Amid political turmoil and controversy over biometric facial recognition, Hong Kong-based Megvii has filed for an IPO aimed at a $500 million target.
Citing anonymous sources, Reuters reports that Megvii’s leadership expect the IPO to occur in the fourth quarter of this year, and anticipate that it could raise as much as $1 billion, which will be funnelled into R&D, marketing, and a global expansion effort.
No Such Thing as Bad Publicity?
Megvii is known for its facial recognition technology, in good ways and bad. This past May, the company raised $750 million in a funding round, bringing its value to a little over $4 billion; and the company has backing from major players including Alibaba and Bank of China Group Investment. But the company was also implicated in a Human Rights Watch investigation into human rights violations in China which asserted that its code was found in a surveillance app used by authorities to monitor China’s Uyghur muslims in the province of Xinjiang; HRW went on to issue a follow-up report on its investigation finding that Megvii’s code was “inoperable” and apparently being used without the company’s cooperation, but the initial report had nevetheless brought Megvii into headlines around the world.
This kind of thing factored into Megvii’s disclosures about investment risks in its IPO filing, noting that it could not guarantee investors that its technology will not be misused by third parties, and asserting that the HRW’s report, despite the organization’s eventual exoneration, “still caused significant damages to our reputation which are difficult to completely mitigate.”
Rising Fortunes – and Losses
The financial picture laid out in Megvii’s filings is similarly ambiguous. On the one hand, revenues shot up from 67.8 million RMB in 2016 to 1.42 billion RMB in 2018; but over the same period, Megvii’s losses climbed from 342.8 million RMB to 3.35 billion RMB.
In the first six months of this year, Megvii says its revenues came in at 948.9 million RMB, while it saw a loss of 5.2 billion RMB.
A Volatile Political Climate
Further complicating matters is the intense domestic unrest in Hong Kong, with ongoing protests against the influence of Beijing in the polity. The political climate has reportedly prompted Alibaba, China’s enormous e-commerce giant, to postpone its own IPO.
Trade tensions between China and the US could also have a negative impact, with Megvii’s filings indicating that potential economic and trade restrictions impacting the company are “beyond our control.”
Among Megvii’s clients in the smartphone sector alone are major brands including Oppo, Vivo, and Xiaomi.
August 26, 2019 – by Alex Perala