From the campus trio to the artificial intelligence unicorn valued at more than $6 billion today, Megvii Technology has made a leap.
On January 12, the Beijing Regulatory Bureau of the China Securities Regulatory Commission announced that Megvii Technology has signed a sci-tech innovation board listing guidance agreement with CITIC Securities in September 2020, and plans to publicly issue China Depository Receipts (CDR) in the technology innovation Listed on the board.
So, can Megvii Technology be successfully listed on the Science and Technology Innovation Board this time? Is Megvii technology worth the investment in the artificial intelligence industry? Is its road to market smooth sailing or thorny?
From Hong Kong stocks to science and technology board, why is Megvii Technology IPO at this time?
In the industry, Megvii Technology, SenseTime, Yitu Technology, and Yuncong Technology are collectively called the "CV Four Little Dragons" of artificial intelligence. Founded ten years ago, Megvii Technology has gone through 9 rounds of financing with an amount of over 1.2 billion U.S. dollars (approximately 7.7 billion yuan). Investors include Ant Financial, Lenovo Star, Innovation Works, Qiming Venture Capital, Alibaba and other well-known institutions. This is a million-fold increase in 10 years compared with the start-up capital of 30,000 yuan a few years ago.
In fact, this is not the first IPO of Megvii Technology. As early as August 2019, Megvii Technology submitted a prospectus to Hong Kong stocks, but Megvii's Hong Kong stock market listing was not smooth. As Megvii Technology has encountered international trade and procurement variables, the Hong Kong Stock Exchange asked Megvii to provide more information, and Megvii Technology eventually abandoned its listing in Hong Kong.
So, after two years, the market is leading and the financing is smooth, Megvii Technology, why just look at the Science and Technology Innovation Board? Want to choose to go public at the beginning of the new year?
(1) Megvii Technology has lost nearly 10 billion in 3 years. According to the prospectus, in 2016, 2017, 2018 and the first half of 2019, the company lost 340 million yuan, 758 million yuan, 3.35 billion yuan, and 5.20 billion yuan respectively. Despite being under the wind, Megvii's losses are very serious.
Moreover, according to the financing information of Tianyancha App, the latest round of financing of Megvii Technology occurred in May 2019, and it has been some time since then, so whether it is for the needs of the capital market or the needs of the company's own development, Megvii Technology can only relieve its cash flow pressure through an IPO.
(2) Compared with Hong Kong stocks, the sci-tech innovation board is attractive. The Sci-tech Innovation Board has a unique and good institutional environment, which has limited profitability, but is more tolerant of companies with hard technological strength. Compared with the stricter Hong Kong stocks, the Sci-Tech Innovation Board is more suitable for Megvii Technology. This is based on Yitu Technology, Cloud It can be seen from the application of Science and Technology and Megvii Technology for listing on the Science and Technology Innovation Board.
(3) Fight for the first mover advantage with the "AI Four Little Dragons". When it comes to financing, the "AI Four Little Dragons" chase me. According to incomplete statistics, Yitu Technology has experienced 9 rounds of financing, with a cumulative financing amount of more than 2.567 billion yuan; Yuncong Technology has experienced 10 rounds of financing so far; SenseTime has also experienced 10 rounds of financing.
Under normal circumstances, whoever becomes the first stock in the industry will enjoy a higher valuation. Now, facing the hurdle of competing for listing, Megvii Technology is going to make a full impact on the Sci-tech Innovation Board.
The market share ranks second, but Megvii Technology is still mired in losses
Lei Jun once said: "Standing on the tuyere, pigs can also fly." This is also very applicable to Megvii technology.
Founded in 2011, Megvii Technology is an artificial intelligence product and solution company. Its main research and development area is computer vision. However, the scene application of AI vision is very limited. Like most AI-related companies, Megvii Technology's scene application Mainly in the Internet of Things and security fields, and these two major businesses are also the source of commercialization of the company.
(1) The performance soared and became the top player in the market. The prospectus shows that the company's 2016 revenue was 67.8 million yuan, 2017 revenue was 313 million yuan, 2018 revenue was 1.426 billion yuan, and the first half of 2019 was 948 million yuan. The compound annual growth rate from 2016 to 2018 reached 358.8%.
Currently, Megvii Technology ranks second in the domestic computer vision market share. According to the summary of the six authoritative institutions by the Foresight Industry Research Institute, it is optimistic that my country's computer vision market is expected to exceed 100 billion in 2020; the neutral forecast is that my country's computer vision market will be around 70 billion in 2020, and the market development prospects are promising.
With the global wave of artificial intelligence, Megvii Technology, which stands above the wind, has also ushered in explosive growth, but correspondingly, Megvii Technology has also fallen into a quagmire of losses. Megvii Technology explained in the prospectus that the loss was mainly due to changes in the fair value of preferred stocks and continued R&D investment.
In fact, it is not only defiance of technology, but also the dilemma that most artificial intelligence companies face. The financial situation of "One of the AI Unicorns" Yitu Technology is similar.
Yitu Technology’s R&D investment has also almost doubled, from 101 million yuan in 2017 to 291 million yuan in 2018, and further to 557 million yuan in 2019. The net profit changed from a loss of 1.166 billion yuan in 2017 to a loss of 1.161 billion yuan in 2018. By 2019, the loss expanded to 3.642 billion yuan. As of the first half of 2020, the company's total loss was as high as 7.268 billion yuan.
(2) Strong technological strength, Megvii Technology continues to invest heavily in technology. In terms of revenue, Megvii Technology is the largest AI-focused urban IoT solution provider, and it accounts for 60% of the market share of China's cloud face recognition; more than 70% of the Android mobile phone applications equipped with authentication are produced in China. Vision's face recognition unlocking solution.
