VNET (VNET) Q3 Earnings call transcript Nov 21, 2024

VNET Group, Inc. (VNET) recently released its third quarter 2024 earnings report, showcasing a robust financial performance, driven by a 12.4% year-over-year increase in net revenues to RMB 2.12 billion. This growth was primarily attributed to the rapid expansion of the company's wholesale IDC business, which saw an impressive 86.4% year-over-year increase in net revenues, reaching RMB 523 million.

The company's adjusted EBITDA also grew by 20.2% year-over-year, reaching RMB 595 million, reflecting the successful implementation of cost and resource allocation optimization efforts. This growth trajectory underscores VNET's ability to capitalize on rising demand and effectively scale in response to the expanding digital infrastructure needs.

Strategic Business Expansion and Innovation

VNET's wholesale business continues to be the growth driver, with capacity in service reaching 358 megawatts as of September 2024, an increase of 69 megawatts year-over-year and 26 megawatts quarter-over-quarter. The utilization rate of the wholesale business rose by 2.1 percentage points quarter-over-quarter to 78%, indicating a healthy pace in the high demand environment. Moreover, the mature capacity utilization rate reached a new high of 95.6%.

The company's retail IDC business also progressed smoothly, with capacity and service utilization remaining stable as of September 2024. Furthermore, the company's ample cash position and unused credit line provide reliable support for its current operations and future development.

Strategic Order Wins and AI Demand Trends

VNET secured six new order wins in the third quarter, totaling 84 megawatts, showcasing a diverse customer base and a strong demand for high-quality IDC services. Notably, these orders included a 32-megawatt wholesale order from an Internet customer for its Huailai IDC Campus, highlighting the appeal of VNET's reliable and high-performance IDC services.

The company also reported significant strides in harnessing the growing AI-driven demand for high-performance computing power. Over 98% of VNET's wholesale capacity and service is capable of meeting high-performance computing power requirements, positioning the company to quickly capture and accommodate customers' AI-driven demand. The company has seen an unprecedented surge in large language model development, securing around 300 megawatts of new orders, primarily for AI demands.

Green Energy and Sustainability Initiatives

VNET's commitment to sustainability and green energy was further highlighted with the approval of the Ulanqab Green Energy project, a source grid load storage integrated project that will generate approximately 700 million-kilowatt hours of green energy annually, providing VNET's Ulanqab campus with a steady long-term supply of green energy. This initiative underscores VNET's dedication to reducing carbon emissions and enhancing its ESG (Environmental, Social, and Governance) initiatives.

Strategic Expansion and Future Outlook

Looking ahead, VNET is planning to expand its wholesale data centers' capacity to approximately 1 gigawatt, solidifying its leadership position in the data center services sector. This expansion is supported by a high precommitment rate and the continuous growth in market demand, demonstrating VNET's confidence in its business model and its ability to meet the evolving demands of the digital economy.

The company's retail IDC business remains stable, with a slight increase in retail revenues and a focus on maintaining solid margins. VNET's non-IDC business, specifically its VPN business, continues to expand its customer base and offer premium ICT consultation and SD-WAN services to support customers' digital upgrades and business operations.

Challenges and Opportunities

During the earnings call, key investors and analysts raised questions about the competition, pricing, and future outlook. VNET's management team provided insights into the company's strategic focus on high-performance data centers and its ability to optimize costs and maintain a healthy cash position. The company's proactive approach to green energy and its collaboration with Shandong Hi-Speed Holdings Group Ltd. in renewable energy projects are also seen as key differentiators in a competitive market.

Conclusion

VNET Group, Inc.'s third quarter 2024 earnings report underscores its strong financial performance and strategic focus on high-performance data centers and sustainable growth. With a robust pipeline of orders, a commitment to innovation, and a focus on green energy and ESG initiatives, VNET is well-positioned to capitalize on the growing demand for high-quality IDC services and navigate the challenges of the competitive landscape.