KC - Kingsoft Cloud Holdings slip as Citi downgrades following Q2 miss upcoming 'transition'

Kingsoft Cloud Holdings ( NASDAQ: KC ) shares slipped on Wednesday as investment firm Citi downgraded the Chinese cloud computing company, citing its second-quarter miss and upcoming "transition."

Analyst Brian Gong lowered his rating to neutral from buy on Kingsoft Cloud Holdings ( KC ) , while also cutting the price target to $3 from $8.50, noting that both the public cloud and enterprise cloud segments have been impacted by a weakening economy and COVID-19.

"Although we remain positive over the [enterprise cloud segment's long-term potential], it may take time for KC to achieve its strategic shift and weak sentiment on the stock could persist for a while, hence we downgrade KC to neutral/high risk from buy," Gong wrote in a note to clients.

Kingsoft Cloud Holdings ( KC ) shares fell 1.5% to $2.49 in premarket trading.

On Tuesday, Kingsoft Cloud Holdings ( KC ) reported a second-quarter loss of 3 cents per share on $284.6M in revenue, down 12.3% year-over-year. Analysts were expecting a loss of 26 cents per share on $302.29M in sales.

Looking ahead to the third-quarter, Kingsoft Cloud Holdings ( KC ) said it expects total revenues to be between RMB1.95B and RMB2.15B, up between 2.3% and 12.8% sequentially.

Gong also noted that Kingsoft ( KC ) management said public cloud revenue should improve sequentially, but there is the possibility for "weak consumption" of internet customers, given the weakening global economy, resulting in the company trying to balance scale and profitability ahead.

"We think this transition may take some time to complete," Gong explained. "The strategy to scale back [content delivery network] business is likely to continue, and we think KC might become more selective on the quality of its customers."

For the enterprise cloud segment, COVID-19 re-emerged and project delivery was impacted during the second-quarter, though the company's management said its backlog was "robust" and delayed projects would be delivered in the fourth-quarter.

In July, Kingsoft Cloud Holdings ( KC ) applied for a dual listing in Hong Kong, noting that it "demonstrates its commitment to provide its shareholders with greater liquidity and protection amid an evolving market and regulatory environment."

Analysts are largely positive of Kingsoft Cloud Holdings ( KC ). It had an average rating of BUY from Seeking Alpha authors , while Wall Street analysts also rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates KC a HOLD .

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