Executive Summary / Key Takeaways

• Strategic Transformation Underway: Cloopen Group Holding Limited (RAASY) is actively transforming from a broad cloud communications provider to a specialized SaaS company, prioritizing higher-margin Cloud-based Contact Center (CC) and Unified Communications & Collaborations (UC&C) solutions, deeply integrated with AI and big data capabilities for enterprise clients.
• Technological Moat Deepening: The company is investing heavily in proprietary AI, big data, and real-time network (RTM) technologies, exemplified by its Chitu Big Model and Copilot Agent, to deliver quantifiable benefits like enhanced efficiency, improved customer experience, and faster solution deployment, strengthening its competitive edge.
• Financial Resilience Amid Challenges: Despite historical net losses and negative operating cash flows driven by aggressive investments, recent financial trends show improving gross margins (36.8% in 2024) and a strategic shift in revenue mix, indicating a path towards profitability, albeit with ongoing capital requirements.
• Competitive Differentiation in China and Beyond: RAASY leverages its comprehensive product suite, localized regulatory expertise, and strategic partnerships (e.g., Tencent Cloud (TCEHY)) to carve out a strong position in China's fragmented cloud communications market, while also pursuing international expansion with competitive pricing.
• Operational and Regulatory Hurdles: The company is actively addressing past internal control weaknesses and regulatory scrutiny, including a NYSE delisting and SEC settlement, through significant remedial measures, which are critical for restoring investor confidence and ensuring long-term operational stability.

The Foundation of Cloud Communications in China

Cloopen Group Holding Limited, established in 2012, has emerged as a multi-capability cloud-based communications solution provider in China, offering a full suite of services encompassing Communications Platform as a Service (CPaaS), Cloud-based Contact Centers (CC), and Cloud-based Unified Communications & Collaborations (UC&C). The company's operational backbone, Beijing Ronglian Yitong Information Technology Co., Ltd. (VIE), was founded in 2009, laying the groundwork for its cloud-based offerings which officially commenced in 2014. This early entry positioned Cloopen to capitalize on China's rapidly evolving and fragmented cloud communications industry, a market still in its nascent stages compared to global counterparts but poised for significant growth.

The industry's expansion is driven by China's robust network infrastructure and enterprises' increasing focus on digital transformation to enhance communication efficiency. The China Insights Consultancy (CIC) projects the country's cloud-based communications market to grow from RMB49.8 billion in 2020 to RMB146.5 billion by 2025, representing a Compound Annual Growth Rate (CAGR) of 24.3%, with CC and UC&C as primary growth catalysts. Cloopen's strategic response has been to pivot towards these higher-margin segments, integrating advanced technologies and expanding its market reach.

Technological Edge and Innovation Driving Value

Cloopen's investment thesis is deeply rooted in its proprietary technology and continuous innovation, which form the bedrock of its competitive differentiation. The company has independently developed many core technologies underpinning its cloud-based communication solutions, focusing on AI, big data, and video capabilities.

Its CPaaS solutions, built on a cloud-based infrastructure, offer tangible benefits such as low latency and high delivery rates for bulk messaging, crucial for enterprise marketing and authentication. The virtual intermediary phone number function, for instance, preserves user privacy while enabling efficient communications, a critical feature for platforms like food delivery services.

In the Cloud-based CC domain, Cloopen's RongCC for large enterprises and 7moor Cloud for SMEs are designed for enhanced agility, efficiency, and compatibility. These solutions streamline human labor and analyze operational data, offering a 99.95% uptime service level commitment. The integration of generative AI large model capabilities into multi-channel contact centers and CRM is a significant differentiator. This technology provides AI-generated talking point suggestions, automatic extraction of large model labels, knowledge-based recommendations, and real-time recognition of customer intention and emotion, directly improving sales performance and customer experience.

The Cloud-based UC&C segment, primarily featuring RongVideo, delivers stable, smooth, and high-quality video experiences even in remote areas with weak network connections. This capability has enabled novel use cases, such as virtual counters for regional banks, where standardized solutions have shortened delivery cycles from over six months to approximately two months.

