The enterprise services provider has suffered a downturn in its communications traffic and, under new ownership, is pinning its recovery hopes on an AI pivot



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<h4>Key Takeaways:</h4>



<ul>
<li>After tighter rules stalled a corporate messaging boom, Xuan Wu Cloud has predicted its loss for 2025 will be more than 50 times the shortfall a year earlier</li>



<li>Control of the company changed hands earlier this year when founder Chen Yonghui stepped down</li>
</ul>



In the business world, a change in corporate control is often a sign of deeper difficulties. When a once-profitable model suddenly stops working, companies may seek a fresh direction under new ownership.



Just such a transformation is underway at Xuan Wu Cloud Technology Holdings Ltd. (2392.HK), a provider of software and communications services for businesses. Over recent months, the company has seen its earnings tumble, sold off assets and acquired a new controlling shareholder.



Last week the company flagged up a gaping loss for 2025, and is now pinning its hopes on artificial intelligence as a way out of its problems, by providing smarter customer relationship management (CRM) services.



Xuan Wu Cloud was founded in Guangzhou in 2010 by entrepreneur Chen Yonghui. China's mobile internet was just taking off, and demand for enterprise text messaging was soaring. But the high technical thresholds for accessing telecoms systems created a business opportunity for intermediaries.



The company packaged up messaging and voice capabilities from different telecoms operators, allowing businesses to send verification codes and notification texts simply by connecting to its platform. This model is known in the industry as communications platform as a service, or PaaS.



As China's mobile internet boomed, demand for enterprise messaging kept growing.  Financial institutions, e-commerce platforms and internet companies all relied heavily on such services. Riding the wave of demand, Xuan Wu Cloud became one of China's key suppliers of enterprise communications and eventually went public in Hong Kong in 2022.



<h4>Regulatory squeeze</h4>



However, the boom times could not last. China's government stepped up efforts to combat telecom fraud and spam calls, requiring companies to obtain user consent for marketing messages and to provide the possibility of opting out.



The effects were plain to see in the company's earnings for the first half of last year. Revenue dropped about 36.5% to 411 million yuan ($60 million) from the year-earlier period as messaging volumes tumbled. Income from CRM software services fell 32.9% to around 245 million yuan, while CRM platform services fell a sharper 41.2% to about 166 million yuan.



One bright spot was digital customer service, where cloud product revenue rose about 71.7% to 26.6 million yuan, one of the few growth items.



But last week's profit warning shows continuing pressure. Xuan Wu Cloud estimated its net loss for 2025 would blow out to between 58 million and 64 million yuan, from only about 1.1 million yuan in 2024. The one piece of positive news was that operating cash flow was estimated to have turned positive for the year.



The company is facing its challenges under new management. Earlier this year, the founder and former controlling shareholder sold about 20% of his stake and stepped down from his roles as chairman and CEO. The buyer, Hantang Mingyuan Investment, and its ultimate controller, Lian Jian, became the company's largest single shareholder. In a boardroom reshuffle, Lian took over as chairman while former executive director Li Hairong was appointed CEO.



The new chairman has a background in technology and manufacturing, having previously founded an optoelectronics firm and served as director at Shenzhen-listed Changxin Technology (300088.SZ), a maker of electronic displays. Observers suspect his interest in Xuan Wu Cloud may stem from the potential to combine enterprise communications with AI-driven software as a service (SaaS).



<h4>Enter AI</h4>



Under earnings pressure, the company has begun tweaking its business. Last October, Xuan Wu Cloud hived off Guangzhou Xuantong Technology, its sales cloud unit, in a sign that it could be scaling back parts of the self-operated SaaS business.



In a February statement about the boardroom changes, the company said it was sharpening its focus on the core business, fully embracing AI and aiming to expand its international footprint.



The priority appears to be cloud CRM services and creating an enhanced customer service platform for enterprises, combining the firm's communications capabilities with AI features such as voice agents that can interact with customers.



This strategy broadly aligns with trends in enterprise software, which is shifting from single-function tools toward platforms that integrate customer data, marketing and service processes. International SaaS companies such as Salesforce (CRM.US) and Zendesk (ZEN.US) have folded AI into their services in recent years, and similar trends are emerging in the Chinese market.



Xuan Wu Cloud's shares briefly rebounded after news of the ownership change but fell nearly 7% in the first session after the profit warning. The company has a market value of less than HK$700 million ($89 million), with a price-to-sales ratio of about 0.7 times, much less than the 4.2 times for Hong Kong-listed SaaS provider Weimob Inc. (2013.HK). The lower multiple reflects investor doubts about whether the company can truly turn its performance around.



For Xuan Wu Cloud, the era of easy growth from enterprise messaging may be over, and a new strategy is still taking shape under its new owner. Whether the company can establish itself in the market for AI customer service and enterprise software remains to be seen.



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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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Xuan Wu Cloud, an enterprise services provider, is facing significant financial challenges, predicting a net loss of 58-64 million yuan for 2025, a stark increase from 1.1 million yuan in 2024. Following a change in ownership, the company aims to pivot towards AI-driven customer relationship management (CRM) services to revive its fortunes. The firm has seen a 36.5% drop in revenue due to regulatory pressures affecting messaging traffic. New management is focusing on integrating AI with its communications platform to enhance service offerings and expand internationally.

As Messaging Demand Shrinks, Can AI Revive Xuan Wu Cloud?