Why Kingsoft Cloud Stock Is Plummeting Today | The Motley Fool

What happened

Shares of Kingsoft Cloud Holdings ( KC -10.37% ) are falling in today’s trading session. The China-based cloud services company’s stock was down roughly 13.2% as of noon ET Friday.

The stock is losing ground in conjunction with a broader pullback for Chinese technology stocks. The earnings report the company published yesterday also appears to have created some selling pressure despite arriving with sales and earnings that topped the average analyst targets. 

So what

Kingsoft reported its fourth-quarter results before the market opened on Thursday, and the company’s stock initially fell following the release, but then recovered in subsequent trading thanks to positive momentum for Chinese tech stocks. With Chinese tech stocks now losing ground in Friday’s trading, it looks like some wind has been taken from Kingsoft’s sails, and investors are moving out of the stock again. 

A cloud icon on a circuit board.

Image source: Getty Images.

Kingsoft posted a net loss of $0.02 per share on revenue of $417.37 million, which was significantly better than the average analyst estimate’s call for a loss per share of $0.40 on revenue of $411.16 million. The cloud-computing company’s revenue was up roughly 38% year over year in the fourth quarter. That performance brought the company’s full-year to sales to roughly $1.42 billion, which was also up 38% annually. 

Now what

Kingsoft has deprioritized its content delivery network (CDN) business, but it still expects overall to grow sales between roughly 13% and 19% in this year’s first quarter. However, the market doesn’t appear to be optimistic about the business’s prospects. 

The company now has a market capitalization of roughly $1.3 billion and is valued at just 79% of this year’s expected sales. For a cloud computing company that’s been growing revenue at an encouraging clip, that valuation looks downright cheap, but Kingsoft is facing some risks as it shifts its business strategy.

Its valuation is also being pressured by geopolitical concerns and the threat that many Chinese stocks could be delisted from U.S.-based exchanges. Kingsoft stock could have explosive upside at current prices, but there’s considerable uncertainty surrounding its outlook.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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