China’s Microsoft challenger Kingsoft files for Shanghai tech board listing

2 min read
Lei Jun, Xiaomi founder and CEO (left); Chen Sheng, CEO of 21 Vianet, a Xiaomi-backed network infrastructure company (center); and Zhang Hongjiang (right), ex-CEO of Kingsoft and a former Microsoft China executive. (Image credit: Kingsoft)

Chinese software company Kingsoft on Wednesday filed its IPO paperwork for an initial public offering on China’s news Nasdaq-style equity board.

Microsoft’s China rival plans to raise RMB 2.05 billion (around $300 million), with no fewer than 101 million shares, 21.91% of the total being issued, according to the prospectus.

The capital will be used towards the upgrading its WPS Office software, a free alternative to Microsoft’s Office suite, fundamental research in artificial intelligence, as well as research and development (R&D) of cloud-based office services, said the company.

WPS Office is widely used by Chinese government bodies. The company said that more than 70 central departments including the foreign ministry as well as more than two-thirds of municipal governmental bodies are among paying clients. State-owned enterprises, such as the Industrial and Commercial Bank (ICBC) and the State Grid Corporation, are subscribers as well.

It also counts some of China’s internet giants as clients. Figures from the IPO filing show that Alibaba is its top client, paying RMB 157 million in subscriptions in 2018, which accounted for 13.9% of the total revenue. Tencent spent RMB 20.5 million on subscriptions in 2018, its fifth-largest client.

Kingsoft reported sales revenue of RMB 1.13 billion in 2018, a 50% increase compared with RMB 753 million the year prior. Net profit grew 45% year on year to RMB 311 million in 2018 with 86.7% gross margin. It also offers free, ad-supported versions on PC and mobile devices to Chinese users, and reported that total monthly active users including those using its free and paid products exceeded 310 million as of December 2018.

“As China has increasing demand for security in information systems especially in for government affairs, military use, and financial institutions… domestic software providers have more advantages and are increasing share in the Chinese market,” (our translation) the company said in the filing.

Founded in 1988 by Qiu Bojun, one of the country’s earliest programmers, the company is now controlled by Lei Jun who holds 12.0% share. Lei joined the Beijing-based company in 1992 as an engineer and took over as chairman of the board in 2011, a year after he established smartphone company Xiaomi in April 2010.

Despite a self-reported 42.8% market share in China’s office software market, Kingsoft lags Microsoft in terms of global sales revenue. Microsoft earned revenue of $9.77 billion in the productivity and business processes segment in 2018. Its revenue for the Office 365 commercial segment increased $2.4 billion and its consumer segment grew $382 million during the year compared with the prior year, according to the company’s annual report.

The US giant said more than 135 million people used Office 365 commercial every month in 2018. Kingsoft, in comparison, said it had 280 million enterprise users during the same time period.