21Vianet Group established China's first carrier-neutral Internet data center in 1999 and has grown into the country's largest carrier-neutral provider, with a market share approaching 20%. Limited interconnectivity between state-owned regional telecoms has created significant Internet traffic bottlenecks in China. 21Vianet addresses this problem with a nationwide network of data centers, POPs, and private optical fiber, allowing it to offer connectivity across major carriers and local ISPs. With secular growth in Internet penetration, online media content and mobile data driving increased demand for data center services, 21Vianet plans to use IPO proceeds to aggressively invest in capacity. 21Vianet plans to raise $127 million by offering 12 million shares at a range of $10-$12, and has applied to list on the NASDAQ under the symbol "VNET". Morgan Stanley and Barclays Capital are the lead underwriters on the deal, which is on the IPO calendar for the week of April 18.
As China's first and largest carrier-neutral data center provider, 21Vianet enjoys a considerable first mover advantage in a $1 billion market expected to grow at a 24% CAGR through 2014. The company generates strong recurring revenue from a diversified customer base that features several of China's leading Internet companies, which means 21Vianet should grow alongside its customers. As a play on China's Internet growth, this IPO should be able to generate solid interest among investors. However, its reliance on leased data center capacity has pressured margins, and with a $638 million market cap at the proposed midpoint (roughly 40x our 2011 adjusted EPS estimate), the deal valuation may hinge on the company's ability to drive margin expansion through a greater mix of self-built data centers.
Contact us to learn more about Renaissance Capital's comprehensive pre-IPO research coverage, including our report and DCF model for 21Vianet (VNET).
