Kingsoft Office increased revenue but not profit in the third quarter. Where is the next step for online office?

Written by Wei Yining

Editor | Dong Yuqing

Kingsoft Office’s single-quarter revenue hit a record high of 1 billion, but net profit fell

On the evening of October 26, Kingsoft Office released the report for the third quarter of 2022.

According to the financial report, the company achieved operating income of 1.004 billion yuan in the third quarter, a year-on-year increase of 23.45%. This is the first time that Kingsoft Office’s quarterly revenue has exceeded 1 billion yuan. As of September 30, 2022, the monthly active devices of the company’s main products reached 578 million, a year-on-year increase of 10.94%.

The overall subscription revenue of Kingsoft Office in the third quarter reached 699 million yuan, a year-on-year increase of 44.17%, accounting for 70% of the overall revenue. Among them, the domestic personal office service subscription business revenue increased by 43% year-on-year to 517 million yuan, and the domestic institutional subscription and service business revenue increased by 47% year-on-year to 182 million yuan. Domestic institutional licensing business revenue was 225 million yuan, down 6% year-on-year.

Although the revenue performance was good, the net profit fell by 4.1% year-on-year to 813 million yuan, deducting non-net profit of 663 million yuan, down 5.68% from the same period last year. In terms of business, in the third quarter of 2022, Kingsoft Office’s domestic agency authorized business revenue was 225 million yuan, down 6% from 239 million last year; Internet advertising promotion services and other revenue businesses were 79.21 million yuan, 82.88 million compared with the same period last year. Yuan fell 4%.

In this regard, Kingsoft Office explained that during the reporting period, the company’s dual-subscription system transformation business was steadily advanced, and the growth of subscription business effectively offset the impact of domestic agency authorization and Internet advertising business adjustment, driving the company’s performance to grow steadily.

Regarding the active shrinking of the advertising business, Kingsoft Office explained that based on the long-term development considerations of optimizing user experience, the company constantly adjusts the Internet advertising business, actively reduces the number of advertising spaces and push frequency, and tries its best to reduce the interference to users. In July of this year, when Kingsoft Office was questioned by WPS for deleting local files, CEO Zhang Qingyuan said in a statement that he planned to close the advertising business with poor user experience by the end of next year.

The changes in shareholders of Kingsoft Office are also worthy of attention. In the third quarter, Kingsoft Office was significantly reduced by Tencent. In the middle of this year, Tencent held 20.745 million shares, and in the third quarter financial report, Tencent held 10.3725 million shares, reducing its holdings by half, with a shareholding ratio of 2.25%, slipping from the third largest shareholder to the fourth largest shareholder. In addition, Wuyuan Capital reduced its holdings by about 4.27 million shares, slipping from the fifth largest shareholder to the eighth largest shareholder. The China AMC Shanghai Stock Exchange Science and Technology Innovation Board 50 constituent traded open-end index securities investment fund increased its holdings of 1,438,600 shares, becoming the fifth largest shareholder.

As of the close on October 28, the share price of Kingsoft Office closed at 272.95 yuan per share, with a total market value of 125.9 billion yuan.

After the online office boom, where should Kingsoft Office go?

Jinshan Office, which was born in 1988, is a domestic living fossil-level office software provider. In 1989, Qiu Bojun led Kingsoft to release China’s first Chinese word processing software WPS, filling the gap in the Chinese document processing market. However, after Microsoft Office entered China, due to a series of operational mistakes by Kingsoft and rampant piracy in the domestic market, WPS gradually lost its market share and was seized by Microsoft.

In order to save itself, Kingsoft began to explore new paths, such as announcing that the personal version of WPS Office is free, and took the lead in entering the mobile market in the era of mobile Internet. In 2011, Kingsoft Office released the WPS mobile version to seize the mobile terminal market, and cooperated with mobile phone manufacturers to cultivate user habits through pre-installed WPS software on smartphones, and gradually fed back to the PC side, achieving a recovery in market share.

WPS services include authorization model and subscription model. The authorization model grants customers the right to use a certain amount of software, or the right to use the software with an unlimited number of installed machines in the business premises; the subscription model provides a series of customized services for enterprises or individuals. Such as cloud documents, document security services, information processing services, etc. In terms of personal subscription business, WPS provides users with membership services. After paying, members enjoy the privileges of expanding cloud storage space, limited free cloud templates, and preferential purchases.

Kingsoft Office is superior to Microsoft Office in terms of differentiated services, prompting users to continue to increase their willingness to pay. Moreover, the online office trend that has emerged since the epidemic has brought new growth points to Kingsoft Office. During the epidemic, the number of monthly active employees of Jinshan Office increased rapidly from 60 million to 239 million.

However, even though the online office trend and the domestic substitution trend have brought about high revenue growth in recent years, Kingsoft Office still has hidden concerns. In terms of licensing business, the licensing business has grown rapidly in the past two years, but as the domestic replacement of office software is basically completed in 2023, the growth rate may slow down in the future.

On the B side, the penetration rate of authorized use by enterprises is only 2%. Although there is huge room for growth, small and medium-sized enterprises are relatively price-sensitive. Compared with software such as Dingding and Feishu, which have more collaboration functions, WPS The functions are relatively single, and for many enterprises, the competitiveness is not strong enough.

In terms of personal user subscriptions, according to Kingsoft Office’s third quarter financial report, the domestic personal office service subscription business revenue reached 517 million yuan during the reporting period, a year-on-year increase of 43%. However, if prices continue to increase in order to increase revenue, it may cause loss of users.

In order to compete with Microsoft Office, Kingsoft also needs to set constraints on itself in commercialization. Kingsoft insiders once revealed in an interview that all functions of Microsoft Office cannot be charged, and the current free business cannot be charged in the future. Therefore, Kingsoft Office has always been more cautious when raising prices or expanding the range of charges for C-end consumers.

Moreover, industry insiders believe that after the enterprise B-side consumption rate increases, individual users can obtain WPS use rights through the enterprise, and the willingness to pay for subscriptions may decrease.

WPS is the main source of income of Kingsoft Office. It is uncertain whether the revenue and profit it brings can continue to grow. Net profit has declined in the third quarter of this year. Therefore, although WPS revenue has grown rapidly in the past two years , but the capital market is cautious about WPS.

In 2020, when Kingsoft released its semi-annual report, the revenue during the reporting period reached 916 million yuan, a new high, and the net profit was 357 million yuan, a year-on-year increase of 143.3%. However, on the second day after the semi-annual report was released, the stock price fell by 17.73%. The market’s doubts included the slowdown in the growth of paying users, the quarter-on-quarter decline in net profit in the second quarter, and the lack of obvious quarter-on-quarter revenue growth.

From 2020 to 2022, Jinshan’s share price has been fluctuating, reaching a peak of more than 400 yuan per share in January 2021, and then began to fluctuate and fall. After the release of the third quarter report of 2022, although the share price rose slightly, it was reduced by major shareholders.

In 2020, some media people suggested that the “ceiling” of Kingsoft Office’s annual income is about 7 billion yuan. At that time, a related person of Kingsoft Office said in an interview that “I don’t think that is our ceiling”, but now, Kingsoft’s annual income Far from reaching this number, it may face the ceiling of the number of monthly active users and the growth of authorized business.

From 2020 to the present, the online office trend has brought certain growth and opportunities for Kingsoft Office, but it remains to be seen how Kingsoft Office performs in the competition with competitors such as DingTalk and Feishu, and whether it can prove its profitability to the market in the future .