VNET Group Earnings: Solid Revenue Growth, Driven by AI and Wholesale Business

VNET’s first-quarter results were in line with our expectations and management’s unchanged full-year guidance. First-quarter revenue increased 5.1% year on year, with adjusted EBITDA up 2.5%. Guidance for 2024 is midpoint revenue growth of 6.6% and adjusted EBITDA growth of 10.4%. First-quarter EBITDA was negatively affected by agency service fees related to debt repayment and also stock expenses for employees. We retain our forecasts, which are in line with management guidance for 2024 and our fair value estimate for VNET at $3.50. Management provided a breakdown of the three main revenue streams for the first time, with the retail internet data center business contributing 49% of the total revenue; the non-IDC business, including cloud services and virtual private networks, contributing 32%; and the wholesale IDC business contributing 19% of revenue. While it is the smallest, the wholesale business dominates the growth, with its revenue increasing 59% year on year to CNY 361 million, non-IDC revenue rising by 5% to CNY 995 million, and retail IDC revenue declining 7% year on year to CNY 924 million. With the company expecting to expand its wholesale capacity by 30%-40% in 2024, we would expect wholesale IDC to remain the main growth driver in the near term.