Megvii Hong Kong IPO: adopts dual-class share structure, lost 3.351 billion yuan in 2018

Jiwei.com News (Text/Lantian): On the evening of August 25, the domestic artificial intelligence company Megvii Technology disclosed its prospectus on the Hong Kong Stock Exchange. Public information shows that Megvii Technology is also the first AI stock to be listed in Hong Kong.

Megvii was founded in 2011, started operating the Face++ open platform in 2012, and began commercializing artificial intelligence technology by providing FaceID solutions in 2015. Over time, Megvii Technology expanded its business to the urban IoT vertical field at the end of 2015, and to the supply chain IoT vertical field in 2018, experiencing rapid development.

At the same time, Megvii Technology has also entered overseas markets. In the six months ending June 30, 2019, Megvii provided personal IoT solutions to international mobile phone manufacturers and online ride-hailing companies, and provided urban IoT solutions to customers in 15 countries and regions outside of China.

The prospectus disclosed that during the reporting period, Megvii Technology's revenue increased from RMB 67.8 million in 2016 to RMB 313 million in 2017, and then to RMB 1.43 billion in 2018, with a compound annual growth rate of 358.8% from 2016 to 2018.

However, in 2016, 2017 and 2018, Megvii suffered losses of 342.8 million yuan, 759 million yuan and 3.351 billion yuan respectively. Megvii's revenue increased by 210.3% from 305 million yuan in the six months ended June 30, 2018 to 949 million yuan in the same period of 2019.

As of June 30, 2018 and 2019, Megvii incurred losses of RMB729 million and RMB5.2 billion, respectively. The loss increased from RMB759 million in 2017 to RMB3.352 billion in 2018, and from RMB729 million in the six months ended June 30, 2018 to RMB5.2 billion in the same period of 2019, mainly due to changes in the fair value of Megvii's preferred shares and continued R&D investment.

Under continuous losses, Megvii Technology has been relying on financing to "recover blood". Tianyancha information shows that Megvii Technology has experienced 7 rounds of financing since its establishment, and investment institutions include Lenovo Star, Sinovation Ventures, Qiming Venture Partners, Foxconn Group, Ant Financial, etc. The most recent round of financing took place in May 2019, with a financing amount of US$750 million, and investors included Alibaba, Bank of China Investment, etc.

With the launch of the IPO, Megvii Technology is expected to accelerate its entry into the capital market to solve the development bottleneck under losses. The prospectus disclosed that Megvii Technology's Hong Kong IPO will adopt a different voting rights structure. According to this structure, Megvii Technology's capital stock will be divided into Class A shares and Class B shares; Class A shareholders can cast 10 votes per share, and Class B shareholders can cast one vote per share, except for voting on resolutions related to very few reserved matters, in which case each share has one vote.

In the prospectus, Yin Qi, co-founder, chairman and CEO of Megvii, said that deep learning is Megvii's core competitiveness and the key to supporting the artificial intelligence revolution. We are one of the few companies in the world with a self-developed deep learning framework. Megvii's Brain++ makes large-scale algorithm training possible. It is not difficult to generate a specific algorithm, but it is not easy to create an engine that can almost automatically generate many algorithms.

Yin Qi said, we know that providing perfect artificial intelligence technology for any industry requires a lot of investment. Therefore, Megvii initially focused on vertical fields with extremely wide coverage, a large number of pain points, and a very clear entry point, namely the field of personal electronic devices. Later, we entered the two major scenarios of cities and supply chains. Megvii has always believed that only the success of commercial applications can provide sufficient backup power for technological innovation. Therefore, we are currently focusing on doing a good job, deepening, and thoroughly implementing the vertical fields such as personal Internet of Things, urban Internet of Things, and supply chain Internet of Things that we have already entered, and then expanding in other directions. We insist on providing customers with full-stack, integrated solutions including algorithms, software and hardware products, so as to create real value for end users.