SenseTime's listing is a hidden concern

In the second half of 2021, several companies known as the "AI Four Little Dragons" accelerated their own IPO process almost at the same time, pointing to the "top spot" in the AI field. It is not difficult to see that under the double-layered embrace of policy support and capital pursuit, the head players all want to prove their own value through listing to "feed back" the capital.

As the boss of the "AI Four Little Dragons", SenseTime has recently been "mixed", on the one hand, it has attracted capital attention under the development of artificial intelligence, and recently submitted an IPO prospectus to the Hong Kong Stock Exchange, which was the same for a time; on the other hand, the profit problem has not been solved for a long time, becoming the embarrassment of SenseTime under the fame, for SenseTime, the business story is more difficult to tell than the listing story, and the former is the real core and key.

1 Financial Observatory

Author Sinin

Profitability is not very good Financing first place

There is no doubt that the number one players in the "AI" segment represented by SenseTime have accurately stepped on the outlet of artificial intelligence. Take AI software, for example, according to the Sullivan Report, AI software will be one of the fastest growing business areas over the next decade. In 2025, the global market size of artificial intelligence software will reach $121.8 billion, and the combined annual growth rate of this field will reach 31.9% from 2020.

In the entire field of artificial intelligence software, SenseTime is mainly engaged in artificial intelligence research and development, known as the cornerstone of artificial intelligence software, through related software technology and related artificial intelligence models, SenseTime in the housing, automotive, medical and other industries to empower. At present, SenseTime has accumulated an advantage in visual software, occupying 11% of the market share in this field.

Overall, the core business model of SenseTime is not much different from the other three "AI Four Little Dragons", but because of its original underlying algorithm platform, SenseTime has a certain prominence in the eyes of capital, and gradually becomes a "fragrant feast" in the eyes of capital. Founded in 2014, SenseTime has completed 12 rounds of financing so far, with a total financing amount of 5.2 billion US dollars, which can be said to be the existence of the proud group whether it is from the perspective of the number of financing or the scale of financing. The capital behind it is also "immortal across the sea", softbank, IDG, Alibaba, Wanda and other well-known institutions are the "gold lords" behind SenseTime.

On August 28, SenseTime officially launched its IPO, and the acceleration of the listing process attracted market attention at the same time as receiving certain questions, of which the "bloody listing" argument dominated the mainstream.

I have to say that although there are certain advantages in technology, senseTime's liquidity ability is criticized, because it is difficult to make a profit, and cash flow is therefore better than nothing. According to the prospectus, SenseTime's main revenue comes from two major blocks, one is the sales of software platforms, software licensing, artificial intelligence software and hardware integrated products and related services; the other is artificial intelligence products and related services that enable the efficient operation of AI models. Although it looks "profitable", SenseTime's performance is not good.

From 2018 to the first half of 2021, SenseTime's revenue was 1.853 billion yuan, 3.027 billion yuan, 3.446 billion yuan and 1.652 billion yuan respectively, with a cumulative revenue of nearly 10 billion yuan in three and a half years. However, the increase in revenue did not increase profits, and in the same period, excluding non-recurring gains and losses such as changes in the fair value of preferred shares, SenseTime's net losses were 3.433 billion yuan, 4.968 billion yuan, 12.158 billion yuan and 3.713 billion yuan, respectively, with a cumulative loss of 24.3 billion yuan in three and a half years. For this part of the loss, SenseTime explained in the prospectus that the huge loss is mainly due to the fair value loss of preferred stock, that is, investment profit and loss, but this statement obviously cannot convince ordinary investors, because the larger the fair value loss, the higher the valuation to a certain extent.

Where did the money go?

Under the technology, SenseTime's vision and blueprint are grand, and its own positioning is also a platform-based enterprise that empowers hundreds of industries, plus the amount of customer applications and low marginal costs, which is very profitable, where is the money spent? The answer is simple: the expansion is radical, the layout is too large, and the larger costs are invested in research and development and talent.

According to the prospectus, SenseTime's total R&D expenditure in the past three and a half years reached RMB6.991 billion, and its R&D expenditure in 2018, 2019, 2020 and the first half of 2021 was RMB850 million, RMB1.92 billion, RMB2.45 billion and RMB1.77 billion, respectively, and its R&D investment accounted for 45.9%, 63.3%, 71.21% and 107.3% of revenue, respectively. SenseTime also said in the prospectus that 60% of the funds raised in the public offering will be used for research and development.

If you want to retain talent, you real money and silver, so the cost of talent is also a "big expense" of SenseTime. According to the prospectus, as of June 30, 2021, SenseTime has 5286 employees, of which 3593 are R&D personnel, according to relevant media reports, this number has exceeded the sum of the three small dragons. In three and a half years, SenseTime spent a total of 4.46 billion yuan on salaries and benefits (including equity incentives) for R&D personnel, accounting for 63.8% of R&D expenditure, which also far exceeded the sum of the other three xiaolongs, of which in the first half of 2021, SenseTime paid 1.285 billion yuan in compensation for R&D personnel.

There are outside interpretations of the listing of SenseTime, somewhat "arrows on the string, have to send" meaning, so the listing prospects are uncertain, "bloody listing" or not, for the current SenseTime, "listing" may be one of the few choices, under the pressure of tight capital flow, perhaps the listing is also a way to return blood, at least to the "heavy position" capital behind an account.

Capital for profit, no matter how it operates, listing is only the starting point, supporting the long-term development of enterprises must be the core technology and reliable business model, otherwise it will appear in the light of time. The hidden worry in front of SenseTime is not only how to tell the "capital story" after listing, if it has not been able to find a stable cash flow, technology research and development and scene expansion can only be achieved by "burning money", so many beautiful blueprints and visions are lack of support in the air, lack of long-term development of the foundation.