The “Four AI Dragons” with serious bubbles finally suffocated the “first stock”

“Many AI companies have cut investors’ leeks, and many VCs want to participate in AI projects because of their vanity, which has caused the valuation of AI companies to inflate.”

“AI Four Dragons First Unit” is finally coming?

On July 20, Yuncong Technology, one of the “AI Four Little Dragons”, successfully passed the deliberation of the Science and Technology Innovation Board Listing Committee. Yuncong, known as the “AI National Team” player, passed the big exam of the Shanghai meeting, which can be said to be a boost to the industry. After all, the listing journey of the “AI Four Little Dragons” has kicked off since 2019, but after more than two years, the “first share” has never been born.

Before 2019, the “AI Four Little Dragons” had first-class gold-absorbing capabilities, and their valuations rose at a rate comparable to rockets, reaching tens of billions of dollars at every turn. Nowadays, after the AI ​​bubble, financing in the primary market is no longer so easy, and the listing of the secondary market is slow. The former star unicorns “AI Four Dragons” seem to have been splashed with “makeup remover”. Kai-Fu Lee, the founder of Innovation Works, publicly stated in 2020, “Many AI companies have cut investors’ leek, and many VCs want to participate in AI projects because of their vanity, which has caused the valuation of AI companies to inflate.”

In the 2021 World Artificial Intelligence Conference (WAIC) held in July this year, in addition to Shangtang, the other three companies, Megvii, Yitu, and Yuncong did not participate. The state of each family may be able to glimpse one or two from it.

After despising the Hong Kong Stock Exchange and moving to the Science and Technology Innovation Board, Yitu voluntarily withdrew its listing application to terminate the IPO. AI companies such as Yuntian Lifei and Geling Shentong are also in the queue for listing, and it is not easy for AI companies to cross the market. The threshold. When the difficulty of supervision and review becomes more and more difficult, the listing front is getting longer and longer. Nowadays, the standard is that it is more important to get “entry tickets” first, no matter how you perform after listing.

The last entry of the “national team” player Yun Cong successfully passed the meeting and became a turning point in the listing process of the “AI Four Dragons”. However, the three companies that have disclosed their prospectus, Yuncong, Megvii, and Yitu, all suffered substantial losses in financial data and doubted their business models. In the long run, the entire industry needs to deal with challenges such as data compliance, large R&D investment, and long return periods. In the short term, Yuncong and Yitu have made frequent internal changes, and news of layoffs and salary cuts has been exposed one after another. The AI ​​industry needs some good news too much.

Big losses and layoffs, the AI ​​four dragons stepped down from the altar

Founded in 2015, Yuncong is the youngest player among the “AI Four Little Dragons” and the closest player to the market. Several other players of the “AI Four Little Dragons” did not give up their fight for the “AI First Unit”, but each encountered difficulties.

SenseTime was revealed by industry insiders that it might start A+H listing in August . On July 18, SenseTime announced that Tang Zhenyi, former CEO of Credit Suisse China, will join as Vice President. This is considered by the industry to be preparing for the next step of listing compliance work.

After failing to land on the Hong Kong stock market in 2019, Megvii Technology also chose to launch a sprint to the Sci-tech Innovation Board this year, and disclosed the answer to the first round of inquiries on the Sci-Tech Innovation Board on May 28. It is still in the queue .

Yitu had stopped first . On July 2, according to the official website of the Shanghai Stock Exchange, Yitu Technology’s IPO on the Sci-tech Innovation Board has been changed to a terminated state.

Three of the four little dragons that have already started to “run on the market” have finally chosen the Science and Technology Innovation Board . The Science and Technology Innovation Board has given unprofitable technology companies the opportunity to go public in China, but the current barriers to entry are also increasing. Since 2021, the regulatory review of IPOs on the Sci-tech Innovation Board has been intensified. In the first three months, 23 companies have terminated their listing on the Sci-tech Innovation Board. Yuncong, Megvii, and Yitu, who submitted the prospectus, also faced multiple rounds of doubts from the Shanghai Stock Exchange during the inquiry stage.

Because of this, the cloud has never been able to successfully pass the meeting and has attracted much attention from the industry. However, the financial situation of Yuncong is not good. The prospectus shows that its revenue for 2018-2020 is 484 million yuan, 807 million yuan, and 755 million yuan respectively; net losses are 200 million yuan, 1.763 billion yuan, and 720 million yuan, respectively. In the past three years, the revenue was 2.046 billion yuan, but the loss was close to 2.7 billion yuan.

