Megvii AI Startup Files For Hong Kong IPO

Why WeWork’s IPO Strategy Could Deter Investors

AI startup Megvii Technology has filed for a public listing on the Hong Kong stock exchange.

The Beijing-based company, known for its facial recognition brand Face++, reportedly plans to raise between $500 million and $1 billion and list in the fourth quarter of this year, according to Reuters. The prospectus did not reveal any information on share pricing or when the IPO will happen.

Megvii’s investors include Alibaba, Ant Financial and the Bank of China, and it has a valuation of more than $4 billion.

While companies have postponed their IPOs in Hong Kong due to the recent anti-government protests that have impacted the local economy, one source said that Megvii is moving forward with its plans because it doesn't do much business in Hong Kong and expects the protests to ease later this year.

Megvii’s prospectus shows that the company has experienced rapid growth in revenue as well as widening losses. Its revenue grew from 67.8 million RMB in 2016 to 1.42 billion RMB in 2018, while in the first six months of 2019, it made 948.9 million RMB. However, between 2016 and 2018, its losses went up from 342.8 million RMB to 3.35 billion RMB, and in just the first half of this year, Megvii lost 5.2 billion RMB.

The prospectus stated that the company will use its IPO proceeds for research and development, marketing and sales plus global expansion and strategic investments opportunities.

But the company might face some hurdles along the way. Earlier this year, Human Rights Watch published a report alleging that Face++ was being used by Chinese police and officials for mass surveillance, which it later retracted. The prospectus explained that the report “still caused significant damages to our reputation which are difficult to completely mitigate.”

There have also been rumors that Megvii is among the Chinese tech companies the U.S. government may add to trade blacklists. “Although we are not aware of, nor have we received any notification, that we have been added as a target of any such restrictions as of the date this Document, the existence of such media reports itself has already damaged our reputation and diverted our management’s attention,” the prospectus said, according to reports. “Whether or not we will be included as a target for economic and trade restrictions is beyond our control.”



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