Why 21Vianet Might No Longer Be A Buy: Pacific Crest

Shares of 21Vianet Group Inc VNET rose more than 7 percent on Thursday, prompting one analyst to downgrade the name.

Cheng Cheng of Pacific Crest downgraded 21 Vianet to Sector Weight from Overweight with no assigned price target (previous price target of $24) following the company's "weak" second-quarter results.

21 Vianet reported revenue of $139.8 million in its second quarter, falling short of the $146.3 million the analyst was expecting. EBITDA of $23.9 million also fell short of the $26.5 million estimated. The company also guided its third-quarter revenue and EBITDA of RMB 920.0 million and RMB 156.0 million respectively. In addition, the company also lowered its full-year revenue guidance to RMB 3.6 billion.

Cheng noted the company attributed its ongoing pressures to stronger competition in the industry, and that it expects the trend to continue in the short term and negative impact the MNS segment, which has already been declining on an organic basis for four quarters.

Cheng said 21 Vianet's MRR (monthly recurring revenue) per cabinet and cabinet additions were weak in the quarter. In fact, the company only added 214 cabinets in the quarter which fell well short of the 2,000 the analyst was expecting.

Cheng also added that management cited timing issues in its cabinets adds, but given the company's "history of low visibility" on cabinet additions, the analyst is "cautious" around management's original goal of 7,000 to 9,000.

Finally, 21 Vianet received a privatization offer of $23 per ADS back in June which also contributed to the analyst's downgrade to Sector Perform.