21Vianet Group (proposed VNET) is scheduling a $127 IPO with a market capitalization of $575 million at a price range mid-point of $11 for Thursday, April 21, 2011.

SUMMARY

Sales increased 67% to $80 million for 2010 vs 2009.

. December quarter revenue was $30 million, $120 million annualized . Largest carrier-neutral Internet data center services provider in China. Provides connectivity not provided by carriers. . December 2010 customer base of 1355, up 10.6% from 2009 . Customers have growing data center requirements

VALUATION & CONCLUSION

. Recurring revenue is a plus . Growth tied to customer’s growth requirements . 4.8 times annualized December revenue. . Gross margins declined in the last six quarters from 27% to 24% . Loss in 2010 based on $38 million in shareholder compensation charges, otherwise would have shown a profit.

. At the price range mid-point of $11 the stock should do well if quarterly revenue can continue to increase sequentially.

Each ADS represents six shares

BUSINESS

. Data centers: rents out servers in cabinets

. The largest carrier-neutral Internet data center services provider in China as measured by revenues in 2009, according to data released by International Data Corporation, or IDC. . Operates 47 data centers located in 33 cities throughout China, including all of China’s major Internet hubs, with over 5,700 cabinets under management housing over 39,000 servers. Data transmission network includes more than 260 points of presence, or POPs. A POP refers to an access point from one place to the rest of the Internet. . Most of the data centers and all of the POPs are connected by VNET’s private optical fibers network across China. . As a carrier-neutral Internet infrastructure services provider, our infrastructure is interconnected with the networks operated by all of China’s telecommunications carriers, major non-carriers and local Internet service providers, or ISPs.

CUSOMER BASE

As of December 31, 2010, VNET had more than 1,355 customers, including many leading Chinese and global companies operating in China across a broad range of industries. . Customers include Internet companies, government entities, blue-chip enterprises to small- to mid-sized enterprises. . Average monthly churn rate, or customer attrition rate, as measured by monthly recurring revenues was 0.9% in 2010. . Monthly recurring revenue from the top 20 customers in 2010 has increased from $1.2 million in January 2009 to $2.7 million in December 2010.

GROWTH PLAN

. To meet customer’s growth objectives VNET may partner with China Telecom or China Unicom and lease cabinets from them. . Future operating results and growth prospects will largely depend on VNET’s ability to increase the number of cabinets under management while maintaining optimal cabinet utilization rate. With the rapid growth of China’s Internet industry, demand for cabinet spaces has increased significantly and VNET does not always have sufficient self-built capacity to meet demand; It usually takes six to eight months to build a data center with cabinets and equipment installed.

COMPETITION

Carriers.

. From state-owned telecommunication carriers, including China Telecom and China Unicom. According to IDC, in 2009, carriers occupied 64.9% of the data center services market. S-1 page 92 http://www.sec.gov/Archives/edgar/data/1508475/000119312511090342/df1a.htm

. In addition, both carriers operate their own networks. Unlike China Telecom and China Unicom, which construct data centers primarily to help sell bandwidth, VNET provides connectivity to multiple networks in each of VNET’s carrier-neutral data centers, providing superior choice and performance according to VNET.

. VNET’s private network provides enhanced connectivity among different networks according to VNET. In comparison, data centers operated by China Telecom and China Unicom generally provide access only to their own network and are often constrained by their own networks’ coverage. . Due to inadequate interconnectivity among Chinese carriers’ networks, interconnectivity bottlenecks remain a major problem in China, contributing to slow transmission speeds across services and applications.

Carrier-neutral service providers.

Includes other carrier-neutral service providers, such as ChinaNetCenter and Dnion Technology.

In-house data centers.

Businesses may choose to house and maintain their own IT hardware, such as Baidu and Alibaba, and other large enterprises, particularly in the financial services sector.

USE OF PROCEEDS

$113 million

. $70.0 million to expand data center infrastructure . $30.0 million to expand network infrastructure . Remainder for working capital and other general corporate purposes

21Vianet Group (VNET)	VNET, C+, 7					ADS equivalents: 52mm
Data centers
Beijing,China		2008	2009	2010		IPO Mkt
Revenues ($mm)		$37	$48	$80		Cap (mm)
Gross margin		27%	27%	24%		$575
% profit from continuing ops, pre-tax		4%	19%	-45%		@$11
Note: 2010 includes $38.6mm in share-based compensation, 48% of revenues
Adjusted EBITDA		$3	$7	$13
EBITDA % of revenue		9%	15%	16%
Cabinets at year end		2787	4157	5750
Ave monthly recurring revenue		$3.2	$3.7	$6.4
Cabinet utilization rate		80%	81%	79%
Number of customers		1224	1225	1355
Churn rate		3.3%	0.8%	0.9%
Quarterly results	Sep-09	Dec 2009	March 2010	June 2010*	Sept, 2010	Dec, 2010
Revenues ($mm)	$12.3	$13.9	$14.1	$17.2	$18.6	$30.2
Gross margin	27%	29%	25%	25%	24%	24%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Year ended Dec 31, 2010	Cap (mm)	Sales	EBITDA	BookValue	TangibleBV	in IPO
21Vianet Group (VNET)	$575	8.3	45	3.0	4.1	22%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	Mination	tary	rating
20 is perfect		2	2	2	1	7