News from the financial sector on March 26: SenseTime Technology (00020.HK), which has been listed for only three months, handed over its first annual return as the first artificial intelligence stock. The financial report shows that for the whole year of 2021, SenseTime Technology’s total revenue was 4.7 billion yuan, a year-on-year increase of 36.4%; the adjusted net loss was 1.42 billion yuan, and the loss was lower than analysts’ estimates.
In fact, not only SenseTime, but the entire AI industry has also faced doubts in the market in recent years. As a high-tech industry leading the fourth industrial revolution, the artificial intelligence industry is still in a loss-making stage, but the key to the problem is never the amount of losses, but the choices and logic behind the losses.
Strategic selectivity: R&D investment in 2021 will exceed 3 billion
It is not difficult to see from the data in this annual report that SenseTime Technology’s losses mainly include two levels. One is convertible , changes in the fair value of redeemable preference shares, and second, huge investment in research and development.
Changes in the fair value of preferred stocks are actually "non-cash" costs, which mainly depend on the historical financing volume of preferred stocks and the increase in valuation. Generally speaking, the more financing the preferred stocks have, the greater the increase in valuation. The larger the cost, the higher the "non-cash" cost, and this indicator also reflects the rapid growth of the company to a certain extent. In other words, this part of the loss is caused by the increase in value after investors took shares, not a business loss. It has nothing to do with the company's actual profitability and cost control capabilities, and does not reflect the company's true business level. And after SenseTime goes public at the end of 2021, all preferred shares will be converted into stocks in 2022 and will no longer affect the financial statements. This also means that SenseTime Technology's financial situation is expected to be further optimized in 2022. Since the IPO was completed during the reporting period in the annual report disclosed this time, changes in the historical fair value of preferred shares will also be reflected in the annual report data.
On the other side of the loss, it can be said that SenseTime Technology has made an active "strategic choice" - through research and development, it absorbs high-end talents, consolidates the underlying technology foundation, and establishes a long-term competitive moat.
According to the previous prospectus, SenseTime’s R&D expenditures from 2018 to 2020 were 849 million yuan, 1.916 billion yuan and 2.454 billion yuan respectively, accounting for 45.8% and 63.3% of total revenue respectively. And 71.1%, more than half of the revenue is invested in research and development every year. In 2021, this ratio will continue to be maintained. According to the financial report, SenseTime Technology will invest RMB 3.06 billion in R&D after excluding share-based compensation expenses in 2021, accounting for 65.1% of total revenue.
In just four years, more than 8 billion yuan has been invested in research and development, which is the main reason for SenseTime Technology’s continued losses. Regardless of losses, it still invests heavily in research and development. What exactly is SenseTime trying to do?
Stressing technology and talent to represent China in the world’s AI arena
As the world’s leading AI platform, SenseTime Technology carries the mission and heavy responsibility of China’s artificial intelligence development. Looking back at the history of domestic AI exploration, we will find that the development of SenseTime happened during an important period when artificial intelligence rose to the national strategic level. Thanks to the tilt of policies and capital, SenseTime quickly grew into Asia's leading AI leader. With the largest market share, SenseTime has become one of the few Chinese representatives in the global AI finals.
Looking at the global AI market, giants Microsoft and Google have already announced All in AI. The 2021 "EU Industrial R&D Investment Scoreboard" shows that Google parent company Alphabet and Microsoft have R&D investments of 22.47 billion euros and Microsoft respectively. 16.882 billion euros, which shows the great determination. How can Chinese AI companies lead China out of this fierce competition? The core still lies in technology and talent.
In 2021, SenseTime Technology officially introduced SenseTime’s new artificial intelligence infrastructure-SenseCore SenseTime AI large device, including the computing power layer (AI chip and processing card AIDC AI sensor) platform layer (model Production training platform, data platform) algorithm layer (algorithm toolbox open source framework), in short, the accumulation of technology developed by SenseTime on multiple fronts will eventually converge into a large AI device.
The large AI device solves the problem of industrial mass production of AI models and makes the production of industrial-grade artificial intelligence models possible. According to the financial report, as of the end of 2021, SenseTime has produced more than 34,000 commercial models through SenseCore, an increase of 152% compared to 13,000 at the end of 2020. SenseCore has also allowed SenseTime to improve the human efficiency of AI research and development year by year. In 2021, the average number of commercial models produced by each of SenseTime's R&D personnel per year increased to 5.94, an increase of 72% compared to 3.45 in 2020. Compared with The 0.44 in 2019 increased by 13 times.
In terms of talent reserve, as of the end of 2021, SenseTime has a R&D talent team of 4,274 people, accounting for 70% of the total number of employees. It has won more than 70 global competition championships in academic research, published more than 600 top academic papers, and has a total of 11,494 global patent assets, an increase of 96% compared to the end of 2020, of which 78% are invention patents, ranking first in the industry. status.
Whether it is technology or talent, both require real money investment. Fortunately, SenseTime has proven the value of its huge strategic investment - it can be seen from the financial data that SenseTime Technology not only did not However, thanks to the drive of technology and talents, SenseTime’s commercialization and profitability have also been at the forefront of the industry.
According to the financial report, thanks to the support of SenseCore, SenseTime has accelerated the commercialization of artificial intelligence technology. All four major business segments have maintained leading positions in the industry. The penetration rate of the smart city market has been further improved, and the smart business segment has been realized. Strong growth, smart car platform seizes opportunities for change, and smart life sector achieves strategic upgrade. With the steady advancement of the commercialization process, SenseTime Technology's gross profit margin has also continued to increase in recent years, from 56.5% in 2018 to 69.7% in 2021.
The innovation of AI technology requires long-term and large-scale resource investment to accumulate technological advantages. This is more like a process of water storage and open source. Only by conquering and accumulating strong hard-core technical strength can SenseTime become the leader. There is an opportunity to represent China’s hard technology power in the global AI battlefield, seek to overtake in corners, and even lead new tracks. Under this logic, perhaps the market should give more time and understanding to hard technology core assets like SenseTime.
This article comes from the financial world