Every vertical sector of China's manufacturing industry is prone to become a multi-billion market opportunity, and the question is whether Innovation Qizhi can find a way to continue to grow and a healthy business model.
On January 27, 2022, Kai-Fu Lee's innovative Qizhi was successfully listed on the Hong Kong Stock Exchange, but the situation after the listing was far from Thattime, and as of February 7, it had plunged 30%. Innovative Qizhi raised 157 million US dollars, 45-50% is the cornerstone and long-term line, the circulation is small, and it is difficult to control the disk.
Innovation Qizhi is known as the first share of "AI+manufacturing", and its AI+ manufacturing revenue exceeds 50%. We know that AI+ manufacturing is a track with great potential, and the data shows that by 2026, the market size of the mainland intelligent manufacturing industry will reach about 5.8 trillion yuan, and the industry has huge room for growth.
There is no problem with the track, so the feasibility of the business model of the innovative Qizhi has yet to be examined.
On the one hand, the startup relies heavily on several key customers. Revenue from its five largest customers accounted for around 26% and 31% in 2019 and 2020, respectively.
On the other hand, the gross profit margin of Innovation Qizhi has declined year by year. According to the prospectus, its gross margin was 63% in 2018, but plummeted to 31% in 2019 and further down to 29% in 2020 as it shifted from primarily selling software to integrated solutions involving more hardware components, which typically incurs more costs. Profitability also declined because the company "offered competitive prices" to expand its customer base. In contrast, SenseTime's profit margin rose from around 57% in 2018 to more than 70% in 2020.
Innovation Qizhi's adjusted net losses for 2019 and 2020 were approximately RMB160 million (US$25 million) and RMB144 million, respectively. SenseTime's adjusted net losses for the same period were RMB1 billion and RMB878 million. If compared with the 2020 data, SenseTime's net loss is 6 times that of Innovative Qizhi, but the market value is more than 20 times that of Innovative Qizhi.
Lack of scarcity
According to the prospectus, the revenue of Innovation Qizhi in 2018 mainly came from end users, and in 2019 and 2020, it became a system integrator.
In the early days, The Innovative Qizhi explored the application of AI+ retail, and later adjusted the company's strategy from the consumer level to the traditional industry, focusing on AI+ manufacturing and finance, and is currently positioned as an "enterprise-level AI solution provider".
According to Frost & Sullivan's forecast, China's enterprise-level AI market will be 139.4 billion yuan in 2020, accounting for 75% of the entire market. It is expected to reach about 836.6 billion yuan by 2025, with a compound annual growth rate of 43.1%. There is still huge room for development in the market.
The high growth of the industry is a big plus for the innovation of Qizhi. However, the competition pattern of this track is highly fragmented, innovation Qizhi and Megvii, Yitu tied for third place, the market share is only 0.3%, the first Rank SenseTime market share of 1.0%, the fourth paradigm ranked second, the market share of 0.6%, the industry competition is fierce, innovation Qizhi lack of leading edge.
Innovation Qizhi focuses on the manufacturing industry, mainly providing AI products and solutions for the manufacturing industries such as iron and steel metallurgy, energy and electricity, and enterprises need to be more customized according to the needs of downstream customers. Although The innovation qizhi ranks first, the market share is only 2.1%, and the leading edge is not obvious.
In terms of financial data, Innovation Qizhi's revenue is less than a quarter of SenseTime, two-fifths of Megvii and one-half of the fourth paradigm. And the loss is expanding year by year, and the profit prospects are not clear.
R&D investment affects profits, which is one of the reasons why it is difficult for the AI industry to make profits. Compared with the same industry, the R&D rate of Innovative Qizhi is far lower than the industry average; the R&D expenses of SenseTime, the fourth paradigm, Yitu, Megvii, etc., the first echelon of AI, account for more than 60%; especially the "first AI stock" SenseTime, whose R&D accounted for 71.2% in 2020. Yuncong, which has the least R&D investment in the "AI Four Little Dragons", has several times its R&D investment is also several times that of Innovative Qizhi. At present, the revenue scale of Innovation Qizhi is small and lacks a leading edge, and too little investment in research and development will weaken the company's core competitiveness in the industry.
According to the prospectus of Innovation Qizhi, in 2018-2020 and the first three quarters of 2021, R&D expenditure was 28.7 million yuan, 113 million yuan, 182 million yuan and 177 million yuan, and the current revenue accounted for 77%, 49.34%, 39.39% and 32.01%, and the R&D rate showed a downward trend year by year.
