GDS Stock Falls Despite Cloud Demand Boom in China

GDS is accelerating its data center construction as China ranked as the second-largest cloud infrastructure market.

Author: Belinda Zhou   

Shares in GDS Holdings Ltd. (Nasdaq: GDS) dropped 4% Thursday morning despite the data center company reporting narrowed losses.

The Shanghai-based company, which develops and operates data centers in China, said in a statement on Thursday that revenues in the three months through March was $175.2 million, up 39% year-over-year. GDS reported narrowed net loss of $13 million, or 1 cent per share, down 33% from the same period in the preceding year. 

While the company has surpassed consensus EPS estimates just once over the last four quarters, it has beat consensus revenue estimates each time for the same period. 

More Room to Grow 

The cloud services provider said in the statement that additional area utilized in data centers of Shanghai, Guangzhou, Beijing and Langfang contributed to the revenue growth.

"Our data center capacity expanded by approximately 25,000 sqm, with the addition of major new projects in the Beijing and Shanghai markets," William Huang, the chief executive officer of GDS, said in the statement.

GDS said its total area in service reached 229,986 square meters at the end of the first quarter, up 44% year-over-year; the company added 22,112 sqm in the first quarter.

"The sales increase was driven primarily by booming Cloud adoption in China leading to higher demand from Cloud service providers, as well as significant new commitments from large Internet customers," GDS said in its statement.

Support From Shanghai 

 GDS announced its new data center campus plan in January, taking advantage of the support the local government of Shanghai offered support under its digital economy policy;

The data center campus is located at Pujiang Area, Minhang District of Shanghai, consisting of approximately 212,000 square meters of total land area and near the company's other 11 data centers close to cable landing stations.

More data center areas were used in GDS's current portfolio. The utilization rate of area in service was 71% at the end of the first quarter of 2020, compared with 69% at the end of the first quarter of 2019.

China's cloud infrastructure market grew to $3.3 billion by 67% in the fourth quarter last year, according to data from a research firm Canalys. The report said China represented 11% of the worldwide total revenue, sending it to be the second-largest market.

GDS reported the area under construction of 110,706 sqm, up from 65,736 sqm one year ago to meet the demand.

Looking ahead, GDS said it maintained its 2020 revenue estimation between 5,510 million yuan and 5,750 million yuan ($787 million and $821 million). GDS said its capital expenditures maybe 7,500 million yuan ($1071 million), exceeding its full-year revenues.

Shares in GDS traded at $60.65 per share, down 4% intraday Thursday.