$2 billion

From $2 billion to $767 million, what you need to know about SenseTime's downsizing IPO

From $2 billion to $767 million, what you need to know about SenseTime's downsizing IPO

Zijing Fu

posted on December 8, 2021 7:22 pm

From U.S's blacklist to AI casino, SenseTime has gone through a bumpy road.

Chinese artificial intelligence company SenseTime Group is seeking to raise $767 million as it opens its initial public offering in Hong Kong on December 17, downscaling from its initial $2 billion goal.

The Shanghai-based company is also known as one of the four "AI dragons" in China, with the other three being Megvii, Yitu, and Cloudwalk. Out of the four, SenseTime was the late starter in the IPO race, yet ultimately, it is the first to launch its IPO.

Megvii Technology gained approval to list on Shanghai Sci-Tech Innovation Board on September 9, seeking $940.66 million. Yitu is considering to list in Hong Kong after its attempt to list in Shanghai has been blocked by regulator, according to a report by Bloomberg in August. Cloudwalk's IPO application was accepted by the Shanghai Stock Exchange in July, according to a report by Global Times.

Since its establishment in 2014, SenseTime has focused on the development and application of AI technology. According to its website, the company currently has over 60 AI products, ranging from autonomous vehicles, smart home appliances to health care and city planning.

SenseTime has worked with esteemed companies in various industries to promote the application of AI technology. In December 2017, SenseTime partnered with Honda to develop vehicles with L4 autonomous capabilities.

By 2018, its valuation had exceeded $4.5 billion. SenseTime then focused on AI facial recognition, providing technological support for subway stations in major cities such as Shanghai, Shenzhen, and Xi'an, and building a smart check-in system for the Beijing DaXing Airport.

Like many other tech companies, SenseTime embraced the metaverse hype. In October 2021, SenseTime built SenseMars, providing AR shopping experiences for consumers in Guangzhou.

With 12 rounds of financing in 6 years, the company's valuation stood at $13 billion in early 2021, according to its prospectus. SenseTime has been dubbed as Asia's biggest AI software provider ranked by revenue as of 2020, and acquired a market share of 14%, according to a Frost & Sullivan report commissioned by SenseTime.

As tech conglomerates like Meta jumped on the bandwagon of the metaverse, SenseTime, the company whose core value lies in AI technology, the cornerstone of the metaverse, is growing as well. According to SenseTime's prospectus, its income jumped 91.8% in the first half of 2021 compared to the first half of 2020, rising from $861 million to $1.652 billion.

"We think it's a ripe time for the IPO," SenseTime's co-founder and chief executive Xu Li said at a press conference in Hong Kong. He added that the company has "a clear path to profitability," thanks to the buildup of basic infrastructure for the artificial intelligence industry, according to a WSJ report.

SenseTime currently has 22,000 commercially available artificial intelligence models and over 8,000 patents and pending applications, and calls itself "one of the largest meta-universe empowerment platforms." It has won the vote of confidence from tech giants and investors, including Alibaba, Qualcomm, SoftBank, and Fidelity. Despite SenseTime's technological advances, it has encountered a number of difficulties. 

Initially, SenseTime had much greater ambitions. The company wanted to raise up to $2 billion, according to SCMP's earlier report. Yet, SenseTime's IPO has gone through a bumpy road. 

The Beijing SenseTime subsidiary was blacklisted by U.S. regulators, restricting SenseTime from purchasing particular U.S. technology, software, services, and goods. It is alleged that SenseTime misused its facial recognition technology in a controversial region in China.

According to WSJ, quoting several investors, U.S.'s blacklist causes potential reputational and geopolitical risks of investing in such a company.

Apart from regulatory and political concerns, some of SenseTime's technology is having a hard time being put into use.

SenseTime previously collaborated with Genting's Resorts World Sentosa in Singapore to build to world's first AI casino, using image recognition technology to track customers' behavior patterns. It intended to spot suspicious gambling behaviors, block certain gamblers, and also to better understand customers in order to roll out more promotional strategies.

The progress of building the AI casino has hit technological difficulties, according to a report by Financial Times. CCTV cameras inside the casino, especially the ones in parking lots where there's not ample light, could not provide high-resolution images for SenseTime's system to recognize. Also, since the casino staff all wore uniforms, it was particularly hard to distinguish them.

Despite setbacks, SenseTime's future still holds vast opportunities. According to Frost&Sullivan's report, the global AI software market is expected to grow from $30.5 billion in 2020 to $121.8 billion in 2025, representing a compound annual growth rate of 31.9%.

China is the second-largest AI software market after the United States. China's AI software market is expected to grow from 29.5 billion yuan in 2020 to 167.1 billion yuan in 2025, a compound annual growth rate of 41.5%, making it the fastest-growing of the major global markets. According to Sullivan, AI software is expected to contribute 24.1% of the China software market in 2025, up from 9.0% in 2020.

As the leading player in the AI software market, SenseTime could possibly soar as the market grows. According to its prospectus, it plans to increase its R&D by more than 20% in the next financial year.