Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited for Q17 and FY17 earnings conference call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.
I will now turn the call over to your host, Ms. Laura Chan, Head of Investor Relations for the company. Please go ahead, Laura.
Thank you. Hello, everyone. Welcome to the 4Q 'seventeen and full year 'seventeen earnings conference call of GDS Holdings Limited. The company's results were issued via newswire services earlier today and are posted online. A summary presentation which we'll refer to during this conference call can be viewed and downloaded from our IR website at investors.
Gdservices.com. Leading today's call is Mr. William Huang, GDS's Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS's CFO, will then review the financial and operating results Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the US SEC. The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures.
GDS press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to GDS founder, Chairman and CEO, William Huang. Please go ahead, William.
Thank you, Laura. Hello, everyone. Thank you for joining today's call. We have now completed 1 full year since our IPO, and it was a year of great achievements We made tremendous progress across our business, delivering all that we set and more. Our market position today is even stronger than a year ago.
We see a substantial high level of demand for datacenter capacity in China and the growth estimates has been raised. Our business outlook is the best that we have ever known. The first highlights of 2017 was our sales performance. Total area committed by customers increased by almost 70%. The net addition to our contract portfolio is worth over US200 million dollars in terms of annual recurring revenue.
With an average contract life of around 5 years. This represents over US1 billion dollars of total revenue secured in a single year. We believe it's an industry record and what is more the sales momentum is continuing very strongly into 2018. We always say that we serve the customers who matter. As the demonstration of this, over 80% of our new business in 2018 came from existing customers.
A critical fact behind this sales achievement was our ability to continuously expand capacity. We started the year with 13 self directed data centers in service or under construction and ended with 20. As of today, we are up to 23. Sales and the capacity growth is flowing through to our financial results. We started the year with the backlog of 24,000 square meters.
We delivered the backlog, driving total revenue growth of over 50% and adjusted EBITDA growth of nearly 90%. We ended the year with an even larger backlog of 41,000 square meters, providing high visibility for future growth in 2018 and beyond. Every one of our projects is fully funded. We successfully completed nearly US1 billion dollars of debt and equity financing during the year, including the follow on offering in January 2018. We have a stronger capital base to support our business plan.
Last but not least, we strengthened our relationships with key customers including Alibaba and attention, who formally recognized us as their preferred supplier. We also established a new strategic partnerships with highly financial industry leaders namely CyrusOne in the U. S. And the State Development And Investment Corporation in China. Now let's look now let's look forward and I will start by discussing our market opportunity.
It's slide 5. 2017 was a year when the cloud really took off in China. Our digital economy is booming. Enterprise IT is moving on to the cloud as a at a very rapid rate. The leading cloud service provider are growing at almost 100%.
Nevertheless, Our public cloud market is still in its early stage and only around 10% of the U. S. And less than 2% of the total IT spending in China. Cloud is paving the way for new technology, which are more and more compute and data intensive. Such as machine learning and artificial intelligence, which are huge focus areas for research and investment in China.
China is also gearing us to leading the world in large scale 5G deployment which will make the internet of the scenes and reality. To find out how all of this translates translates into data center demand. We only have to talk to our large customers They are at the leading edge of cloud and the new technologies in China. From what they have shared with us, they see their requirements for data center capacity going to higher and higher levels. They are looking to us to grow our supply in sync with their requirements.
Let's turn to the Slide 6. In our view, the optimal business model for the data center industry is to serve high volume clouds and internet companies collocated with the high value enterprises. GDS is already there. Over the past few years, we target capturing demand from all the hyperscale cloud service providers and from the large internet companies, which own the most valuable data These customers give us a continuous growth, high feeling rates, scale economies, and the leading market position. They also give us the highly strategic connection points into their platforms which are key to driving enterprise colocation.
As a result of this targeting Cloud Plus Internet has grown from 47% of our business 3 years ago. To 64% 1 year ago to 79% at the end of 2017. We already serve most of the customers who matter in China. They keep coming back for more capacity and as they roll out their platforms in all the Tier 1 markets, we keep winning additional cloud connection points For example, just in the last quarter, we got 2 more pops from the Baidu Cloud and the 2 more 2 more pops from AWS. The hyperscale cloud and the large internet companies typically deploy their platform in Tier One markets for latency sensitive data and the application and in remote low cost locations for the rest.