Cloopen's commitment to innovation is further evidenced by its dedicated R&D team of 263 members, representing 23.80% of its total employees as of December 31, 2024. The company has established an AI Research Institute, an AI Engineering Institute, Big Data departments, and a security technology department. Key initiatives include building its own real-time network (RTM) to achieve high concurrency and low latency in audio and video communications, and developing a complete series of commercially applicable Big Data platform solutions. The recognition of its Chitu Big Model in the 2024 China AI Large Model Industry Development Report and its Copilot Agent in the 2024 China AI Agent Annual List in 2025 underscores its leadership in AI. Furthermore, an upgraded technical architecture allows for a single deployment solution compatible with all cloud vendors, and a local development platform accelerates customized development. These technological advancements are critical to Cloopen's competitive moat, enabling it to offer comprehensive, customized, and efficient solutions that drive higher margins, improve customer retention, and support its long-term growth strategy.

Competitive Landscape and Strategic Positioning

The cloud-based communications industry in China is highly competitive and rapidly evolving, with numerous local players and the constant introduction of new technologies. Cloopen competes directly and indirectly with a diverse array of participants, including specialized SMS, CC, VC, and AI-based vendors, as well as larger ICT vendors and internet companies. Some competitors possess greater financial, technological, and marketing resources, allowing them to respond more swiftly to market opportunities.

Cloopen strategically positions itself as a multi-capability provider, offering a full suite of cloud-based communication solutions tailored for enterprises of all sizes across various industries. Its competitive advantages are multifaceted:

• Comprehensive Portfolio: Unlike many specialized competitors, Cloopen offers CPaaS, CC, and UC&C, providing a one-stop solution that integrates telecom resources directly, a capability many rivals lack.
• Advanced R&D and AI: The company's strong R&D team and significant AI capabilities, including its Chitu Big Model and Copilot Agent, enable it to develop innovative features and industry-specific solutions that differentiate its offerings.
• Robust Sales and Customer Reach: With a sales team of over 400 staff and a "land and expand" strategy, Cloopen effectively targets and retains large enterprise customers, which are key revenue drivers.
• Targeted Customer Solutions: The company caters to both small-to-medium enterprises (SMEs) with its standardized 7moor Cloud and large enterprises with customized RongCC solutions, demonstrating broad market coverage.
• Strategic Acquisitions: Acquisitions like EliteCRM (customer relationship management) and Zhuge Inc. (intelligent data solutions) have bolstered its capabilities in sales lead management and data intelligence, enhancing its overall value proposition.
• International Expansion: Cloopen has established an overseas presence in Japan, Malaysia, Singapore, Mexico, and the Philippines, and recently secured its first order from Thailand's largest commercial bank. In Southeast Asia, the company benefits from less intense competition and competitive pricing compared to Euro and US companies, while still achieving better gross margins than in the Chinese market.
• Strategic Partnerships: Collaborations with major players like Tencent Cloud, Tencent Qidian, and WeCom provide significant synergies, expanding its reach into diverse industries such as industrial manufacturing, energy, and social governance.

Despite these strengths, Cloopen faces vulnerabilities, including its primary dependence on the Chinese market, which exposes it to regional economic and regulatory risks. While its localized expertise and regulatory compliance provide a strong moat in China, it may lag larger global competitors like Twilio (TWLO), RingCentral (RNG), 8x8 (EGHT), and Zoom (ZM) in terms of overall global scale, innovation speed for broad features, and profitability margins. For instance, RAASY's TTM gross profit margin of 36.76% indicates room for improvement compared to some global peers, reflecting the competitive pressures and investment phase it is in.

Financial Performance and Strategic Execution

Cloopen's financial performance reflects a company in a significant investment and transformation phase, marked by a strategic shift towards higher-margin offerings. In 2024, total revenues saw a modest increase of 0.4% to RMB573.6 million (US$78.6 million), following a 3.8% decrease in 2023 to RMB571.0 million from RMB593.6 million in 2022. This stabilization in revenue is accompanied by an improving revenue mix. Despite these positive margin trends, Cloopen has incurred substantial net losses since its inception, reporting RMB975.9 million in 2022, RMB412.4 million in 2023, and RMB146.8 million (US$20.1 million) in 2024. These losses stem from aggressive investments in R&D, marketing, and business expansion.

The company's gross profit margin increased from 35.80% in 2023 to 36.80% in 2024, primarily driven by a greater proportion of revenues from its cloud-based CC solutions, which typically carry higher profit margins than CPaaS. This trend is consistent with management's strategic focus, as evidenced by the CC business becoming the largest revenue contributor in Q3 2021 with 125.4% year-over-year growth. Recurring CC gross margins also improved from 49.2% in 2022 to 56.4% in 2024.

Operating expenses, while still significant, showed a notable reduction in 2024, with R&D decreasing by 20.50%, selling and marketing by 17.70%, and general and administrative expenses by 50.90%. These reductions were due to headcount optimization, expense control measures, and the settlement of a class action lawsuit. The company also recorded RMB49.5 million (US$6.8 million) in other operating income in 2024 from non-refundable customer advances.

