According to the Disclosure of the Hong Kong Stock Exchange on February 23, the fourth paradigm of the AI unicorn submitted a listing application to the main board of the Hong Kong Stock Exchange, with Goldman Sachs and CICC as its joint sponsors.
This is the fourth paradigm for the second time to the HONG KONG Stock Exchange. Last time on August 13, 2021, due to the failure to pass the hearing within 6 months, on February 14 this year, the status of the IPO application of the fourth paradigm has been turned "invalid". According to the HKEx Listing Rules, if a company submits the latest financial data within three months after the expiry, it can continue the review status.
The reason why the fourth paradigm has attracted much attention is illustrated by two figures in the newly released prospectus: revenue of 1.3447 billion yuan in the 9th month of 2021, an increase of 134.3% in the same period; and a total cumulative loss of 3.3 billion yuan.
Beijing Fourth Paradigm Intelligent Technology Co., Ltd. was founded in 2014 by Dai Wenyuan, the world champion of China's first ACM programming competition. According to the prospectus, the fourth paradigm platform provides fast and easy modeling, low-code and no-code development environments. With such a solution, it is convenient for users to quickly deploy a variety of customized artificial intelligence applications on a large scale and reduce the configuration of artificial intelligence experts.
Dai Wenyuan, founder and CEO of the fourth paradigm, once said that in the past, "AI" can be "for someone" that specific enterprises can have; in the future, "AI" will eventually be "for everyone", "What the fourth paradigm has to do is to continuously reduce the threshold for enterprises to use artificial intelligence." ”
In the more than seven years since its inception, Fourth Paradigm has experienced 11 rounds of financing, with a total financing of about 6.6 billion yuan and a valuation of nearly US$3 billion. Investors include Sequoia Capital, Tencent Investment, Goldman Sachs, CITIC Industrial Fund, Innovation Factory, etc., and also gathered investments from five major state-owned commercial banks (Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications).
In terms of shareholders, the fourth paradigm executive directors are Dai Wenyuan, Chen Yuqiang and Yu Zhonghao; the non-executive directors are Yang Qiang, Shen Nanpeng, Dou Shuai and Zhang Jing; and the independent non-executive directors are Li Jianbin, Liu Zhijin, Dr. Hou Xiaodi and Ni Mingxuan.
Prior to the IPO, Dai Wenyuan himself and through close contacts Wu Ming (Dai Wenyuan's wife), Beijing Xinzhi, Paradigm Investment, Paradigm Yinyuan, Paradigm Strange and Paradigm Lyra controlled 41.18% of the shares, of which Dai Wenyuan directly held 24.25%.
Sequoia China unsurprisingly became the largest institutional investor in the fourth paradigm, participating in the investment as early as the angel round, holding 7.37% of the shares.
In the prospectus, the fourth paradigm cites a third-party (CSC) report that it occupies the largest market share in China's decision-making AI market. According to the China Insight Consulting Report, the Chinese intelligent industry can be divided into four categories according to the application field: decision-making artificial intelligence, visual artificial intelligence, speech and semantic artificial intelligence and artificial intelligence robots.
In terms of related revenue in 2020, the top five players together account for about 50.3% of the market share. In terms of revenue in 2020, The Fourth Paradigm is China's largest platform-centric provider of decision-making AI.
According to the prospectus, from 2018 to 2020, the revenue of the fourth paradigm was 127.8 million yuan, 459.5 million yuan and 942.2 million yuan, respectively. For the nine months ended September 30, 2021, the Company's revenue was $1,344.7 million, exceeding the full year 2020 revenue and increasing by 134.3% compared to $573.9 million in the same period last year.
According to the prospectus, the revenue of the fourth paradigm mainly comes from the end-to-end artificial intelligence solution "Prophet Platform" and products, as well as application development and other services. In 2016, Fourth Paradigm released the "Prophet of Fourth Paradigm" artificial intelligence platform, which helps enterprises discover hidden patterns in data in a low-code/no-code deployment, helping to drive intelligent decision-making beyond human capabilities.
In 2018, the Prophet platform accounted for only 4.1% of the fourth paradigm of application development and other services revenue, but as its commercialization matured, the proportion increased to 65.7% in 2020.
According to the prospectus, in 2018, 2019, 2020 and the nine months ended 30 September 2020 and September 30, 2021, the gross profit of the fourth paradigm was RMB54.6 million, RMB200.1 million, RMB429.7 million, RMB271.6 million and RMB623.1 million, with gross profit margins of 42.7%, 43.5%, 45.6% and 46.3% respectively.
To have some concept of this data, you can also compare the gross profit margin of SenseTime, which has successfully listed on Hong Kong stocks, which was 56.5%, 56.8% and 70.6% from 2018 to 2020, and increased to 73% in the first six months of 2021.
The Fourth Paradigm is still in loss, with net losses of RMB372.4 million, RMB7182.2 million, RMB750.2 million and RMB1,477.6 million for 2018, 2019 and 2020 and as at 30 September 2021, respectively, for a cumulative loss of RMB3.3 billion.
The fourth paradigm suffers from mainly administrative expenses, research and development expenses, and sales and marketing expenses. According to the prospectus, in the first half of 2021, general and administrative expenses, research and development expenses, sales and marketing expenses accounted for 56%, 73% and 30% of the revenue in the first half of 2021, respectively. In the first half of 2021, the company's general and administrative expenses increased by 206% year-on-year to RMB444 million, the company's sales and marketing expenses increased by 121% to RMB236 million, and R&D expenditure was RMB578 million, an increase of 182% year-on-year.
As of September 30, 2021, Fourth Paradigm had RMB4,345.5 million of current cash resources (including cash and cash equivalents, short-term bank deposits, financial assets recognized as gains and losses at fair value, restricted cash), with a total of 1,477 employees, including 1,062 in research and development, 189 in sales and marketing, and 226 in general and administration.