Buried deep within OneConnect's Q1 2024 earnings call transcript lies a seemingly innocuous detail that may have slipped past the radar of most analysts: the "shifting procurement strategy" leading to a change in the company's cloud business with Ping An Group. While framed as a simple adjustment, this shift could signal a far more significant strategic maneuver with profound implications for OneConnect's future.

The importance of this change can't be overstated. OneConnect has consistently emphasized its "technology plus business" model, leveraging its close relationship with Ping An Group to develop and refine its products. The cloud business, specifically, has been a cornerstone of this strategy, contributing roughly 30% of total revenue in the past two years. More importantly, the stable, recurring revenue generated from this infrastructure-level service has provided a solid foundation for OneConnect's journey towards profitability.

The earnings call transcript itself offers tantalizingly few details. Management acknowledges the change, stating it "will not affect our other businesses" and "will not affect our relationship with Ping An Group." They remain committed to their strategic focus on broadening customer engagement, product standardization, and overseas expansion, while emphasizing the cloud business's profitability. However, the lack of specifics regarding the new procurement strategy leaves a vacuum ripe for speculation.

Hypothetical Impact on Revenue

Let's explore a hypothetical scenario where Ping An Group splits its cloud business evenly between OneConnect and a competitor. This chart visualizes the potential impact on OneConnect's revenue, assuming the competitor takes 50% of the cloud business.

However, this cloud business shift could also be a blessing in disguise. By forcing OneConnect to compete more aggressively, it could drive the company to further refine its offerings, improve efficiency, and ultimately emerge as a more formidable player in the broader cloud market.

Furthermore, the additional working capital generated from the sale of the Virtual Banking Business (HKD933 million in cash) provides a cushion, allowing OneConnect to invest in R&D and strategically position itself to capture new opportunities.

This leads to another intriguing hypothesis: could this cloud business shift be a deliberate move by Ping An Group to encourage OneConnect's independence and accelerate its growth in the third-party market? By reducing reliance on its internal customer, OneConnect would be compelled to focus on acquiring new customers, diversifying its product portfolio, and expanding its overseas presence.

The transcript provides some evidence to support this theory. OneConnect highlights the continued strong momentum of its overseas business, with revenue contribution from overseas customers increasing by approximately 14.8% year-on-year in Q1 2024. The proportion of overseas customer revenue to third-party revenue also increased by 5 percentage points to 20%. This demonstrates the company's ability to compete effectively in the international market, suggesting it might be well-equipped to navigate the challenges of a more competitive cloud landscape.

Ultimately, the true significance of OneConnect's cloud business shift remains to be seen. However, the potential implications are too substantial to ignore. This seemingly minor detail could be a catalyst for a silent revolution within OneConnect, forcing the company to redefine its relationship with its flagship customer, embrace a more competitive environment, and ultimately, chart a new course for growth and profitability.

"Fun Fact: OneConnect is a spin-off from Ping An Insurance, one of the world's largest financial services companies. This heritage gives OneConnect access to a wealth of experience and expertise in the financial technology sector."