Megvii Technology files for IPO in Hong Kong…
Megvii Technology has filed for its initial public offering on the Hong Kong stock exchange. The Alibaba-backed company is an artificial intelligence startup that’s most known for its facial recognition technology.
The company’s prospectus didn’t reveal an IPO date or share pricing. But Reuters reported that the company plans to raise between $500 million and $1 billion with the IPO and is expected to start selling shares in the fourth quarter of this year.
News of this IPO came as somewhat of a surprise to some investors due to the current trade war and the Hong Kong protests. Earlier this month, Alibaba postponed its own Hong Kong listing. Megvii, however, is confident enough in the current Hong Kong market to move forward.
Earlier this year, the company raised $750 million in its latest funding round, giving it a valuation of over $4 billion. Megvii’s major investors include such companies as Alibaba, Ant Financial, and the Bank of China.
As it stands, Megvii would be the first AI firm to go public in China with this IPO.
Growing Revenue, Worrying Losses
In 2017, China revealed its plans to become a world leader in AI technology. As the country continues to move toward this goal, it relies on companies like Megvii to create technology to be deployed throughout the country.
This relationship has had a significant impact on Megvii’s revenue growth. In 2018, the company’s revenue jumped by more than 350% to 1.42 billion yuan. In the first half of this year, the company has already brought in about 949 million yuan in revenue.
Though revenue has been rapidly increasing, Megvii has also experienced growing losses. In 2018, Megvii lost 3.35 billion yuan, up from 758.8 million in 2017. In the first half of this year, the company has already seen losses of 5.2 billion yuan, surpassing its total losses from 2018.
Megvii credits its losses to continued investments in research and development.
Trade War Implications
When listing its primary risk factors, Megvii warned against possible restrictions that could be imposed on the company as part of the current trade war.
CNBC reported in May that Megvii could be one of the Chinese surveillance firms to be put on a blacklist that would prevent American companies from selling technology to them. Though this has yet to happen, Megvii stated that it would prevent their ability to develop and provide new solutions.
The company also warned that the current restrictions being imposed on Huawei could have a negative impact on Megvii’s long-term plans.
In its prospectus, the company stated, “Prolonged restrictions against Huawei could cause a turmoil to all such industries, which may in turn materially and adversely affect our business.”
The company continued, “if China were to increase the tariff on any of the items imported by our suppliers and contract manufacturers from the U.S., they might not be able to find substitutes with the same quality and price in China or from other countries. As a result, our costs would increase and our business, financial condition and results of operations would be adversely affected.”