Liquidity remains a critical aspect. Cloopen has consistently reported negative operating cash flows (RMB180.2 million or US$24.7 million in 2024). Days Sales Outstanding (DSO) improved to 131 days in 2024 from 156 days in 2023, reflecting strengthened collection management. However, the company's ability to fund future growth and potentially pay dividends relies heavily on cash flows from its PRC subsidiaries, which are subject to PRC regulatory restrictions on dividend payments and capital transfers. As of December 31, 2024, 65.40% of its cash and cash equivalents were held in China.

Outlook and Growth Drivers

Cloopen's management projects continued growth, particularly in its higher-margin segments. For Q4 2021, the company anticipated revenues between RMB328 million and RMB333 million, representing a 26.8% to 28.7% year-over-year increase. This guidance reflected a strategic shift, with CPaaS revenues expected to remain flat or decrease slightly as resources are reallocated to CC and UC&C. Management expects the CC business to grow by 50% to 60% annually over the next 2-3 years, significantly outpacing the overall market. This growth is underpinned by the company's ability to offer comprehensive, AI-integrated solutions and its expanding presence in the overseas market.

The dollar-based net customer retention rate for recurring solutions, which was 74.6% in 2024, is expected to stabilize at a relatively high level, driven by a more established regulatory framework, China's economic recovery, and continuous product optimization. International expansion, particularly in Southeast Asia, is identified as a key future growth driver. Strategic partnerships, such as those with Tencent, are also expected to continue yielding new orders and expanding market reach across various industries.

Key Risks and Mitigation

Investing in Cloopen involves several material risks. The company has faced significant operational and regulatory challenges, including the delisting of its ADSs from the NYSE in October 2023, which has impacted liquidity and investor confidence. Furthermore, the company settled accounting fraud charges with the SEC in February 2024, stemming from employee misconduct. While the SEC did not impose civil penalties due to Cloopen's self-reporting, extensive cooperation, and prompt remedial measures (including personnel changes, departmental reorganization, and strengthening accounting controls), material weaknesses in internal control over financial reporting persisted as of December 31, 2024. These weaknesses, such as insufficient U.S. GAAP knowledge and lack of rigorous financial closing procedures, pose ongoing risks to financial reporting accuracy.

The company's Variable Interest Entity (VIE) structure, necessitated by PRC foreign ownership restrictions, introduces uncertainties regarding regulatory compliance and the enforceability of contractual arrangements. Any adverse ruling by the PRC government could lead to license revocations, operational restrictions, or an inability to consolidate financial results. Geopolitical tensions, particularly between the U.S. and China, and the potential application of the HFCAA (Holding Foreign Companies Accountable Act) could further restrict the trading of its ADSs.

Operationally, Cloopen's reliance on China's major mobile network operators for telecommunications resources presents a risk, as adverse changes in terms or collaborations could impact service delivery and margins. The company is also exposed to data privacy and cybersecurity risks, given its handling of large volumes of enterprise and end-user data. Mitigation efforts include strict data protocols, web application firewalls, restricted employee access, and robust cybersecurity governance overseen by the board and led by the Chief Technology Officer. The impact of the COVID-19 pandemic has also caused customer loss, delayed service delivery, and extended payment cycles, while recent policies affecting the online education sector are expected to have minor impacts on its CC business.

Conclusion

Cloopen Group Holding Limited stands at a pivotal juncture, undergoing a strategic transformation aimed at solidifying its position in China's burgeoning cloud communications market and expanding its international footprint. The company's deep commitment to technological innovation, particularly in AI and big data, underpins its ability to offer differentiated, high-value solutions to enterprise clients. This technological edge, coupled with a focused shift towards higher-margin CC and UC&C segments, is driving improvements in gross profitability and is central to its long-term growth narrative.

While Cloopen has demonstrated resilience in addressing significant past operational and regulatory challenges, including internal control remediation and legal settlements, sustained execution on these fronts is paramount for rebuilding investor trust. The company's outlook for its CC business, driven by strong market tailwinds and strategic partnerships, suggests a compelling growth trajectory. However, investors must weigh this potential against ongoing financial investments, the inherent risks of its VIE structure, and the evolving geopolitical and regulatory landscape. Cloopen's success hinges on its ability to leverage its technological leadership and localized expertise to convert market opportunities into sustainable profitability, ultimately validating its strategic pivot and global ambitions.