VNET (VNET) Q1 2025: Wholesale IDC Revenue Soars 86%, Powering Capacity Expansion
VNET’s first quarter showcased a decisive shift toward wholesale IDC, with record capacity utilization and robust order wins driving margin expansion and visibility into 2026. AI-driven demand and disciplined capital allocation underpin a high-growth delivery plan, but execution on aggressive capex and asset monetization targets will be critical as competition and regulatory dynamics intensify.
Summary
- Wholesale IDC Outperformance: Rapid capacity ramp and order wins are reshaping VNET’s revenue mix and profitability profile.
- AI-Driven Retail Demand: High-value AI workloads are lifting retail MRR and fueling cabinet repurposing.
- Execution Watchpoint: Delivery and REITs monetization pace will determine if VNET can sustain growth and manage leverage.
Performance Analysis
VNET delivered a standout quarter, with total net revenues up 18.3% year-over-year, propelled by an 86.5% surge in wholesale IDC revenue, which now accounts for a significantly larger share of the business. Wholesale capacity in service jumped 18.1% sequentially to 573MW, with utilization hitting a record 76.2% as customers moved in faster than ever. The retail segment, while still the largest by revenue, saw more modest growth at 4.8% YoY, but benefited from a sharp rise in monthly recurring revenue per cabinet, driven by AI workloads and high-voltage cabinet conversions.
Margin expansion was a key highlight, with adjusted cash gross margin improving to 43.1% and adjusted EBITDA margin climbing to 30.4%, reflecting both the mix shift to higher-margin wholesale and the phasing out of low-margin retail services. Liquidity remains solid, with RMB 5.79 billion in cash and equivalents and prudent debt management, as net debt/EBITDA and interest coverage ratios remain at healthy levels. Capex intensity is set to rise sharply, with RMB 10-12 billion targeted for 2025 as VNET aims to deliver 400-450MW, tripling last year’s output.
- Wholesale Momentum: EGS and NSBE campuses drove record delivery and utilization, with 81.6% pre-commitment on capacity under construction.
- Retail Shift: MRR per cabinet rose, reflecting AI-driven demand and premium pricing for high-voltage configurations.
- Margin Expansion: Mix shift and operational discipline lifted adjusted EBITDA margin by 2 percentage points YoY.
VNET’s Q1 results mark an inflection in business mix and operational leverage, but the sustainability of this growth hinges on timely capacity delivery and disciplined capital execution as the company leans into aggressive expansion.
Executive Commentary
"Our wholesale IDC business recorded another impressive performance, supported by our robust deliveries and our customers' fast-moving pace... utilization rate increased by 3.6 percentage points to 76.2%, indicating that newly delivered orders are being moved in faster than ever before."
Zhu Ma, Rotating President
"Our adjusted cash gross margins improved to 43.1% from 40.3% in the same period last year. Our adjusted EBITDA margin rose to 30.4%... we prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment."
Qi Yuan, Chief Financial Officer
Strategic Positioning
1. Wholesale IDC as Core Growth Engine
VNET’s wholesale IDC, or internet data center, business is now the primary driver of growth, with revenue up 86.5% YoY and capacity utilization at record levels. The company’s ability to win large-scale orders from cloud, internet, and intelligent driving customers highlights its competitive delivery and operational capabilities. With 81.6% pre-commitment on under-construction capacity and a robust pipeline extending into 2026, wholesale now shapes the company’s growth trajectory and margin profile.
2. AI-Driven Retail Transformation
Retail IDC, VNET’s traditional cabinet-based colocation service, is being reshaped by AI demand. New orders are predominantly AI-driven, requiring high-voltage cabinets and supporting higher pricing. MRR per cabinet rose meaningfully, and the company is actively repurposing its footprint to capture this trend. This transition enables margin improvement but also signals a shift away from legacy, lower-value retail workloads.
3. Capital Allocation and Asset Monetization
VNET is executing an aggressive capex plan, targeting RMB 10-12 billion in 2025 to deliver more than triple last year’s capacity. Funding is supported by a mix of convertible notes, sustainability-linked loans, and a multi-pronged REITs, or real estate investment trust, monetization strategy. The company reaffirmed its RMB 2 billion asset recovery target for the year, with both public and private REITs progressing through regulatory channels.
