R & D is still a money machine broken in 2020 January-September revenue R & D investment accounted for 104%

Editor’s note: the author: (iawtmt ID): all-weather technology article from micro letter public number “all-weather technology.”

Author | Lu Yi Editor | An Xin

After several efforts, the domestic CV giant Megvii Technology finally finalized the listing.

On March 12, the official website of the Shanghai Stock Exchange indicated that the first application for Megvii Technology had been accepted. According to Megvii’s prospectus, its revenue in 2019 was approximately 1.26 billion yuan, and its revenue in the first three quarters of 2020 exceeded 700 million yuan. The compound annual growth rate in the past three years has reached 104%, showing a steady growth trend.

Megvii Technology is an artificial intelligence unicorn company focusing on IoT scenarios. Founded in 2011 by Yin Qi and his classmates Tang Wenbin and Yang Mu from Tsinghua University. As a leading computer vision (CV) company in China, Megvii was once named after “Face++” and was also the first company founded by CV “Four Little Dragons” (including Shangtang, Yuncong, and Yitu).

In the beginning, the “Four Little Dragons” who focused on visual solutions all started with the security business, and then they have their own priorities. For example, SenseTime is committed to building an artificial intelligence platform company. Cloud is focused on the “human-machine collaborative operating system”, while Megvii has embarked on the road of “integration of software and hardware”, becoming the “hardest” AI company among these few. .

The prospectus pointed out that Megvii’s strategic choice is to adhere to the “AI+IoT” direction. Among them, AI is the core capability, and IoT is the landing scenario. Its essence is to inject AI capabilities into IoT scenarios to achieve intelligence.

The prospectus revealed that Megvii’s issuance of funds raised after deducting the issuance costs will be used for all the company’s main business-related projects and the working capital required for the development of the main business, including: basic R&D center construction projects, AI IoT solutions and product upgrade projects, intelligent robot R&D and upgrade construction projects, sensor research and design projects, and supplementary operating funds.

1

The three founders together hold 16.83% of the shares, accounting for 70.28% of the voting rights

From the perspective of shareholders, Yin Qi, Tang Wenbin and Yang Mu are the top three shareholders who despise. Three current shares accounted for the issuer’s issuedMegvii’s net losses reached 770 million yuan, 2.8 billion yuan, and 6.6 billion yuan respectively. From January to September 2020, the losses exceeded 2.8 billion yuan.

Megvii explained in the prospectus that the main reason for the unprofitability is the change in the fair value of preferred stocks, the continuous investment in research and development, and the increasing investment in business development.

Especially R&D investment, which is the main reason for despising losses. During the reporting period, Megvii continued to expand its R&D investment. R&D investment increased from more than 200 million yuan in 2017 to more than 600 million yuan in 2018, and further increased to more than 1 billion yuan in 2019, a growth rate of over 500%. From January to September 2020, its R&D investment has exceeded 700 million yuan, accounting for 67%, 71%, 82% and 104% of operating income respectively.

Megvii’s R&D team consists of more than 1,400 basic research, product development and program designers. Judging from the performance of the first three quarters of 2020, Megvii’s revenue has been fully invested in research and development, and it is not even enough.

High R&D is a common feature of technology companies including Megvii. However, the main reason why AI companies have gone from being favored by capital to becoming indifferent lies in the problems of “high R&D, high losses, and difficulty in landing”. Although AI companies are already seeking the combination of technology and vertical industries, it is difficult to alleviate the losses caused by high R&D.

Previously, leading companies including Cambrian and Yitu have all raised doubts due to huge losses, and Megvii is no exception.

Megvii pointed out in the risk warning that the company has the risk of continuing to lose money.

3

Security business is the largest source of revenue, and focus on “AI+logistics” in the future

Megvii’s main business is divided into three major business segments: Consumer Internet of Things, Urban Internet of Things, and Supply Chain Internet of Things.

Among them, the urban Internet of Things, commonly known as the “AI+Security” solution, is still the business with the largest revenue scale and the fastest growth rate.

The prospectus shows that Megvii’s urban Internet of Things business started in 2017The 160 million yuan of the degree increased to 830 million yuan in 2019, and the corresponding revenue proportion increased from 52% to 66%, which is currently the main source of income for Megvii.

However, as a TOB-side business, Megvii has increased its sales expenses significantly in the past few years as its performance has grown.

The prospectus shows that from 2017 to 2019, sales expenses accounted for 24%, 24%, and 27% of revenue respectively. From January to September 2020, sales expenses accounted for 41.5% of revenue.

In addition, Megvii disclosed in the prospectus that during the reporting period, its main business gross profit margin was 50.96%, 62.23%, 42.55%, and 44.24%, and the gross profit margin fluctuated greatly.

Consumer Internet of Things is the first field that Megvii has set foot in. Currently, Megvii has cooperated with a number of head smartphone manufacturers in the consumer electronics field, and has provided equipment security and computational photography solutions for hundreds of millions of smartphones. From 2017 to 2019, the revenue of this sector increased from 150 million yuan to 360 million yuan, an increase of over 140%.

The Internet of Things in the supply chain is a new growth point that Megvii is seeking after “AI+Security”. At present, when AI ran out of the laboratory in search of landing, various artificial intelligence companies are seeking deep integration between AI and the industry, and Megvii believes that logistics is a big market.

However, as of the first three quarters of 2020, this business’s revenue accounted for 7.5% of total revenue, and its contribution to total revenue is still small.

Megvii entered the field of supply chain IoT in 2017, and also faced the question of “programmers do not understand logistics”. To this end, Megvii has introduced veterans in the logistics industry such as Xu Qingcai and Wang Yinxue on the one hand, and has also supplemented its hardware capabilities through the acquisition of Iris Robotics.

At the beginning of 2019, Megvii launched the industry’s first smart logistics operating system “Hetu”, and self-developed a variety of smart logistics hardware including AMR robots, SLAM navigation intelligent unmanned forklifts, artificial intelligence stackers and so on. In the field of supply chain Internet of Things, Megvii has provided customers in multiple industries such as shoes and apparel, medicine, smart manufacturing, retail e-commerce and other industries with intelligence in warehouses, workshops and retail stores.Upgrading and transformation.

Currently, Yitu, Yuncong and Megvii in the “Four Little Dragons” have successively announced prospectuses and promoted listing plans. Shangtang has also been exposed to the news of launching IPOs; AI companies including Geling Shentong have also been exposed. Started to sprint the Sci-tech Innovation Board. This year will be a window period for AI companies to collectively sprint to go public.