In Tier One markets, they require multiple data center in geographically separated zooms. And the mutual pace to connect connect with their customers and partners. This is where GDS comes into the picture. We create value for our customers by providing the right resource in the right place at the right time. Historically, our customers have also 100% of their requirement in Tier 1 markets.
And from what they have discussed with us, this remains their objective. In remote locations, our customers tend to build by themselves. However, they have started to look at outsourcing this part of their requirements as well. While our business remains focused on Tier 1 markets, we are prepared to follow our most important customers where they need us to go. Providing that we can structured investments to make additive reference.
In this context, we recently agreed to build and operate 3 data centers for 1 hour largest customer at remote sites in Hebei Province in the far north west of China. On the enterprise side of our business, the key metric, which we focus on is customer account growth. In 2017, we added almost 30% to our enterprise customer base. We have had particular success in the e payments vertical, hosting all the leading service providers such as AliPay, Tencent Pay, Uniti, as well as the central bank settlement and cleaning system for e payments. Going forward, a major driver for the enterprise customer franchise will be the unique ability to connect us through our hub to all the major cloud platforms in our data centers.
We also see potential for creating the connection hubs for the financial service ecosystem. We have already sought to launch our cloud connector hub. And in the next 1 or 2 quarters, we plan to upgrade and fully launch this service. Initially focusing on the Shanghai market. Let's move to slide 7.
One of the benefits of serving the larger customers in China is that It gives us insight into what is coming. We foresaw the accelerating demand curve and stepped up our off efforts to secure more resource supply. There is a significant barrier to enter to enter in securing, qualify the real estate and the sufficient power in Tier One market in China. This is why supply is only just keeping up with demand. We have successfully dealt with this challenge through.
Our dedicated local team in each market partnering with government's related proxy director for build to suit data center shells, delivering significant benefits for the local economy. And achieving optimal levels of power efficiency to address environment environmental concerns. At the beginning of 2017, we had just over 60,000 square meters in service and another 25,000 square meters under construction. During the year, we initiated 5 new projects and acquired 2 data centers. One of which was under construction and 1 of which was operational.
By the end of the year, Our area in service had increased by 66% to over 100,000 square meters and we had re loaded the development pipeline with 24,000 square meters under construction at year end and another 15,000 square meters initiated in January 2018. While we are adding all this supply, we are also sustaining except exceptionally high commitment rates, 90% for area in service, and 50% for area under construction as of today. In addition to what you see, We have a significant pipeline of resource, which we have not yet activated At the end of 2017, we had an estimated 46,000 square meters held for future development which is mainly additional phases of existing data centers. We have also entered into 4 MOUs for leasing buildings that we expect to provide us with additional 46,000 square meters. Let's move to slide 8.
Our business is in a great position. Over the past year, we have extended our market leadership we are the only platform player in China, far ahead of any other in the carry neutral sector. We have close relationships with the customers who matter and they are always looking to also We operate in that market. We are pricing is stable and the returns are at acceptable levels. Continuing our strategy to be the home of the cloud in China, how do we build for that here?
First of all, we must keep up with accelerating demand from our existing hyperscale customers by scaling up our resource supply. 2nd, we will use our resource advantage to establish relationships with additional strategic customers who we are targeting. 3rd we will enhance our cloud connect product to grow our enterprise business. We believe that the cloud connection points in our data center give us a unique opportunity. Which will become more and more valuable as enterprises adopt hybrid cloud and multi cloud solutions.
4th, we will lower our unit's development costs through design and procurement initiatives. This will make us even more cost competitive and help protect our returns. We are looking at various innovations around the standardization, proper redundancy, Ultra high power densities and intelligent power management 5th, we will leverage our partnership with service 1 for cross border business opportunities into China and out of China. And with SDIC for entry into the new market. We will also seek another innovative approach to investment outside the Tier 1, Tier 1 markets.
