2021 is the outbreak year of centralized listing of AI head companies.
Yuncong technology and Kuangshi technology applied for listing on the science and innovation board in July and September 2021 respectively and successfully held the meeting. Shangtang technology is “preemptive”, which has taken the lead in listing on December 30. From the perspective of capital market performance, Shangtang technology was also sought after by investors, and the share price once rose by more than 20% on the first day of listing.
In my opinion, the fact that AI companies are sought after by investors reflects that the commercialization of AI has made preliminary progress. Like the three head AI companies just mentioned, their revenue growth has been more than 25% in the past three years.
In the face of relatively certain AI industry opportunities, I think there are two opportunities. One is an AI company that relies on leading AI technology and combines technology with multiple application scenarios for comprehensive development. The typical representative is the AI four dragons.
Another type of company is the vertical industry company with AI as the underlying driving force. Typical representatives are bytes in the content field, pinduoduo in the e-commerce field and Lexin in the financial technology field.
Now, let me talk about my views on these two types of companies.
01 what changes in the AI industry are reflected behind the collective sprint listing of head companies?
Shangtang technology, Kuangshi technology and Yuncong technology are all sprinting for IPO in the near future. As the leader of AI industry, they are also an important window to observe the changes of AI industry.
From the development of the above companies, AI head company has passed the early stage of technology exploration, and the “theoretical” accuracy of single technology is no longer the focus of pursuit. The company began to work hard on the large-scale implementation and application of AI technology.
Up to now, Shangtang technology business has covered many fields such as smart business, smart life and smart city. Cloud technology and Kuangshi technology also combine technologies and scenarios in the fields of smart finance, smart travel and smart public services.
The transformation of many AI companies also means that the industry puts more emphasis on the combination of technology and scenarios. This also accelerates the commercialization of AI. According to the data of Huaxi Securities Co.Ltd(002926) , the market scale of AI core products will reach 453.26 billion in 2025, and the CAGR from 2019 to 2025 will be 26.8%.
In the context of accelerating the commercialization of AI, leading AI technology companies such as AI four dragons deserve attention.
Their development logic is to start with the leading technical advantages of AI, make market breakthroughs in vertical fields, and then spread to multiple fields.
The advantages and disadvantages of this AI company based on leading AI technology and comprehensive business development are obvious. The advantage is that AI extends to many fields, has greater potential development space, and can also achieve high income growth. In terms of data, relevant enterprises have maintained high revenue growth. From 2018 to 2020, the CAGR of Shangtang, Kuangshi and cloud revenue were 37%, 27.5% and 25% respectively.
The disadvantage is that the performance of related companies is also uncertain. The reason is that the personalization and differentiation characteristics of each vertical field are obvious. After the company enters a new field, it is difficult to realize the large-scale replication of products and technologies. The company needs to make continuous technical and personnel investment according to the characteristics of the scene, causing great pressure on the company’s profitability. Continuous loss is also a common problem faced by the four AI dragons. The loss rate of the four companies generally exceeds 100%.
Generally speaking, AI companies that rely on leading technologies to diversify their scenarios have great performance uncertainty, but they also have a lot of imagination space and high odds in the capital market.
But in addition, there is also a class of AI companies with good development prospects. That is, for vertical industry companies whose business takes AI as the underlying driving force, the development logic is to use AI to improve the existing business efficiency and extend the business depth. Next, I will explain the representative companies.
02 how does AI vertical break through?
According to my observation, there are three typical representatives of vertical industry companies with AI as the underlying driving force: bytes in the content field, pinduoduo in the e-commerce field and Lexin in the financial technology field. The commonness of the three companies is that they were born in the era of mobile Internet, took AI as the driving force for business development, and finally broke through in the industry.
Let’s first look at byte beating. Bytes can gain the upper hand in the field of short video, information and other content, which depends on the efficient matching between people and content through AI algorithm. In short, the byte algorithm distribution takes the content as the center, combined with the user’s viewing time, likes, comments and other data of a certain type of content, analyzes the content that the user is interested in, and makes recommendations.
Byte algorithm innovation has changed the evolution direction of content products. In the past, content was search logic, and users looked for content after they had clear needs. The byte AI algorithm makes the recommendation logic appear in the content field. Compared with the search that the content must be viewed after the user has a clear demand, the recommendation can continuously push the content for the user. Accordingly, the user duration in the recommended scenario is also greatly improved. Byte has also become one of the players with the longest users in China.
In contrast, pinduoduo can tear a hole in the monolithic e-commerce market by realizing the differentiation from the traditional e-commerce platform through AI algorithm.
The traditional e-commerce logic is to provide large and comprehensive commodity shelves to meet the massive needs of users. The scene is “people looking for goods”, and the advantage lies in the richness of categories.
Pinduoduo recommends goods according to consumers’ preferences through AI algorithm. The scene is “goods looking for people”. While realizing differentiation in the shopping scene, pinduoduo can also sacrifice a certain richness of commodity categories to achieve cost-effective advantages over traditional platforms.
Why can AI algorithms achieve cost-effective advantages? The “goods looking for people” under AI algorithm can continuously recommend explosive products for users, so as to make the explosive payment strategy of more and less SKUs. After the massive demand of a specific SKU is transmitted to the supply side, businesses can reduce production costs through scale effect, so as to achieve lower commodity prices.
