Shareholders approve VNET Group as company’s new name, marking latest adjustment in year of change for data center laggard

Key takeaways

  • 21Vianet’s shareholders have approved changing its name to VNET Group
  • Move marks the latest change for the company, following arrival of new CFO in April and recent departure of its COO

By Doug Young

With all the turbulence in U.S.-China relations, 2021 could well go down as the year of the name change for U.S.-listed Chinese companies.

Data center stalwart 21Vianet Group Inc. (VNET.US) has become the latest Chinese company to jump on the name-changing bandwagon, with its announcement that shareholders approved the renaming of the company as VNET Group Inc. at a special meeting in Beijing last Friday. It first announced the plan with the release of its latest quarterly results on Aug. 24.

The company didn’t give too much explanation for the change, saying only on its latest quarterly earnings call it believed the move would promote its brand awareness.

Whether or not investors liked the change, 21Vianet’s shares rose 25% in the two days after the announcement, more likely due largely to its quarterly results.

The stock has given back most of those gains since the initial jump, but is still up about 6% from before the name-change announcement. The reality is that name changes probably have relatively little short-term impact on a company’s performance. But they could help over the longer term by better communicating to customers, business partners and investors what the company does.

That element is particularly important for Chinese companies that have listed overseas, since many have used their Chinese names that mean little or nothing to most U.S.-based investors. More recently, having a non-Chinese-sounding name may also be taking on a political dimension, helping to distance those companies from growing China-U.S. tensions.

China has expressed its desire to slow or halt the stream of its tech companies listing in the U.S., hoping many will choose to list on one of its domestic markets instead. At the same time, the U.S. has temporarily halted new listings by Chinese companies until they can agree on language that will adequately educate U.S investors about risks associated with an unusual corporate structure used by most U.S.-listed Chinese firms.

Wearable device maker Huami kicked off the name-changing trend in February when it announced it would change its English name to Zepp Health Corp. (ZEPP.US), a U.S.-based brand it had acquired earlier. That was followed by an August announcement from the Tinder-like Momo that it would change its name, which means “stranger” in Chinese, to the friendlier Hello Group Inc. (MOMO.US). And late last month the more recently-listed smartphone recycling specialist AiHuiShou (RERE.US) announced a plan to change its name to ATRenew Inc.

Among the name changes we’ve mentioned 21Vianet’s seems the least imaginative, with the company simply adopting its stock ticker symbol as its new name. Perhaps it thought the “21” element, probably a reference to the 21st century, had become outdated. Or maybe it simply wanted to use all capital letters to make its name stand out more, a common practice among many companies these days. Or maybe it was just looking for a new beginning.

Attention Needed

In fact, it’s probably not a bad thing that 21Vianet may be seeking a new beginning. It has emerged as a recent laggard among China’s three major independent data center operators, which also include the larger GDS Holdings (GDS.US) and Chindata (CD.US).

21Vianet has an important ally in global software giant Microsoft (MSFT.US), which offers its Azure-based cloud services in China using 21Vianet’s data centers due to Beijing’s prohibition on foreign ownership of telecoms infrastructure. But it hasn’t been able to capitalize on that arrangement, with the domestic cloud market dominated by internet giants Alibaba, Tencent and Baidu, as well as telecoms giant Huawei.

Still, a market of China’s size has plenty of room for everyone, including 21Vianet. The problem is that the company’s growth has been consistently slower than its rivals, making it a less attractive choice among investors.

The company posted 30.8% revenue growth in this year’s second quarter year-on-year, generating 1.5 billion yuan ($233 million), according to its latest results released in late August. That was far slower than Chindata’s 64% revenue growth, and also trailed the 38.9% growth for GDS, even though GDS is more than four times larger than 21Vianet in terms of market cap.

The trends also don’t look that good for 21Vianet. The company boosted its cabinets under management – a measure of capacity – by 43% year-on-year to 62,876 in the second quarter. But its revenue rose by the far-slower 30.8% that we mentioned above, indicating it was probably lowering prices to sell the new capacity.

At the same time, its compound utilization rate fell to 59.9% in the second quarter from 61.7% in the first quarter and 61.4% a year earlier. The company also gave guidance for 23% revenue growth in the third quarter, which would represent a slowdown from the second quarter.

21Vianet did manage to post a profit in the second quarter thanks to gains from the change in value of some of its convertible notes. But analysts see it falling sharply into the red next year, and Chindata is the only one of the three companies that’s currently operating profitably.

That might explain why Chindata’s price-to-sales (P/S) ratio is far higher than 21Vianet, with the former at 1.44 versus 0.45 for 21Vianet. GDS has an even higher P/S at 1.66.

At the end of the day, 21Vianet is a company in need of change and actively looking for it. The name change is just the latest example of that. This year it also changed two of its top executives, starting with the naming of a new CFO in April. More recently it announced the departure of its COO Cai Chunfeng at the end of last month, without name a replacement.

Now we’ll just have to wait and see if all of those changes will produce positive results.

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