With that, I will now turn to the call over to Dan for the financial and operating review.
Thank you, Total revenue and adjusted EBITDA both came out higher than the flash financials, which we disclosed in January. And higher than the top end of the guidance for last year. Let's look more closely at this, starting on Slide 12, where we strip out the contribution from equipment sales and the effect of FX changes. In 4Q 2017, our service revenue grew by 16.7% and our underlying adjusted EBITDA grew by 17.9% quarter on quarter. For FY 2017, our service revenue grew by 58.7%.
Now underlying adjusted EBITDA grew by 111.7%. Year on year. Turning to Slide 13. The main driver of revenue growth in 4Q 2017 was the 11,000 square meter increase in area utilized, out of which 5000 square meters came from the backlog, and 6000 square meters came from the acquisition of Guangzhou 2 data center completed in October. The Massey Service revenue or MSR per square meter over the past 4 quarters has been within a defined range and remained so in 4Q 2017.
The average selling price in the backlog is similar to our current MSR, So as the backlog is delivered, we do not expect the MSR to change materially. As shown on Slide 14, profit margins are on an upward trend, but it's not a straight line. At the data center level, which is illustrated by NOI margins, There are 2 things going on. Data centers are filling up and reaching optimal profit levels. Which typically means an NOI margin of around 55%.
At the same time, we are in rapid expansion mode with new data centers acting as a temporary growth drag. In 4Q 2017, we brought a lot of capacity into service, 3 data centers, Beijing 3, the 1st phase of Shenzhen 4, and Shanghai 4. Which together account for around 17% of our total area in the service at year end. The fixed cost of these data centers is what impacted NOI margins in 4Q 2017. Slide 15 illustrates the mix of our portfolio by stage of development.
What's important to note is that we have high commitment rates across the board. As data centers come into service and fill, NOI margins will trend up to benchmark levels. It's just a matter of time. At the corporate level As shown on Slide 16, we continue to realize operating leverage on our SG and A. In 4Q 2017, this was sufficient to offset the growth track that I was just talking about.
Accordingly, underlying adjusted EBITDA margins were higher in 4Q 2017 than in 3Q 2017. SG And A excluding depreciation and amortization and stock based compensation, hit 13.4% of service revenue. If we factor in full delivery of the backlog, the current level Turning to our CapEx on Slide 17. In 2017, we accelerated our investment activities, adding 7 new projects, including 2 through acquisition. Our full year CapEx paid was just over RMB2 billion, compared with 1,100,000,000 in 2016.
For the self developed area in service, Our unit cost averages out and under $10,000 per square meter. This capacity has an average power density of nearly 2 kilowatts per square meter. So the unit cost per megawatt which is out at under USD 5,000,000. For the area under construction, if you do the maths unit cost per square meter appears to work out slightly higher. This is because the power density of this capacity is also higher at 82.3 kilowatts per square meter.
In addition, The cost includes front end power infrastructure and building shell and core costs, which will support several later phases of development. After taking this into account, the unit cost per megawatt for this part of our portfolio is actually lower, about 5% lower. Now I would like to update you on the progress of each project which was under construction at year end. Starting with Shanghai 5, Phase 1, it will enter service soon, and it will be close to fully committed by the end of 1Q 2018. Shenzhen-five phase 2 is reserved for expansion by the unanchored customer in phase 1.
We expect are the data centers which we are building to suit for one of our largest customers. They are all 100% pre committed. Shanghai 6 is pre committed 45% by China's leading online travel company. Shanghai 7, which is not actually shown here, is being built to suit for us on the same campus as Shanghai 6. We will include it as under construction when the Shell and Core are handed over, and we begin to incur CapEx later this year.
We are trying to accelerate Shanghai 7 as we have pending demand for it. Tendu-two phase 1 is an expansion project at our Chengdu campus. It is already 25% pre committed by a major cloud customer. The pre commitment rate will increase significantly in 1Q 2018 with demand from another major cloud customers. Shanghai Eight is a new project which we initiated in January this year.
