Why Kingsoft Cloud Stock Was Up Today

What happened

Shares of Kingsoft Cloud Holdings (NASDAQ:KC) were up 9.6% as of 1:28 p.m. ET on Wednesday after the company reported earnings results for the first quarter. The largest independent cloud service provider in China reported revenue growth of 20% year over year. However, this represented a deceleration over the previous quarter's 38% growth rate.

Moreover, the company guided for second-quarter revenue to be roughly flat over the year-ago quarter.

So what

On a positive note, Kingsoft said it continued to sign new customers in the quarter. The company recently signed Genki Forest, a growing beverage brand in China. Overall, Kingsoft's gross billings grew 61% year over year for cloud services, including computing, storage, and enterprise services.

While the deceleration in revenue growth might be alarming, it's important to evaluate the results considering the stock's steep drop over the past year. The stock has fallen from over $60 down to $5.39 at the time of writing, so investors had very low expectations entering the quarter.

One bright spot in the earnings report was improving profitability. Kingsoft's adjusted gross margin more than tripled to 3.8%, and the company remains on track to achieve breakeven on the basis of adjusted earnings before interest, taxes, depreciation, and amortization by the fourth quarter.

Now what

Management expects revenue for the second quarter to be down 8% to up 1.2% year over year. The slower growth is due to the off-line fulfillment delay of enterprise cloud, as well as the resurgence in COVID-19 in China.

The market correction has been brutal for fast-growing cloud stocks, which now trade at much lower valuations than a year ago. There are bound to be some opportunities for investors to scoop up possible bargains. After dropping sharply last year, Kingsoft Cloud Holdings is currently up about 3% over the past three months.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.