Like byte and pinduoduo, Lexin’s breakthrough in the financial technology industry also depends on AI’s empowerment of business. The core of the financial technology industry is risk control. The company needs risk control to identify and price users. AI’s greatest help to Lexin is risk control.
From the data, Lexin’s risk control ability has steadily improved in recent quarters, which is reflected in the downward trend of M3 overdue rate. In the third quarter, the overdue rate of the company decreased by 0.75 percentage points year-on-year.
So how does AI enable Le Xin risk control? It is reflected in all links of business processes such as pre loan, in loan and post loan.
Before the loan, Lexin relies on AI capability to price the user’s risk. According to the risk performance of different groups, the company divides users into price sensitive users, credit hungry users and high-quality users, and adopts a more flexible and accurate price strategy for different users’ transaction sensitivity to price and unit transaction yield.
In the loan, Lexin can track and predict users’ bad debts and users’ life cycle profits based on AI capabilities. Based on the above capabilities, the company has established a set of risk management system, which divides user characteristics, collection operation and other indicators into several dimensions. When the user’s risk deviates, the company can quickly detect business abnormalities through the risk monitoring and early warning mechanism, and summarize the factors that have the greatest influence on the deviation in combination with the automatic algorithm for targeted risk control and interception.
After the loan, the company’s account recovery has been greatly improved. The recovery rate of the company’s historical non-performing assets has increased by 30% compared with last year. The improvement of account recovery of non-performing assets is due to the company’s analysis of customer portraits through algorithms, so as to find more suitable collection means for each customer.
While Lexin improves the existing business efficiency through AI, the company is also expanding the business depth of financial technology with the ability of AI. The company launched Letu, Letu pro and negative entropy technology products for financial institutions. According to different business scenarios, the three products can help bank customers make risk pricing and help customers realize fine operation.
Generally speaking, compared with the first type of enterprises that rely on AI technology for comprehensive development, the vertical industry companies with AI as the bottom driving force are inferior to the former in terms of pure technical ability, but due to deep cultivation in the vertical industry, the company has high development certainty and stable performance. This is also reflected in the performance of the representative company.
03 high degree of certainty of vertical companies
Among the three representative companies with AI as the underlying driving force for vertical development, only pinduoduo and Lexin are public companies. From the performance of the two companies, the commonality between the two companies is that the revenue maintains a high growth and the operating efficiency improves steadily.
From pinduoduo’s performance, although China’s retail market performs poorly, and there are more competitors in the e-commerce industry. But pinduoduo still achieved steady development.
In terms of revenue growth, pinduoduo achieved a revenue of 21.51 billion yuan in the third quarter, a year-on-year increase of 51%. In terms of user growth, the company’s active sellers were 870 million, a year-on-year increase of 19%. The revenue growth rate is higher than the user growth rate, indicating that the ARPU value of the company’s users has been greatly improved.
It is worth mentioning that when the number of pinduoduo users exceeds 800 million, the market is worried about whether pinduoduo can continue to improve users’ ARPU value after the ceiling of e-commerce users is about to reach the top. At present, the ARPU value of pinduoduo users is also steadily improving.
More importantly, pinduoduo has also proved its profitability. With the deterioration of e-commerce competition pattern, the market once worried about pinduoduo’s profitability. However, in the third quarter, the company reversed its losses year-on-year, with a net profit of 1.64 billion, making profits for two consecutive quarters.
Similar to pinduoduo, Lexin’s financial technology business has achieved both steady growth and high operation efficiency.
In the third quarter, most of the operating indicators of Lexin achieved rapid growth, which contributed to the loan amount of 55.8 billion yuan, a year-on-year increase of 16%. The increase of loan amount was driven by the increase of users. In the same period, the company added 10 million users, with an increase of more than 10 million for nine consecutive quarters. In terms of profit, the company’s EBIT reached 750 million, a year-on-year increase of 50%.
The higher profit growth of Lexin is the result of the optimization of the company’s operating expenses. Taking the management fee as an example, in the third quarter, the management fee of Lexin in a single quarter has decreased to 100 million yuan, down 17% month on month, accounting for 3.33% and 0.11% of the revenue and management loans, and the amount and proportion are the lowest in recent years.
From the perspective of lengthening the cycle, the competition pattern of the financial technology industry is also conducive to the development of Lexin. On the one hand, the 24% interest rate red line will eliminate small and medium-sized platforms and bring market clearing. On the other hand, under regulatory pressure, super large platforms such as ants will reduce the loan scale. The market share transferred by the two may be occupied by the waist platform of Lexin.
Although Lexin’s financial technology business maintained a good development momentum, it was not recognized by the capital market. Compared with the other two head fintech companies of zhonggai shares, the valuation level of Lexin is obviously lower than that of its peers.
Comparing the business data of Lexin, Xinye technology and 360 digital technology with the market value, although Lexin’s business scale is less than 360 digital technology, it leads Xinye technology in a number of business data. Lexin’s revenue, facilitated loan amount, users and new borrowers in the quarter were 1.2 times, 1.5 times, 1.1 times and 1.2 times of Xinye technology respectively. However, the market value of Lexin is only 46% of that of Xinye technology.
With the continuous improvement of Lexin’s business, whether the market can find the contrast between Lexin’s high-quality performance and low market value is also key to the company’s future capital market trend.
Generally speaking, enterprises such as Lexin and pinduoduo that rely on AI technology for vertical development have relatively certain development opportunities. With the continuous empowerment of AI on business, they are also likely to maintain high-quality growth.
(Qingdao finance and Economics Network)