Is it's located close to our existing Weidau Child Campus and anchor customer commitments are coming soon. Turning to Slide 18. There has been a significant change to our financing profile, since we last reported results at the end of 3Q 2017. The $150,000,000 CB which was outstanding as being 100 percent converted. We received $100,000,000 proceeds from the equity issuance to CyrusOne in October 2017 and then a further $205,000,000 net and underwriting commissions from the follow on offering in January 2018.
We refinanced about RMB 700,000,000 at bank borrowings, which were due in 2018, with new facilities with longer maturity. In addition, we obtained another RMB300 million of short term working capital loans. So what does all of this get us? Our approach to data center financing is to inject equity into each development company and leverage it with project debt. All of the projects which we have announced to date are fully financed with equity and debt.
Most of the equity, which we raised in the last few months, is still available for allocations new projects, which we expect to initiate through this year and next. As we move forward a similar approach will be adopted to financing these projects. The credit market in China has been quite tight for a while. Despite this, we successfully secured RMB3.9 billion, equivalent to over US600 million dollars of new debt facilities during 2017. This gives us a strong basis of confidence for the debt financing ahead.
In the onshore banking market. In addition, we are actively considering alternative sources of debt either to lower cost or extend tenure. Around 65% of our debt is floating rate linked to the People's Bank of China 5 year rate. This is a semi market rate, which is quite stable. We believe that Slide 19 shows our backlog build up over the past year.
At year end, our backlog stood at nearly 41,000 square meters. Worth over $190,000,000 in terms of annual recurring revenue, which is equivalent to 63% of our last quarter annualized service revenue. Delivery at the backlog provides high visibility for revenue growth, which brings me on to the subject of guidance on page 20. When we look forward 1 year, we start with a very stable base of area utilized or revenue generating space. Our churn rate is exceptionally low, only 0.6% in 4Q 2017.
And over the course of 2018, We have only 8700 square meters, roughly 8.5% of our total area committed, which is coming up for renewal. On top of this installed base, revenue growth is mainly derived from delivery of the backlog in place and hence revenue recognition depends on when new data centers come into service and when customers move in. Based on our current view of these factors, we expect full year 2018 total revenue to be in the range of 2,460,000,000 to 2,560,000,000, implying a gross rate for total revenue of over 55% at the midpoint of the range. We expect adjusted EBITDA to be in the range of $905,000,000 to $935,000,000, implying year on year growth of close to 80% at the midpoint of the range. Our total revenue and adjusted EBITDA guidance imply similar percentage growth rates for 2018 versus 2017 as for 2017 versus 2016.
We expect full year CapEx for 2018 to be in the range of RMB2.6 billion to RMB3 1,000,000,000. The increase year over year follows on from the higher level of new customer commitments in 2017. The range takes account a potential upside in our current year sales performance. We are not providing official guidance for sales. However, based on what we have already done in the year to date, and our high probability sales pipeline, we are confident of beating the 41,000 square meters with net additional cost and commitments, which we achieved in 2017.
We expect to make significant progress towards this target, in the first half of twenty eighteen. To give you some feel for the quarterly cadence of our Move in during the first quarter is normally at a lower level due to the major Chinese New Year holiday. Thereafter, increase in error utilized, enhanced revenue growth will accelerate with higher growth in the second half of the year. This case of cadence is consistent with prior years. Finally, I should mention that our guidance includes the assumption of one further acquisition of a data center under construction, a deal which we are very close to signing.
As with our prior acquisitions, we expect the terms to be highly accretive. Our criteria for these deals but we are seeking more opportunities and project acquisition will remain an integral part of our capacity sourcing strategy. To that, I will end the formal part of my presentation, and we would now like to open the call to questions.
Thank you, you. We have the first question from the line of Jonathan Atkin. Please ask your question.
Thanks very much. I wanted to follow-up on the last point that Dan made about acquisitions of either shell capacity or maybe fully built out data centers? It sounds like the guidance contemplates some one of those projects And can you tell us a little bit about, what does the supply look like for those sorts of M and A activities through the year? Is it to numerous accounts or are they kind of situational in certain metros that provides, I'd be interested in perspective on that. And then the other question I had relates to the cloud connect hub.
