kingsoft Cloud's capabilities from a competitive perspective?

(foreign language)

[Interpreted] Yes. Thank you, Thompson. I'll take the -- I'll translate for the first 2 questions for Yulin and also will answer the question regarding the guidance breakdown. So for the international business, as you probably know that even back in late part of 2019, we had some views even at that time, there will be certain volatility in terms of the global geopolitical situation. So that's why we made a very prudent approach that regarding our internal budgeting and regarding the way we're engaging with our customers, et cetera. So that's why even though we already in early time have certain planning for certain regional business exposures and footprint for Kingsoft Cloud, the actual revenue for our international business has been very, very small at this moment. So that's why those geopolitical impact to our international revenue and the total company revenue will be very, very limited.

And to your question, we also noticed that for our peers, they were affected by their major customers for their global business. But as you probably know, to add one more point, as you'll know, that the IaaS level on infrastructure resources for the international business and domestic business in Mainland China has 2 different setup and a different network, different capacity and different licenses requirements, T.hat's why the redundancy or the idle resources from the global infrastructure will not be translated directly into the kind of oversupply of any potential kind of the capacity for the Mainland China business from a cloud player perspective, if it is a question on the concern you may want to ask.

So for the second question, in our view, I think we are seeing the trend that given cloud is a scalable business, and some natural kind of benefits of e-commerce scale, the concentration of the top-tier players still keep the same trends. And there's no major changes. And for the top-tier cloud provider and given people are providing the full stack of the services covering from both IaaS, PaaS and SaaS capabilities, we don't think this trend will be reversed. And by positioning ourselves as one of the major top-tier cloud provider in China, I think we can enjoy that benefit as well.

So on the last question regarding the breakdown, as you know, we probably only provide a verbal guidance on the earnings call, given we have almost about 1 and more than 1.5 months towards the end of this quarter. And as we mentioned, we also have a good engagement with certain Internet public cloud clients. So probably we will not be able to give a very precious guidance to have a breakdown. But what we can mention is I think for the public cloud revenue and enterprise revenue, you will see both as a decent sequential quarter-over-quarter growth and on a year-over-year basis.

And going forward for Q3 and Q4, especially the second half of this year, you will see probably it is likely that our year-over-year growth rate for the remaining 3 quarters of this year, hopefully, you will see acceleration quarter-over-quarter as well. At the bottom line, I think for the Q2 public cloud revenue will be at least in line or above our major peers in Q2 as well. I think that probably gives certain comfort that for the public cloud, we may see a good kind of acceleration due to -- for those business. And we do have certain contracts and opportunities and real opportunities of the revenue that kind of sitting aside hopefully can be delivered by end of this quarter. Thank you, Thompson.

Our last question comes from the line of Elsie Cheng of Goldman Sachs.

(foreign language) So I just have a small kind of question here on the public cloud growth into the second half as well as the sort of the directional color on the full year. Because we do see some of the headwinds into the first half of the public cloud space, just wondering if we can provide some of the additional color into second half. And how should we think about the fundamental drivers as well as some of the directional expectations on the number?

(foreign language)

Yes. Thank you, Elsie, on this question. There are 3 major reasons or major drivers. First of all, for our top-tier brand customers, their existing usage has seen a trend of growing historically. And for this year, we not only focus on new customers, but also the existing premium customers, their usage and their revenue has been increasing that actually form a solid base for our total public cloud services revenue for this year. And given those other premium customers, so they are actually making the investment to their own business, for example, adding new features and new product lines and new applications for their business. So their demand and their growth and investment into their own business and end user scenarios was basically the foundation for our growth opportunity from those existing premium customers.

The second point is regarding the new customer expansion. So I think from both commercial sales relationships and technology, compatible testing and also those engagements, I think as we mentioned, we are making certain progress and taking certain kind of initiatives to engaging with the new customers. That's actually going to be the second driver. And many of those areas and efforts will be basically monetized and gradually pushed down to the kind of revenue -- unrealized revenue opportunity.

And the third part is really about the new product feature and the requirement. So that means that not only for the new but also existing customers, there's a new area of the usage, such as the cloud gaming, as we mentioned in the prepared remarks. that starting from Q1 as a leading pioneer in cloud gaming areas and in gaming industry in general, we are seeing a good traction that some of the leading gaming companies are already deployed their gaming products through the cloud companies.

And those are already bringing us a meaningful level of the cloud gaming revenue in Q1. And we think that those revenue will see a good level of expansion for the remaining months to go for this year. I think this is only one of the examples, I think in the area of BI and other IoT or 5G-related areas will be also the important areas. You will see the new demand and new technology can generate and translate to the revenue opportunity. Thank you, Elsie.

Thank you. I'd now like to hand the conference back to the presenters. Please continue.

Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Thank you.

Thank you. This concludes today's conference call, and thank you for participating. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]