SenseTime Grapples with Losses a Decade After Its Inception, Pinning Hopes on Generative AI to Drive Profitability

SenseTime Group Inc., formerly a frontrunner in China’s artificial intelligence (AI) sector, reported an annual loss of 6.495 billion yuan in 2023, marking a 6.6% increase compared to the previous year. This loss contrasts with a revenue of 3.4 billion yuan for 2023, reflecting a year-on-year decrease of 10.6%.

A decade since its inception, SenseTime continues to struggle with losses, accumulating to approximately 50 billion yuan over the past six years. This underscores the formidable challenges AI companies encounter in achieving profitability.

SenseTime’s Persistent Annual Losses and Fluctuating Revenue Streams

From 2021 to 2023, SenseTime’s revenue was 4.7 billion yuan, 3.8 billion yuan, and 3.4 billion yuan, respectively, while the net profit attributable to the parent company during the same period was a loss of 17.1 billion yuan, 6 billion yuan, and 6.4 billion yuan, respectively.

Including the losses the company suffered from 2018 to 2020, SenseTime has accumulated total loss of 50 billion yuan in the past six years.

That has been reflected in the company’s shares. As of the close on April 2, SenseTime’s Hong Kong stock price was 0.73 yuan, with a total market value of 24.4 billion Hong Kong dollars.

That compares to a peak stock price of 9.7 Hong Kong dollars and peak market value of 320 billion Hong Kong dollars in early 2022.

SenseTime’s Generative AI Revenues Are Growing Rapidly

Among the declining revenue and losses, SenseTime’s generative AI revenue has become a highlight of its performance. Its 2023 annual report shows that revenue from generative AI has exceeded 1.184 billion yuan, achieving a rapid growth of 199.9%. Its share of total revenue of the company has increased from 10.4% in 2022 to 34.8% last year.

SenseTime highlighted that its Ririxin large-scale AI model is one of the first eight models in China to be registered under China’s new rules requiring such AI models to be registered with the government.

To help spur the growth of its generative AI businesses, SenseTime restructured its four major businesses of smart business, smart city, smart life, and intelligent automobiles into three new business segments: generative AI, traditional AI, and intelligent automobiles.

Among them, generative AI is deemed the future key development direction. SenseTime stated that it plans to accelerate the commercialization and market penetration of generative AI to "drive core business profitability."

Can Generative AI Propel SenseTime Towards Profitability?

SenseTime has pivoted towards the trending domain in AI, aiming to secure profitability. Initially excelling in computer vision, the company clinched significant contracts primarily with governmental entities for facial recognition applications.

In 2020, SenseTime emerged as China’s leading provider of enterprise-level computer vision software, boasting a substantial market share of 14%.

After going public on the Hong Kong Stock Exchange in 2021, SenseTime shifted its focus to the metaverse, a concept that gained immense traction that year. Recognizing AI as a pivotal technology for constructing the metaverse, SenseTime strategically aligned itself with this trend to bolster its prospective expansion.

As the hype around the metaverse waned, SenseTime changed its focus to generative AI in 2023. But the prospect of generative AI serving as the solution for SenseTime to achieve profitability is yet to be determined.

SenseTime must demonstrate its ability to maintain sustainable growth in its generative AI business. As large-scale AI models saturate the Chinese market, competition may intensify, posing challenges to generating consistent revenue.

SenseTime’s Share Price Volatility

Since its founding in 2014 until its listing in 2021, SenseTime has completed more than 10 rounds of private financing, with investors including SoftBank Vision Fund, Qualcomm Ventures, Deep Ventures, and Alibaba. SenseTime was once the world’s highest-valued AI unicorn, with a pre-listing valuation of approximately US$12 billion.

Following its listing on December 30, 2021, SenseTime’s market value further increased. On January 4, 2022, SenseTime’s stock price reached a high of HK$9.7, with a total market value reaching a peak of HK$320 billion (US$31 billion).

However, over the next two years, SenseTime’s stock price fell continuously as its institutional backers exited. On June 30, 2022, its shares plummeted by 46.77% due to the expiration of a significant portion of locked-up shares.

SoftBank has reduced its holdings of SenseTime multiple times, reducing its stake to 6.82%. Alibaba also indicated that it had sold all of its shares in SenseTime.