What is the research strength of Innovative Qizhi? The world's three major computer vision top meetings (CVPR, ECCV, ICCV) selected papers are an important yardstick to measure the level of computer vision technology, in fact, innovation Qizhi was established four years ago only 3 papers: 1 CVPR paper, 1 ECCV paper and 1 ICCV theory, and ai four dragons of the number of papers hired a lot of gap.
In fact, flipping through the company's official publicity channels, it began to continue to PR a few months after its establishment, and it was quite good to win various awards, which had to make people question the original intention of the high-tech company's scientific research.
The issued market value of about 15 billion yuan of innovative Qizhi corresponds to more than ten times P/S, which is similar to the domestic fast listing of Geling Deep Pupil and Yuntian. However, its revenue scale and profitability are weak in the industry, and the sharp decline in stock prices can also be seen as unrecognized by the capital market. Moreover, the relevant tracks have a large number of enterprise layouts, lack of scarcity. In addition, cornerstone investors are weak, and SoftBank is still an old shareholder.
Lack of growth
Innovative Qizhi avoids the big hot track, chooses slow and hot AI+ manufacturing, temporarily avoids head-on competition with head AI companies, and achieves market share leadership, but once the head company exerts its strength, it may face greater risks.
The bigger problem is still an industry problem, AI has three major elements: data, algorithm (model), computing power, data is "food", no data is difficult to move, it is difficult to get customer data itself, the data of different customers is not universal, the wider it is done, the longer the front line is consumed.
When Innovation Qizhi was first established, its positioning was to sell artificial intelligence software, with high gross profit margin of software, good customer stickiness, strong cash flow, high standardization rate, and low maintenance costs in the later stage.
But since 2019, the company has begun to sell hardware equipment, hardware heavy asset industry, long cycle, small cash flow, and most of them are order-based. This year took a big order, next year or the next year may not be.
According to the prospectus, in 2018, 2019, 2020 and the nine months ended September 30, 2021, the turnover days of trade receivables and notes receivable were 76 days, 115 days, 135 days and 137 days respectively, almost doubling the increase, and the time occupied by downstream enterprises to occupy their funds became longer.
Based on computer vision and machine learning technology, Innovative Qizhi has independently developed three proprietary AI platforms: Innovative Qizhi ManuVision (Machine Vision Intelligence Platform), MatrixVision (Edge Video Intelligence Platform), orion (Distributed Machine Learning Platform) three proprietary AI platforms.
With the three major AI platforms as the underlying AI infrastructure, innovation Qizhi takes the open platform as the carrier to drive various innovative AI industry applications, which is the future development trend.
However, with the current volume and comprehensive strength of research and development, the foundation of building a platform is not deep enough.
What is the future?
From the perspective of scarcity and growth, there are great risks in innovation. Of course, we shouldn't overstettle a company that's only been around for more than three years.
The listing itself also has a certain threshold, which requires strict financial and risk assessment, and AI companies such as Megvii, Yuncong, and Yitu are all stuck on the eve of listing. From this dimension, Innovation Qizhi has been at the forefront of most AI companies.
Kai-Fu Lee has been deeply involved in the field of investment for a long time, and he must know the way of capital and know how to use the favorable leverage of capital. After the listing, the innovation Qizhi can rely on capital advantages to invest more and faster in research and development, expand the market, and may be able to do one step faster and faster.
The AI+ manufacturing track chosen by Innovative Qizhi is a segmented scenario, which is a bit similar to the education market, the market is fragmented and needs to be slowly gnawed, but because of this, core players are also rare. Unlike the core tracks such as security and new energy vehicles, which are a red sea, Innovative Qizhi chooses to deepen the manufacturing industry, and under the influence of the "14th Five-Year Plan", intelligent manufacturing has gradually opened a new journey of development, and this track will definitely have more opportunities.
Looking back at the review, standing at the time point of 2018, when the industry was in an explosive period, most people focused on several mainstream tracks, and Kai-Fu Lee's entry into the manufacturing industry was undoubtedly a good move.
At present, the industry is still in the upward period and the pattern has not yet been determined, the innovation of Qizhi is in the critical stage of technology generation to large-scale commercialization, investors should pay more attention to the business inflection point due to business boundary expansion or new business, and look at the value of technology companies from a more dynamic and flexible perspective.