It sounds like you're starting to deploy it. Are there additional product features that you are looking to introduce and how would you characterize demand for that product or is it still at a very early stage?
Hi, John. I'm the subject of acquisitions. When we look at the industry landscape, people often ask us about competition. I mean, one feature of the last one a couple of years has been quite a lot of new entrants. We are typically developing 1 data center or 2 data centers and looking simply to make a successful project and maybe to then to capture the profit from it.
So this is what is giving rise to the acquisition opportunities. And frankly, the pipeline of those opportunities is getting larger. But we had very stringent standards, the data center facility needs to fit with our customer profile. And that's not often the case. So we screen out a lot of these opportunities.
But what we left with, yes, is there is good promise, I would say, for further acquisitions. And we like to do them while the data center is still under construction. And so that we look at it really as a alternative strand of sourcing capacity.
The second question, Geoff, let me answer your question. I think we are last year, we already said we deployed a cloud connects a solution to our customer. It's very early stage of product and after almost half years testing, And we are we try to develop more function to our customer. To rapidly improve our user experience. And this is more software defined technology.
And I think in the next 1 or 2 quarter, we will officially launch this product. But still, I see this is also aligned on our strategy to try to build up our home other cloud and let the customer connect our cloud in our data center more convenience and the user experience more much better than before.
Thank you. And then a last question out the speed with which customers are moving in. So kind of the backlog to revenue conversion, when you have a ready for service date, at a site and there's a substantial amount of pre commitments, what is the approximate time lag between delivery of the data center and then occupancy of that committed space?
Yes, John, the
this is a characteristic of the contracts with the hyperscale cloud and large internet customers. As you can imagine, a very large customer does not deploy 100,000 servers on one day. So they secure capacity and something that they find very valuable is having flexibility about the timing of the move in. And that's something that we are prepared and organized to give them. And as part of our skill to manage the timing and phasing of our own CapEx, to minimize the sunk cost before they move in.
So the contracts, if you base it on the on the delivery schedules, which are really a kind of fallback or minimum. The contracts often give the customers flexibility for 12 to 18 months, but we can't forecast on that basis because almost every single contract is actually at a moving, which is ahead of the contractual minimums. So what we have to do is form of view based on what the customers tell us about their intentions. I would say On the whole, they fully move in within, say, 4 to 5 quarters.
Right.
We have the next question from the line of Gokul Hariharan, Please ask your question.
My first question is on, the strategy to move towards, tier 2 City, Tesla, some of the more remote areas. Could you talk about the competitive landscape that you encounter? I think we remember that a lot of
the lot
of the telcos had actually invested in a lot of the smaller tier cities and so look at remote areas over the last few years. So, how do you think about the competitive landscape? It seems to be pretty different some, what you encounter in the Tier 1 Cities?
I just preface this by saying, overwhelmingly, our business today and our strategy is based around Tier 1 markets. But we are responsive to our customers and we will go where they want us to go. I really think the major distinction is between Tier 1 markets and remote locations. So in remote locations, there's nothing. So there is a competitive landscape.
It's simply a question of build to suit, Tier 2 markets, we're not pretty sure what Tier 2 markets are. We formed this partnership late last year with State Development Investment Corporation and the 2 fixed line telecom incumbents, China Telecom and China Unicom. And I think that one of the objectives of that was to pull our strengths. So we're not going up against the telcos. We are partnering with them.
And we found that quite an appealing way of establishing a presence in some new markets, initially only Tianjin is confirmed. But there could be one other city in a few quarters' time. And going forward, we may expand in those markets ourselves, but it's a very low risk way of establishing our market presence. I think partnering with SDIC and telcos that go as far as to say that the excess is pretty much assured.
Yes. I think the explanation. I think the our strategy to the Tier 2 markets, parting with the SOE because it's always easy to gather the government's municipal government business commitment. So it will reduce our risk to get into this market.
Okay. Just one other question on the CapEx guidance of 2,600,000,000 to 3,000,000,000 RMB, does that budget for acquisition cost as well, or is that primarily self built data center CapEx?
