Inside the Company Financials
As part of the IPO process, the startup company has disclosed key financial details about the business.
- Growing Revenue. In 2018, the business reported ¥1.426 billion ($219 million). Revenue has grown more than 300% over the past several years. The startup company currently reports a net loss in terms of profitability as it invests in growth.
- Customer Concentration. Megvii reports that its top 20 customers contributed 44% of total revenues in 2018. This degree of concentration may cause concern for investors. If one or two large customers leave, company growth may stall.
- Municipal Customers. The company has made significant progress in winning Chinese cities as customers and has more than 100 Chinese cities using its technology.
- Android Phones. Megvii is used by 70% of Android-based phones in China.
- International Growth. While the startup is focused on China, international expansion has already started. As of June 2019, Megvii has acquired customers in fifteen countries and territories outside of China.
The Business Is Well Connected to Alibaba
The startup business enjoys funding and support from some of the largest companies in China. Alibaba, the ecommerce giant with more than 700 million customers, has invested in the startup. Furthermore, the AI startup has strategic relationships with Ant Financial, Lenovo, and China Mobile. Lenovo is a business that produces laptops and other electronic products. Ant Financial is a significant fintech business that has been valued at more than two hundred billion, according to Reuters.
China Has a Big AI Industry
AI technology, including computer vision, is a growing market in China. In the consumer electronics industry, AI-enabled technology is estimated to be worth ¥300 billion ($46 billion) in China, according to the Megvii IPO filing. Other industries in China have an even greater demand for AI. In the supply chain market, Megvii sees a ¥1.9 trillion ($290 billion) business opportunity. The boom in demand for AI and computer vision in the supply chain market is linked to the growing industrial robot industry.
Controversy May Slow Growth
The company faces several risks to its growth. In 2019, the US government added Megvii, SenseTime, and other companies to a blacklist. According to CNN, "The US Commerce Department added them to a trade blacklist this week, saying the companies had been implicated in human rights violations against Uyghurs and other members of Muslim minority groups in Xinjiang." So far, the Biden administration has not taken action to remove Megvii from the blacklist. As a result, Megvii may decide to focus on growing in China.
About the Author
Bruce Harpham is an author and marketing consultant based in Canada. His first book, "Project Managers At Work," shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.