As artificial intelligence technology is gradually integrated into consumer life, all kinds of AI companies are springing up like bamboo shoots after a spring rain. The company, known as the AI giant, finally submitted its prospectus to the Hong Kong Stock Exchange after nine rounds of equity financing.

Zhitong Financial APP learned that the company was valued at more than $4.5 billion long before the IPO, with a price-to-sales ratio of 20 times 2018 revenue. Whether the status of an AI giant can support such a high valuation can be seen in the prospectus.

Three major business components

According to Zhitong Financial APP, the business of discerning technology is mainly divided into three categories: personal networking solutions, urban Internet of things solutions, and supply chain Internet of things solutions, of which personal networking solutions can be subdivided into SaaS business and personal equipment business. The focus of the application of artificial intelligence technology is to find the landing scene, while the landing scene found by science and technology is portrait recognition. The first major product launched in 2012 is Face++, an open platform for artificial intelligence, where users can access its API, get permission to use software development kits to develop portrait recognition applications, and are billed by usage.

(source: ignore the official website of Face++)

With the improvement of technology and the accumulation of data, discerning technology has developed more standardized products, mainly face unlocking and face payment solutions. According to the cautionary consultancy report, Xingshi Technology is the largest provider of cloud face recognition solutions in China, accounting for 60% of the market. Of all Android phones made in China in 2018, 70 per cent were unlocked by face recognition provided by Skyvision, including domestic mobile phone giants XIAOMI, VIVO and OPPO.

(source: ignoring the technology prospectus)

Although the customers of personal networking solutions are not C-end customers, but a variety of mobile phone manufacturers or application software developers, their applications are used by C-end customers. Regardless of the other two businesses of technology, both customers and applications are B-end users.

Zhitong Financial APP found that the urban Internet of things solution, which disregards technology, began in 2015 and is mainly used in public safety management and traffic optimization, with the main customers being local governments. Because this business needs to be used on the basis of cameras, competitors have no shortage of non-artificial intelligence companies from the traditional camera industry, and the field is still dominated by these companies.

(source: ignoring the technology prospectus)

The business of urban Internet of things solution is mostly in the form of project and non-standardized. In order to better implement the project, the solution is no longer confined to software, and the layout and optimization of hardware are also involved. So this service is the extension of software business, we can use unique software technology, combined with hardware layout, to design a unique system.

The supply chain Internet of things solution is also project-oriented, the business started in 2018, the main customers are logistics companies and retail enterprises. Sorting robots that ignore the development of technology can help logistics companies sort packages quickly, reduce labor output and increase efficiency.

(source: ignoring the technology prospectus)

In addition, the supply chain Internet of things also uses face recognition technology for retail customers to develop customer recognition systems, commodity computing systems (face recognition machines seen in retail stores) and passenger flow statistical analysis. in order to improve the digital operation of offline retail stores.

Rapid growth of performance

With the gradual improvement of the business system, ignoring the rapid growth of scientific and technological performance. The following is the ignorance of science and technology performance compiled by Zhitong Financial APP:

(source: according to the prospectus)

From an annual point of view, the growth rate of total income remains high. In terms of breakdown, however, the personal networking solution (SaaS), which dominated growth in 2016 and 2017, slowed significantly in 2018, from 183% in 2017 to 24% in 2018. The high growth rate of total revenue in 2018 is mainly due to the high growth rate of the urban Internet of things business, and the volume has increased to the level of 1 billion yuan, making it the company's largest business by revenue. Supply chain Internet of things business only appeared in 2018, the volume is still small, the impact is not obvious. From a semi-annual point of view, although the growth rate of personal networking solution (SaaS) rebounded, the growth rate of total revenue dropped to 210%, and the growth rate of the Internet of things business in the supply chain is not as explosive as the first two businesses.

In terms of gross profit margin, gross technology revenue has experienced a round of economies of scale, with gross profit margin rising from 31% in 2016 to 65.2% in 2018.

(source: ignoring the technology prospectus)

Combined with revenue segmentation, the increase in gross profit margin mainly comes from personal networking business. The gross profit margin of SaaS business rose to 87.2% in the first half of 2019, mainly due to the reduction of cloud service costs and data source costs, which also reflects the scale effect of the business. The personal devices of the personal networking solution are standardized products, so they have a very high gross profit margin. In the first half of 2019, the gross profit margin of the business dropped from more than 90% to 77.9%. The decline was due to the delivery of camera modules, which is a kind of hardware product, and the gross profit margin of hardware products is always lower than that of software products.

The urban Internet of things and the supply chain Internet of things business have also experienced an increase in gross profit margins, and the urban Internet of things has raised its prices because it is more popular with a wider range of customers. The increase in gross profit margin of the Internet of things business in the supply chain is due to the sale of more smart retail solutions with high gross margins.

Combined with the growth rate and gross profit margin, the growth rate of pure software business which ignores the high gross margin of technology has been slower than that of project business. It is expected that the gross profit margin of total income will decrease with the increase of the proportion of project business income in the future. Combined with the development time line of science and technology business, its business is from highly standardized platform and solution to highly customized project business. From pure software business to mixed software and hardware projects, complete the extension of technology from software to hardware.

(source: ignoring the technology prospectus)

According to Zhitong Financial APP, ignoring the operating profit of science and technology is still at a loss. However, its operating loss has decreased to-5.457 million yuan from-125 million yuan in 2016. The main expenditure is R & D. although R & D expenditure increased from 78.165 million yuan in 2016 to 613 million yuan in 2018, thanks to economies of scale, R & D expenditure accounted for 43% of total revenue, down from 115.3% in 2016. In research and development, the most expensive is always talent. Of the R & D expenditure in 2018, 68.5% was spent on employee benefits.

(source: ignoring the technology prospectus)

Ignoring the operating loss in the profit statement of technology, the main reason for the loss is to ignore the embodiment of technology in accounting after multiple rounds of financing and equity incentives. According to the data provided by the prospectus, the adjusted net profit of the company was 32.195 million yuan in 2018 and 32.677 million yuan in the first half of 2019.

(source: ignoring the technology prospectus)

Deep cooperation with BABA

As the leading company of artificial intelligence, the source of shareholders is not small. Prior to IPO, BABA held 14.33 per cent indirectly through Taobao China, while Ant Financial Services Group indirectly held 15.1 per cent through wholly-owned subsidiaries. Ali has a combined shareholding ratio of 29.4%, making it the largest external shareholder. BABA is prescient in his investment in myopic technology, and the two companies are closely related to each other in business. Cloud services that ignore the needs of technology can be purchased from Aliyun, and the face payment technology needed by Ant Financial Services Group can be purchased from technology. Even BABA's current smart city and smart retail, ignoring technology can also participate.

It can be said that the application of artificial intelligence technology has just begun, and there must be broader prospects in the future. At the beginning, artificial intelligence technology companies, which only focus on one field, are also gradually extending to other areas to enhance the competitiveness of their enterprises. But good companies, good businesses, and good industries depend on valuations. After nine rounds of financing, technology is valued at $4.5 billion, with a price-to-sales ratio of more than 20 times total revenue in 2018. Whether the AI giant identity can support the valuation needs to be tested by the secondary market.