Sensetime has been developing for seven years and is about to enter the secondary market. Maintaining high growth is still the core problem
Liu Yiqin & NBSP;
Editor | Xie Lirong
On November 19, Reuters reported that AI company Sensetime received approval for its Hong Kong IPO, which aims to raise us $1 billion. A Sensetime investor and a sensetime official confirmed to Caijing that the IPO had been approved. Sensetime related person in charge of caijing reporter said, this does not comment.
Sensetime, founded in 2014, applied to list in Hong Kong on Aug 27. Frost& According to a previous Sullivan report, Sensetime was the top AI company in Asia by revenue in 2020. Sensetime reported revenue of 3.45 billion yuan in 2020 and 1.65 billion yuan in the first half of 2021, according to its prospectus. Losses in the same period were 880 million yuan and 730 million yuan, respectively.
Sensetime, Along with Megvii, Yuncong and Yitu, four AI startups in the field of vision, are known as the "AI Dragons". All of them have made efforts to go public, but the results are different. Megvii withdrew from its Hong Kong IPO and opted to list on the Science and Technology Innovation Board, which passed in September. Yuncong was approved by the Science and Technology Innovation Board in July and has yet to be publicly traded. Also in July this year, Yitu voluntarily applied to withdraw its application for listing on the Science and Innovation Board, but there is no new listing progress yet.
Since its establishment, Sensetime has completed 12 rounds of financing, with a total amount of $5.2 billion, of which more than $2 billion was raised in 2018 alone. Sensetime has been rumoured to list in Hong Kong for the past two years.
At present, the largest shareholder of Sensetime is founder Tang Xiaoou, holding 21.73%. Core institutional investors include SoftBank (14.88%), Taobao China (7.59%), China Capital (3.08%), Silver Lake Capital (3.05%), etc.
Sensetime's last pre-ipo funding round closed in June 2021, valuing the company at $12bn. However, a number of investors interviewed by Caijing said it may be difficult to maintain such a valuation after shang Tang goes public. The core reason is that the early valuation level is too high, but the development momentum of the company now seems difficult to maintain high growth, and there is no stage of profitability.
According to the prospectus, Sensetime currently has sufficient cash flow on its books, with 8.93 billion yuan in cash and cash equivalents and 7.94 billion yuan in fixed deposits as of June 30, 2021.
The cash-rich company remains under pressure to go public. The financing boom in China's AI industry was concentrated from 2015 to 2018. After 2019, both the amount of financing and the number of financing declined significantly. Last year, a number of investors who used to focus on AI told Caijing that they no longer focused on AI.
Starting last year, it became a common goal for leading AI companies to go public. Listing helps them get access to new sources of financing, while investors who have already bought into the IPO are eager to cash in.
AI is the technology of the future. However, for the capital market selling dreams, AI is not a new concept. From algorithm recommendation, image processing and voice assistant at the C-end to digitalization and intelligence at the B-end, AI has been integrated into various scenarios.
Xiong Weiming, a partner at China Innovation Capital, told Caijing that this means AI companies no longer have the aura of "cutting-edge technology" and no longer have obvious advantages over other industries. "It's a bit late to go public now."
Based on Sensetime's 2020 revenues, a $12bn valuation implies a PS multiple of 22. In general, the primary market values growth more and can accept a company to lose money in a short period of time. PS multiple of 22 times is not high. But Sensetime has been developing for seven years and is about to enter the secondary market, where profitability is the core competitiveness.
Sensetime's prospectus notes that as the AI industry is still in its early stages, it may not be able to achieve or maintain profitability in the future due to the need for continued large-scale investment. In addition, according to the prospectus, its competitors include three categories: computer vision-centric software companies, computer vision-related hardware vendors, and cloud service providers.
Computer vision software companies are represented by Hongsoft Technology, which had revenue of 680 million yuan and net profit of 250 million yuan in 2020, with a market value of 18.6 billion yuan. Hikvision, the leading company in the field of vision hardware suppliers, had a revenue of 63.5 billion yuan and a net profit of 13.68 billion yuan in 2020. Its latest market value was 471.4 billion yuan.
If losses are to continue, then the company needs to show high growth momentum. But the data don't support it. In 2019, Xu Li, co-founder of Sensetime, said that sensetime's revenue growth maintained at triple digits. Sensetime reported revenue of 3.03 billion yuan in 2019, up 63.3 percent year on year, and 14.4 percent in 2020, according to the prospectus.
Sensetime's business is mainly divided into four parts: smart business, smart city, smart life and smart cars. Among them, smart business and smart city are the main revenue sources at present, accounting for about 80% in total, but the revenue growth of these two businesses will slow down in 2020. The growth rate of smart business in 2019 and 2020 is 41% and 23% respectively; Smart cities will grow 139% in 2019 and 7% in 2020.
However, sensetime's smart business grew by only 1% in 2020.
A number of AI industry insiders told Caijing that the biggest problem in the AI field is that there is no standardized product. Almost all AI projects need customization, with long cycle and slow delivery. This is not sensetime's problem, and it is difficult for all AI companies to achieve rapid business expansion.
Another boost to sensetime's current high valuation is the emergence of the "metasverse" concept.
The meta-universe is a new hot spot in the capital market. At the 2021 World Artificial Intelligence Conference, Sensetime mentioned that its SenseCore AI device can achieve virtual reality experiences. As mentioned in the prospectus, the SenseMARS software platform, launched in 2016, supports metasverse experiences. SenseME and SenseMARS connect the real world with the virtual world through empowered phones, AR and VR devices, smart screens and consumer drones.
Sensetime has been investing in virtual reality-related companies since 2017. In 2017, Sensetime investment intelligent AR advertising platform Star Guangdong Interactive and VR start-up 51VR; In 2018, invested in Interactive video technology service provider Yingpu Technology; In November 2021, Sensetime Capital invested in Mantis Vision, a 3D vision company.
The realization of the metasurverse requires AI vision technology, but the metasurverse is still in the conceptual stage, and it is unclear how much capital it will help Sensetime gain.
Several investors mentioned to Caijing that Sensetime has a certain scale advantage compared with the other three AI companies, including the scale of revenue and talent pool, but they all face the same problem: how to live better and better when the halo fades?