In the “AI Four Little Dragons”, in addition to the Shangtang that has not yet uncovered the mystery, the prospectus published by Yitu and Megvii also exposed the problem of huge losses to the flash. In the two and a half years from 2018 to the first half of 2020, Yitu lost nearly 6.1 billion yuan, while Megvii had a total loss of over 12.2 billion yuan from 2018 to the first three quarters of 2020.

Cartography / Deep Burn
Cartography / Deep Burn

One of the manifestations of the beginning of the artificial intelligence wave is that losses have become a common problem in the industry. Many of their own businesses are difficult to make blood, and some losses are more than income. Continue to the first half of this year, perhaps because of the uncertain prospects for listing, the four little dragons frequently reported layoffs and salary cuts.

“Compared last year with this year, the total number of people in the company has decreased by 20%, but it’s actually more than that.” Yuncong engineer told Shen Ran. And an internal employee of Yitu said that Yitu, which originally wanted to work hard on medical care, will lay off substantially in the first half of 2021. Not only that, but also a 10% pay cut for all employees, and a higher percentage of pay cuts for some ranks.

Some people in the industry believe that, regardless of salary cuts or layoffs, Yitu is reducing labor costs and planning for the listing. But judging from the results of the termination of the IPO, it is clear that the desired result has not been achieved.

The “AI Four Little Dragons Competition” once became a hot topic in the pulse. A user certified as a Yitu employee broke the news that Yitu laid off 20% of its employees in January, with N+1 compensation, and no year-end bonus; Yitu’s IPO was suspended in March; Yitu’s salary was cut by 10% in May, and P5-6 was reduced. Salary is 10%, P7 is reduced by 20%, and P8 is reduced by 30%; Yitu options are not repurchased; recently, the Yitu medical team has been disbanded. From last year to March this year, the medical team has been laid off by 70%.

An HR who has just resigned from one of the “AI Four Dragons” companies said, “I still remember the trance and vigor of Yitu’s medical care at the beginning, but now it is also yesterday’s yellow flower, which is regrettable.”

Profitability, ethics, and compliance are all issues

Successful listing may be a “life-saving pill”, but in fact, it is difficult to eliminate the root cause of the “AI Four Dragons”. Judging from the prospectus that has been disclosed so far, the common dilemma is the landing problem in the commercialization field.

Continuous large R&D investment is one of the important reasons for the losses of each company.

From 2018 to 2020, cloud R&D expenses totaled 1.18 billion yuan, of which R&D expenses in 2020 accounted for 77% of revenue. Megvii’s R&D investment in the first three quarters of 2020 reached 746 million yuan, even higher than the current revenue of 716 million yuan. Yitu invested 381 million yuan in research and development expenses in the first half of 2020, which is on par with revenue.

Although the investment in technology research and development is high, third-party software and hardware are required to truly implement the overall solution. Take Yunsong as an example. The main business of Yunsong is man-machine collaborative operating system and artificial intelligence solutions, but the gross profit margin of the latter is lower than that of the former. From 2018 to 2020, the gross profit margin of the human-machine collaborative operating system remained above 75%, and the gross profit margin of artificial intelligence industry solutions did not exceed 30% in three years. The main reason is that Yuncong’s artificial intelligence solutions account for the highest proportion of software and hardware purchased from third parties and then provided to its own customers.

It can be seen from the inquiry letter sent by the Shanghai Stock Exchange to the various companies that the income structure is the focus of attention , including the issue of dependence on large customers.

From 2017 to 2019, the top five customers accounted for more than 50% of the sales revenue. By the first half of 2020, this part of the revenue accounted for 31%. Yitu is also facing a similar situation. From 2017 to the first half of 2020, the revenue of the top five customers has gradually increased, reaching 62.02% in the first half of 2020. Both of them have high concentration of large customers.

The "Four AI Dragons" with serious bubbles finally suffocated the "first stock"

In addition, the “AI Four Little Dragons” also face the challenges of long payment cycles and slow payment returns . This is related to the strong dependence of To B and To G businesses on channels. The early income model of the AI ​​Four Little Dragons basically relied on the dividends of the era of national security and smart cities. The customers were mostly large units such as the government and state-owned enterprises. The payment approval process was long and the payment cycle was slow.

