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VNET Group Inc ADR VNET Stock Quote

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Morningstar‘s Stock Analysis VNET

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Is it the right time to buy or sell?

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VNET Guides to Lower Second-Half Margin; Fair Value Estimate Reduced to USD 8.80

Dan Baker Senior Equity Analyst

Analyst Note

| Dan Baker |

No-moat VNET Group’s second-quarter 2022 result was respectable, but management lowered 2022 guidance given the impact of coronavirus lockdowns on data center buildouts and customer move-in rates, and economic uncertainty. Second-quarter revenue increased 15.2% year on year with adjusted EBITDA up 14.5% year on year. However, management reduced its full-year 2022 guidance to a midpoint of 19.5% revenue growth and 6.9% adjusted EBITDA growth from 22.8% revenue growth and adjusted EBITDA growth of 16.9% previously. This new guidance implies second-half midpoint year-on-year revenue growth of 21.9%, but EBITDA decline of 3.5% with second-half adjusted EBITDA margin expected to decline to 21.9%—well below the 28.3% reported in 2021 and 29.5% reported in first-half 2022. We lower our fair value estimate to USD 8.80 per share from USD 9.55 per share previously. In our view the stock is undervalued, trading at a price/book value of around 0.7 times with shares having traded at over 7 times price/book at the peak and having traded at over 1 times from mid-2018 until early February 2022. We believe a price/book of over 1 times is justified given the company does not revalue its portfolio and many of its data centers have likely increased in value since they were built, particularly those in downtown areas of major cities.

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Key Statistics VNET

Company Profile VNET

Business Description

VNET started as AsiaCloud in 1999, subsequently it moved to the data center business with its first self-developed data center opening in 2010. The company listed (as 21Vianet) on the Nasdaq in April 2011, subsequently changing its name to VNETGroup in 2021. It originally focused on providing data center services such as colocation and cloud services to retail clients in China but added hyperscale customers in 2019 and now counts large Chinese hyperscalers such as Alibaba Cloud, Tencent Cloud, Huawei Cloud and JD Cloud as customers. At the end of June 2022 it had 75,773 self-built cabinets with the majority in Beijing, Shanghai, and Greater Bay area. It also operated partnered data centers with around 5,058 cabinets and had 224 megawatts of wholesale capacity contracted or under MOU.

No. 10 Jiuxianqiao East Road, Guanjie Building Southeast 1st Floor
Beijing, 100016, China, People's Republic of
T +86 1084562121
Industry Information Technology Services
Most Recent Earnings Jun 30, 2022
Fiscal Year End Dec 31, 2022
Employees 3,221