Yes, it includes one acquisition that I referred to because that acquisition is imminent. And when we acquire a data center, which is under construction, I mean, essentially, we're paying the cost to date in less any liabilities and then incur directly the cost to complete. Plus a relatively small premium. So that is included in the CapEx guidance for 1 data center. Going back to, I think the first question from John Atkin, there are potentially more than 1, but there's only one that is definite enough to include in the CapEx guidance as of today.
Understood. Yeah, that's all I had to know.
We have the next question from the line Gutman from Gunningham.
Hi, thanks for taking the questions. First, I'm not sure if you broke out the revenue from the acquisition that data center position that you made in the expected revenue from the 1 pending? And secondly, I was wondering, it seems like there's been this 30% year over year increase in enterprise logos. Do you see that how long do you see that continuing at that pace?
The acquisition was completed in October and it was unusual because actually this was acquisition of a data center that was already operational. And I'll just explain the circumstance. It was next door to a data center, which one of our existing data centers, which we acquired, nearly 2 years ago, And actually, we had intended to acquire the 2nd data center, the one we call Guangzhou 2, at the same time, but we had to wait because there were certain criteria around power capacity and redundancy that were not satisfied. By the time we were able to complete the acquisition, the data center was fully operational. So yes, it did contribute I think if you want to estimate the revenue contribution, it's a couple of months.
The revenue per square meter that data center is below our average. But revenue per square meter doesn't indicate return. Can tell you, the cap rate for that acquisition was something like 14%. So, yes, I just leave it to you to make that to make that, estimates. But in a sustainability of, enterprise customer growth, 30%
Hey, Robert, and this is William. I think that to grow our we know, as I mentioned earlier, mean, we know we understand the optimal model of data, data and business is to parity to increase your hyperscale customer, plus to increase your retail customer, which we call the enterprise variable enterprise customer. So To keep growing our enterprise customer is our key one of the sales strategy. If you look back last 3 years, almost every year, we continue to grow our customer number at 30% annual rate level. So I think the we're still in our resource plan, we still leave a lot of the capacity to bring the the landless sales bring the valuable enterprise customer.
This is our topic. And we hope we expect we still can maintain 25% to 30% of the annual account number growth in the next few years. This is very strategically and protect our investment return, right.
That's great. Thanks. And if I had one follow on, could you just update us a little bit on some of the initiatives or provide some color on the interaction with CyrusOne?
Yes. I think the absolute service when it became our shareholder. We had a couple of wrong we bring I brought our team to visit the data center and discuss, we discussed all very business stuff in terms of the like design and construction and the supply chain management and the cost for the customer This is all the objective we are we try to achieve. So but I we we posted this cooperation as a true base One is, firstly, it's a case by case. We already start to work together to try to let the first one improve our help us to improve our design for more cheaper and build more fast.
And the business already starts to work with some significant one very, very valuable customer already. And on the other hand, we also help our Chinese customer to go to the search point data center in U. S. I believe these two low hanging fruit will happen in a few months. So this is the number.
This is all case by case right now. But we do have the midterm cooperation tried to do, achieve it, to reduce our costs and try to standardize our design partially and get to the scale to improve our procurement power, we will maybe increase their procurement and our procurement scale to squeeze our vendor experience. This is our midterm target. And we also start to design some of the new data center in China with CyrusOne support because this is our maybe it's our pilot case to deploy the new design, introduce the new design to the China market. So this all stuff is already initially.
Thank you very much. Yes, given 6 months or 12 months, this effort will contribute to company, pretty good visits, I mean, benefit.
Great. Thank you very much.
We have the next question from the line of Susie Xu from Citigroup.
Hey, hello. This is actually Arcela. And so first of all, congrats on for record label of the customer commitment and also growing backlog. So I have a question on your presentation. Page 8, leverage our partnership.