This is inseparable from Megvii's high investment in scientific research. The prospectus shows that in the three years from 2016 to 2018, Megvii's scientific research investment has increased year by year. In 2016, R&D investment was 78.2 million yuan, which increased to 204 million yuan in 2017. R&D investment continued to grow in 2018, exceeding 600 million yuan.
According to data, Megvii Technology has successfully registered about 250 artificial intelligence-related patents around the world, and about 900 artificial intelligence-related patents are pending. It can be said that in the matter of technology, Megvii Technology has certain strength.
(3) Focus on the Internet of Things, with broad development prospects. With the introduction of smart security cameras and other hardware devices, Megvii Technology has successfully entered the Internet of Things industry. At present, personal IoT solutions, urban IoT solutions, and supply chain IoT solutions have become the three major business lines of Megvii.
The personal Internet of Things mainly provides real-time face recognition unlocking and computational photography functions for smartphone companies, while the Urban Internet of Things mainly uses AI vision capabilities to help urban governance, while the supply chain Internet of Things includes the research and development of logistics parks and warehousing solutions. As of June 30, 2019, it had 339 urban IoT solution customers, 1,102 supply chain IoT solution customers, and 34 personal IoT devices.
In addition, Megvii Technology also participates in the construction of the urban Internet of Things through technology output. Megvii chose to cooperate with service providers to jointly solve the huge and complicated urban Internet services. In 2016, 2017, 2018 and the first six months of 2019, the company's five major suppliers' purchases together accounted for 33.4%, 36%, 22.6% and 36.8% of the total purchases.
Capital’s eyes are discerning, and listing has been put on the agenda. For companies like Megvii, going public can greatly alleviate Megvii’s funding problems, but is Megvii technology really worry-free?
Commercial hesitation and despise the future of technology is not easy
(1) Over-reliance on Alipay and high risk of despising technology. For Megvii Technology, Ant Financial’s shareholding in 2014 was a watershed. After accessing Alipay’s system, the way to log in and make payments quickly became popular. According to the company's statistics, Megvii's cumulative financing amount exceeded US$1.1 billion after 2014.
From the perspective of specific transactions, Megvii Technology provides personal IoT solutions for many companies under the Ant Group, such as Alipay, Zhima Credit, and Ant Micro Financial Services. And in this process, Megvii Technology has accumulated a large amount of face data, which has consolidated the data foundation for its subsequent entry into the security field. However, relying too much on Ant Financial is not good, it is easy to be abandoned, and the associated risks are high.
(2) The collection period of accounts is long, and the cash flow continues to be negative. According to publicly available financial data, Megvii's accounts receivable was 150 million in 2017, 1.09 billion in 2018, and 1.38 billion in 2019. In addition, the accounts receivable from half a year to one year rose from 120 million yuan to 680 million in the first half of 2019.
This makes Megvii's cash flow continue to be negative, from -150 million yuan in 2017 to -680 million yuan in the first half of 2019. This makes Megvii's financial pressure even more tense.
(3) The competition of "AI Four Little Dragons" is fierce, and Megvii Technology does not occupy the core advantage. Over the years, the field of artificial intelligence has developed wildly, and it has been called the so-called "AI four little dragons". However, after the turmoil, the capital market has become increasingly rational. In the current industry, there is no obvious gap in the technology of first-line computer vision companies. The real competition is actually the landing of the enterprise scene.
But at this point, Megvii Technology does not have a core advantage. Even in the vital security field, Hikvision’s revenue is 49.8 billion, which is dozens of times the revenue of Megvii Technology.
This is mainly because Hikvision and Dahua Technology have accumulated deeper industry accumulation. Although Megvii Technology has dug a lot of people from Hikvision and Dahua Technology, if you want to compete for the market on a large scale, it is not so. simple.
Moreover, the current policy supports the rapid development of the artificial intelligence industry, and AI companies such as Yuncong Technology, Yitu Technology, Yuntian Lifei, and Yunzhisheng are also sprinting into the science and technology innovation board. Guohai Securities predicts that 2021 will be the IPO year for artificial intelligence companies. Perhaps for Megvii Technology, the listing is just a new beginning.
(4) The commercialization potential of new business is low, and Megvii Technology needs to be explored continuously. In March last year, Megvii Technology announced the official open source self-developed deep learning framework Tianyuan MegEngine, as well as open data and computing power platforms.
This requires Megvii Technology to continue to increase R&D investment, greatly enhance data processing, cleaning and management capabilities, computing power sharing, scheduling and distribution capabilities, algorithm training, reasoning and deployment capabilities. However, competition in this business market is also fierce. According to the "Research on China's Deep Learning Platform Market Share" released by IDC, Google, Facebook, and Baidu account for most of the domestic market share.
And for this business, commercialization is also a difficult problem. In the world, companies at the peak of the deep learning field have not yet made a commercialization path, let alone despise technology with a lower technical status. In other words, it will continue to burn money in the short term.
However, the development space of the domestic artificial intelligence market is still broad. According to the iResearch report, it is estimated that the domestic artificial intelligence-enabled real economy market will reach 157.3 billion in 2022. Huaan Securities also pointed out that as one of the current three major technological dividends, security, smart cars, education, medical care, and new retail are expected to become hot application areas of artificial intelligence.
Artificial intelligence cannot change an industry independently. Its essence is empowerment. For artificial intelligence-related startups, it is still necessary to solve the problem of difficulty in commercial landing, which is also the most important thing for capital. With huge losses, it remains to be seen whether Megvii can continue to tell the AI story well.
Author: rather lack
Article source: Songguo Finance, please indicate the copyright for reprinting.