4. ESG and Sustainability Credentials
Environmental, social, and governance (ESG) initiatives are gaining prominence, with renewable energy usage up fivefold and power usage efficiency at 1.27. VNET’s recognition in the S&P Global Sustainability Yearbook and Top 1% Award underpins its positioning as a leader in green digital infrastructure, which may offer a competitive edge as customer and regulatory requirements tighten.
5. Macro and Regulatory Adaptability
Short-term disruption from U.S. chip embargoes was quickly absorbed, with hyperscaler customers adapting and maintaining strong demand. VNET’s ability to pivot and maintain order momentum despite external shocks underscores operational resilience, though ongoing regulatory and supply chain dynamics remain a watchpoint.
Key Considerations
VNET’s Q1 results highlight a business in transition, with wholesale IDC and AI workloads at the center of its growth strategy. Investors should weigh the following:
Key Considerations:
- Wholesale Dominance: The rapid shift in revenue mix toward wholesale IDC is driving margin gains and operational leverage, but heightens exposure to large customer concentration risk.
- AI-Driven Retail Upside: Repurposing retail capacity for AI workloads is lifting pricing power and utilization, but requires ongoing investment and technical adaptation.
- Capex and Leverage Discipline: Ambitious delivery targets and rising capex will test VNET’s ability to execute without overextending its balance sheet.
- Asset Monetization Execution: Timely progress on REITs and asset recovery is critical to funding expansion and managing debt.
- Regulatory and Supply Chain Shocks: The company’s rapid response to chip embargoes demonstrates resilience, but ongoing macro risks could impact demand visibility and cost structure.
Risks
VNET faces heightened execution risk as it pursues aggressive capacity expansion and asset monetization in a competitive and evolving regulatory environment. Customer concentration in hyperscalers, capex overrun, and delays in REITs monetization could pressure liquidity and margins. Regulatory and supply chain shocks, such as chip embargoes, remain an ongoing external threat that could impact demand or operational continuity.
Forward Outlook
For Q2 2025, VNET guided to:
- Continued robust wholesale deliveries with capacity roll-forward into Q1 2026
- Retail MRR uplift from sustained AI-driven demand
For full-year 2025, management reiterated guidance:
- Total net revenues: RMB 9.1-9.3 billion (10-13% YoY growth)
- Adjusted EBITDA: RMB 2.7-2.76 billion (15-18% YoY growth)
- Capex: RMB 10-12 billion (up 101-141% YoY)
Management emphasized order visibility through mid-2026, sustained AI demand, and confidence in achieving asset monetization targets, while acknowledging the need for continued operational discipline and market vigilance.
- Wholesale ramp and retail repurposing to drive margin expansion
- Execution on REITs and delivery timelines as critical watchpoints
Takeaways
VNET’s Q1 marks a decisive pivot toward wholesale and AI-centric growth, with operational and financial leverage on display. The durability of this trajectory will depend on disciplined execution and external risk management.
- Wholesale and AI Tailwind: Record wholesale capacity and AI-driven retail demand are reshaping VNET’s business model and margin structure.
- Capital Allocation and Asset Monetization: Aggressive capex and REITs execution are essential to balancing growth ambitions with financial stability.
- Execution and Macro Risks: Sustained delivery pace and regulatory adaptability are required to maintain momentum and investor confidence.
Conclusion
VNET’s first quarter underscores a business in transformation, capitalizing on wholesale IDC and AI demand to drive scale and profitability. The coming quarters will test management’s ability to deliver on ambitious expansion and monetization targets while navigating a dynamic regulatory and competitive landscape.
Industry Read-Through
VNET’s results signal intensifying AI-driven demand for premium data center capacity in China, with hyperscalers and intelligent application providers accelerating deployments. The rapid shift toward wholesale contracts and high-voltage retail configurations is likely to drive similar margin and capex dynamics across the sector. Peer data center operators face pressure to scale efficiently, execute on asset monetization, and differentiate through ESG and energy efficiency. Chip supply and regulatory volatility remain key themes for both domestic and international players, reinforcing the need for operational agility and diversified funding strategies.