SenseTime Technology, what has it really gone through?
In December 2021, SenseTime (00020.HK) made its debut on the Hong Kong Stock Exchange, with its share price soaring from 3.85 HKD to 9.7 HKD, and its market value approaching 350 billion HKD. However, in just two short years, it has plummeted to a fraction of its peak, with SenseTime's current share price around 1 HKD, a 90% drop from its highest point.
In terms of financial performance, from 2018 to 2023, SenseTime's net profits were -3.433 billion yuan, -4.968 billion yuan, -12.158 billion yuan, -17.177 billion yuan, -6.093 billion yuan, and -6.495 billion yuan, respectively, accumulating to a total loss of 50.324 billion yuan. Including the first half of this year, the cumulative loss amounts to 52.8 billion yuan.
Advertisement
So, what kind of company is SenseTime?
Established in 2014, SenseTime is known as the "leader of the AI Four Little Dragons" in China due to its roster of numerous scientists and doctoral students in the field of artificial intelligence, and it is the AI company with "the most funding raised and the highest valuation."
According to statistics, from 2015 to June 2021, SenseTime completed 12 rounds of financing, with a total amount of approximately 35 billion yuan!
In terms of valuation, over these six years, SenseTime's valuation increased by several tens of times, reaching 12 billion USD at the pre-IPO round. Based on the IPO issue price, SenseTime's market value exceeded 100 billion yuan. At that time, there was a voice in the market suggesting that SenseTime's market value should start at a minimum of 100 billion, and the 100 billion market value was just the beginning.
However, why did it suddenly falter after entering the capital market?
On the surface, SenseTime's business is very high-end and prestigious. It is not only China's largest computer vision software company but also Asia's largest artificial intelligence software company, covering four major business areas: smart business, smart cities, smart living, and smart vehicles. Moreover, both the metaverse and generative AI are currently solid hot tracks.
Unfortunately, despite the attractive and imaginative business, the company has never been able to prove its profitability!Take the first half of the year as an example, although the company claims that its generative AI business has seen an explosion, with a year-on-year growth rate of 256%, it is a case of gains in one area being offset by losses in another, as the overall revenue growth rate of the company is only 21.39%. Looking at a longer time frame, in 2019, SenseTime's business income was 3.027 billion yuan, but by 2023, this figure only increased to 3.406 billion yuan, with almost no growth.
In other words, SenseTime's commercialization process is very slow.
From the perspective of the capital market, it is acceptable for you to be in the red, but it is not acceptable for you to lose growth potential. Moreover, the company's net loss is higher than its business income, which is hard to justify for a company that has been established for ten years and has been listed on the capital market for three years.
Some argue that SenseTime's losses are mainly attributed to huge R&D investments. From 2018 to 2023, SenseTime's cumulative R&D investment was 16.3 billion yuan, especially in the last two years, where the R&D expense ratio even exceeded 100%.
Is this really the case?
Firstly, as an AI company, huge R&D investments are inevitable and must be part of the company's operating costs; secondly, even without including R&D costs, the company's cumulative losses are still in the billions; furthermore, as a leading global AI company, SenseTime's competitors include giant companies like Microsoft and Google, with R&D expenditures running into tens of billions of dollars, and even domestic companies like Hikvision have R&D expenses exceeding ten billion yuan in 2023.
In a nutshell, for SenseTime, R&D expenses are a rigid expenditure, and even so, compared to peers both domestically and internationally, SenseTime's R&D investment is not too much, but too little!
In addition, the lack of product standardization is also an important reason for the losses.
As is well known, Tesla was in the red for a long time before entering China, mainly due to the lack of economies of scale. This issue also exists in the AI field.
According to the financial report, SenseTime has provided large models and intelligent computing services to more than 3,000 leading companies in various industries. At first glance, it seems that the company has a very obvious customer advantage, but imagine if every project requires customized services, necessitating a significant investment of manpower and other costs, and the market itself is very competitive, where does the profit come from?Some might argue that Rome wasn't built in a day, and neither is a revolution in artificial intelligence. The Chief Financial Officer of Microsoft also mentioned that Microsoft's investment in AI will likely take at least 15 years to yield returns. Moreover, companies like Megvii Technology and YITU Technology are operating at substantial losses, so patience is a must.
The question is, while giant companies can subsidize their AI operations with profitable businesses, what does SenseTime rely on? Unable to generate self-sustaining revenue after a decade, how should SenseTime continue to tell its story?