The data center operator has forecast 30% revenue growth this year, but says there’s potential for upside as its customers roll out new data-hungry AI applications
Key Takeaways:
- Chindata has forecast its business will grow about 30% this year, with potential for upside fueled by the explosion in AI applications
- The data center operator is the most highly valued among its Chinese peers, but trails global rivals due to geopolitical factors
BEIJING, May 10, 2023 /PRNewswire/ — Go with the flow, and do business with the heavyweights.
Those are two key takeaways in the latest earnings from data center operator Chindata Group Holdings Ltd. (CD.US), which continued to power past its local rivals in the final quarter of last year, in no small part by syncing with Beijing priorities and focusing on a small group of big-name internet customers. At the same time, the company gave out relatively conservative guidance for 2023, at least compared to its breakneck 60% revenue growth last year.
But CFO Nick Wang told Bamboo Works there’s potential for upside to that forecast, as many of the company’s clients jump on the artificial intelligence (AI) bandwagon that burst into global headlines late last year with OpenAI’s launch of ChatGPT. That growing movement, which requires large volumes of data storage and computing power, is likely to create additional demand for Chindata’s services operating a regional network of data centers in China and Southeast Asia.
Chindata, whose largest shareholder is U.S. private equity giant Bain, forecast it would post revenue of 5.88 billion yuan ($854 million) to 6.03 billion yuan in 2023, which would represent 31.4% growth at the midpoint from last year’s 4.55 billion yuan.
The company’s second-largest customer is the world’s biggest software maker, which recently rolled out a new version of its search engine that incorporates ChatGPT capabilities in its U.S. edition. It hasn’t made any similar announcements for its China edition yet. But if and when that happens, the U.S. software giant’s needs in China could rise significantly.
“This forecast in 2023 growth does not capture anything ChatGPT AI-related in terms of the volume increase,” Wang said. “I will say from that perspective, (the forecast) is probably conservative.”
Chindata’s two-pronged strategy of focusing on a small group of high-powered customers and following government policy has made it an investor favorite. Syncing with government priorities is important in China by helping to grease the wheels of business for everything from getting permits to securing land rights for new facilities.
Chindata’s leading status among its peers is apparent throughout its operating metrics, which included a profit last year, even as its two main domestic peers lost money.
The company’s latest results released in late March show its revenue rose 78% in last year’s fourth quarter to 1.4 billion yuan, far outpacing the high single-digit gains for its main rivals. Its gross margin of 41% was also more than double that of its two rivals, and its utilization rate of 86% by year end was well ahead of them.
The company keeps down its sales and marketing costs by focusing on a small number of customers, which is every company’s ideal. It doesn’t name its customers, but the largest – using 75% of Chindata’s capacity – is reportedly one of China’s largest unlisted tech companies that is also the parent of a highly successful global short video-sharing platform.
In addition, the company reportedly counts another major U.S. search giant as one of its top five clients, and is in the process of signing on China’s leading game operator as another.
“We don’t necessarily chase the largest number of customers. We’re chasing whoever can produce the biggest data volume,” Wang said. “Essentially, our customers’ business is really strong, growing faster than anybody else. Their growth rate in the past three years is much faster than their peers.”
