• Net Revenue: Increased by 12.4% year-over-year to CNY2.12 billion.
• Adjusted EBITDA: Grew by 20.2% year-over-year to CNY595 million.
• Wholesale IDC Revenue: Increased by 86.4% year-over-year to CNY523 million.
• Wholesale Capacity in Service: Reached 358 megawatts, up by 69 megawatts year-over-year.
• Utilization Rate: Wholesale business utilization rate rose to 78%, with mature business at 95.6%.
• Net Profit: Recorded at CNY332 million, a significant improvement from a net loss of CNY40 million in the same period last year.
• Sales and Marketing, R&D, and G&A Expenses: Decreased by 12.9% year-over-year to CNY246 million.
• Net Operating Cash Inflow: CNY1.43 billion for the first nine months of 2024.
• Cash and Short-term Investments: Totaled CNY2.1 billion.
• CapEx: CNY3.35 billion for the first nine months of 2024, with CNY2.3 billion for wholesale business expansion.
• Full Year 2024 Revenue Guidance: Expected to be in the range of CNY8 billion to CNY8.1 billion.
• Full Year 2024 Adjusted EBITDA Guidance: Expected to be in the range of CNY2.28 billion to CNY2.3 billion.

• Warning! GuruFocus has detected 9 Warning Signs with VNET.

Release Date: November 21, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• VNET Group Inc (NASDAQ:VNET) reported a 12.4% year-over-year increase in net revenues to CNY2.12 billion, driven by the growth of its wholesale IDC business.
• Adjusted EBITDA increased by 20.2% year over year to CNY595 million, reflecting effective cost and resource allocation optimization.
• The wholesale business segment saw a significant revenue increase of 86.4% year over year, reaching CNY523 million, due to rising demand.
• VNET Group Inc (NASDAQ:VNET) secured six new orders totaling 84 megawatts, indicating strong customer demand and market position.
• The company maintained a strong cash position and unused credit line, supporting current operations and future development plans.

Negative Points

• Despite strong growth, the utilization rate for the wholesale business, although improved, still stands at 78%, indicating room for further optimization.
• The retail IDC business showed stable capacity and utilization rates, suggesting limited growth in this segment compared to wholesale.
• VNET Group Inc (NASDAQ:VNET) faces risks and uncertainties related to forward-looking statements, which could impact future performance.
• The company's CapEx is expected to reach the high end of guidance at CNY5.5 billion, indicating significant capital expenditure requirements.
• The pre-REITs project for the Taicang campus is still in the ramping up stage with a current utilization rate of around 50%, which may affect immediate returns.

Q & A Highlights

Q: What is driving the demand for VNET's new orders, and how is the pricing or return on these new orders? A: Ju Ma, Executive Vice President, explained that the demand is primarily driven by AI workload-related requests, with 90% of new orders being AI-related. The pricing for new orders remains consistent with previous ones, and due to economies of scale, construction costs are decreasing, leading to increased ROI.

Q: Can you provide more details on the green energy project in Ulanqab and its impact on pricing and margins? A: Qi Yang, Senior Vice President, stated that the Ulanqab project, approved by Inner Mongolia's energy authorities, will generate 700 million kilowatt-hours of green electricity annually. This will provide long-term green energy supply to the Ulanqab campus, improving margins due to the integrated green power supply.

Q: Could you share details about the pre-REIT project in Taicang and future similar projects? A: Gavin Shen, CEO, mentioned that the Taicang project's utilization rate is around 50% and is expected to reach 95% by the end of next year. The project marks the first direct investment by a major Chinese insurance company in domestic IDC assets. VNET plans to pursue similar projects, with the next target being the Ulanqab project in 2025.

Q: What is the outlook for demand in regions like Mongolia and Hebei, and how will this affect CapEx? A: Gavin Shen highlighted that VNET will focus on three strategic regions: Ulanqab, Huailai, and Taicang. Ulanqab will focus on large-scale training, Huailai on inference and small-scale training, and Taicang on supporting Jiangsu region clients. CapEx will be directed towards these strategic areas.

Q: What are the key drivers for the improved gross profit margin, and what is the future trend? A: Qiyu Wang, CFO, attributed the improved gross profit margin to optimization of IDC centers, a higher share of wholesale business, and adjustments to discount terms. These factors are expected to continue supporting a positive gross margin trend.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.