So you mentioned that the SDC actually use either a with them and enter into the Tier 2 market. So from a straight angle, I wonder why they choose the GDS, it's because you guys have uniqueness or because something interesting And the second is how we benefit from this alliance. Should we think of it's a service revenue and lower CapEx and higher margin? And also the 3rd question is probably to Dan. Is that how do you think of the timing of start to model these things?
Thank you. Okay.
I answer the question. Maybe you can cover some, what are we having to cover, right? So I think the why should GDS is think in China market, it's obvious if they smart enough, they but if they do smart, right? I think First of all, FDIC did their traditional state owned investment giants, so you invested all the different kind of the infrastructure, including the power, right? So I think this type of business is their which they are seeking for some new business.
So they also have their grandmother reputation. So I think they have evaluated their partner almost 1 year before we signed MoU and the criteria is very, very simple. They want to the data center company who has the full I mean, a suit of the capability from the design and the construction and the site selection and operation. And then they also like the GPS has the tracker and in the market, at the best track record in the market, we'll recognize that by the customer. So this is a key criteria what they are seeking their partner.
After when you have a variation, I say their major decision to work with the GDS and also invited China Unicom and the China Telecom to try to form a JV type of the company together. So our target is to build a business in a changing first. But we still discuss some another couple of the location which we can build our data center and serve the serve to their own company and government system to host government system. And this is what's our plan. And currently, still in a discussion how to where we start the project and how many projects we should put in this year or next year.
Yeah. Thank you, William.
I
apologize, sir.
Or we could move to the Thank you, sir. Can we move to the next question? Thank you. We have the next question from the line of Colby Seneaso from Crown And Company. Please ask your question.
Great. Thank you. Is Michael Elias on for Colby Synesael. Two questions, if I may. Earlier, you mentioned the cloud took off in China in 2017.
Can you better can you help us understand where China stands in the cloud adoption cycle relative to the United States? And second, I believe mentioned earlier that 50% of the area under construction is pre committed. Can you help us understand the mix of customers that are pre committing this space? And if it's a specific vertical or it's more broad based? Thank you very much.
First question was about the, whereas both China and the cloud adoption curve?
Yes. I think as I mentioned, I mean, last year is a very big year for the China crop. Took off. I think if you look at what Alibaba, Tanssen, they announced the number of the card revenue growth It's all in a 3 digit growth period. I think the this is just a start because in terms of the base of my observation, the last year, the total ACRA will be reached to the because the financial year is the first quarter of the end of the first quarter of this year.
So I think the total revenue will be close to the US2 billion dollars And they are 50% of the market share. They are the market leader compared with the U. S. Market, I mean, it's, as I mentioned, it's just 10% of the USPS. If you look at Amazon, there's there's a cloud revenue last year has reached to the RMB 220,000,000,000 already and Microsoft already reached to JPY 20,000,000,000 already.
So Alibaba just said it's around JPY 2,000,000,000. So it's quite early stage, but it's moved very fast. This is the fact. And we also see a lot of the financial institutions start to use the crop So this is a due to the signal, that means that they are still in the testing and period. I think the in this year or next year, I believe a lot of the enterprise will adopt it to the hybrid cloud model.
Yes, question about planning the backlog and pre commitment. In almost most of the backlog or almost all of it is the top 5 or 6 cloud service providers and internet companies in China. The sales cycle and the delivery cycle for enterprises is relatively short. Enterprises may only commit to a data center 3 months before it comes in service or it's not pre commitment at all. So naturally, the backlog, which relates to enterprises, is never going to be that large, because they take delivery within pretty pretty short order.
So it's really the hyperscale and large internet, which has created this huge backlog. And almost all of the new business from that segment is pre commitment. In fact, we said on some previous earnings calls is that We're doing joint resource planning with our largest customers. They're asking us to align our resource plan with their requirements. And so they often evaluation give feedback on projects that we're considering taking on.
By the time we do decide to move forward, we already have a soft commitment from them. So when we disclose pre commitment, that's contractual or legally binding. But we actually have a commitment that we consider to be real.
Quarters before that.
As there are no further questions at this time, I would like to turn the call back over to the company for closing remarks.
Thank you all once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website. Or the Piacente Group Investor Relations. Thank you.
Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.