Taking Kuang as an example, the prospectus shows that the turnover rate of accounts receivable for Megvii has changed from 2.14 times per year in 2017 to 1.2 times per year in 2020, and the difficulty of collecting payments is increasing.

Next is the question of market space. The first orders of the Four Little Dragons are more or less related to security or finance, but the industry is highly competitive, and traditional security companies have already occupied a large market share. The future of the “Four Little Dragons” must not be limited to the security or financial fields. They plan different story lines according to their technical capabilities.

Cloud provides industry-oriented human-machine collaborative operating systems and artificial intelligence solutions; SenseTime is an AI platform company and AI algorithm provider; Megvii is an artificial intelligence product and solution company, emphasizing the focus on the Internet of Things and other fields to tap the value of algorithms; Yitu combines chip technology and algorithm technology to develop AI computing power technology and product fields.

But each storyline has a certain degree of difficulty in achieving full profitability in the short term, and nowadays, scientific ethics and data compliance issues are still in front of everyone.

Since the 315 party this year exposed the chaos of face recognition infringing privacy, Yuncong and Megvii have also been asked about data compliance and ethical risks in the inquiry letters to the Shanghai Stock Exchange . Both parties stated that data is collected, managed and used by customers, and does not involve data collection and application itself. However, Megvii also disclosed that the ethics and ethics guarantee mechanism for the healthy development of artificial intelligence is still not sound enough, and the new national or industry ethics rules and regulations may also bring compliance costs to the company in the future.

There are wolves in front and tigers behind, AI four little dragons turn into four little insects?

“The most important thing for the AI ​​four dragons is how to reverse the financial data that continues to lose money.” Guokejiahe Fund partner Lu Jiaqing told Shenran, “The industry is most worried about the listing of AI companies because the stock price cannot hold up. The phenomenon of inverted valuations in the primary and secondary markets.”

From the earliest days of using PPT to get financing, now commercialization and profitability have become the core indicators. In 2021, capital’s attention has shifted to related hard technology fields such as semiconductors, chips, and autonomous driving, and the focus on AI has long changed from pure AI to industrial AI.

The early high R&D investment of the Four Little Dragons brought certain technical barriers and gained a certain first-mover advantage in the industry. However, at the current stage, on the one hand, the window period left by the market is getting shorter and shorter . The “Four Little Dragons” face competition from AI unicorn companies of the same type, including multi-dimensional aspects such as algorithm technology, applications, and industry solutions. In the competition, it is also facing competition brought by traditional industry manufacturers and Internet giants’ increased investment in AI.

In terms of video surveillance, Hikvision, Dahua, and Univision are traditional security giants with deep accumulation in hardware and supply chain. One of Megvii’s five major customers originally had Ant Group, but with the decrease in external procurement of related technical services by Ant Group, it is no longer a major customer of Megvii. Ant Financial stated in 2020 that its face-brushing system has long ceased to cooperate with Megvii Technology and is independently developed by Ant Financial.

“The Four Little Dragons have both technology and talents, but business logic and liquidity are somewhat weak in the face of the size of large companies.” said a practitioner.

The "Four AI Dragons" with serious bubbles finally suffocated the "first stock"

On the other hand, how to make money to achieve profitability has become the top priority . Specifically, customers may not be more concerned about how advanced the technology is, but how to truly apply to the scene. More and more people in the industry believe that it is more appropriate to say “industry AI” rather than “AI industry”. An observer of the artificial intelligence industry told Shenran that the future of AI belongs to the leaders of various industries with scenarios. If only providing technology, there is no scenario without understanding the business, it is difficult to impress customers.

Faced with the overweight of AI by Internet giants, China Venture Capital partner Xiong Weiming once told Shenran that the era of algorithms alone has passed, and it depends on the ability of each company to land. In today’s market, the Four Little Dragons do not have the absolute advantage they had at that time. Since everyone is equipped with a “Slaying Dragon Knife”, it is not a question of knives, but to see who can find a “prey” that suits them.

Nowadays, Yun has gained the “first share” first-mover effect since the meeting, but for the AI ​​Four Little Dragons, the industry bubble has been put aside, and the most important thing is whether it can deepen the scene to reflect its own value.

*The picture of the title and the picture in the text are from Pexels.

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