SenseTime, the Chinese artificial intelligence (AI) firm, witnessed a sharp decline in its shares, dropping as much as 9.7% following allegations by U.S. short seller Grizzly Research, claiming the company inflated its revenue. Grizzly Research alleges SenseTime’s involvement in a “revenue round-tripping” program, where funds are provided to customers, who then use the funds to purchase goods from SenseTime that may never be delivered. The short seller obtained this information from two court cases in China describing the alleged scheme.
SenseTime Responds and Denies Allegations
SenseTime responded to the allegations, stating that it is reviewing the claims and considering the appropriate course of action to safeguard the interests of shareholders. The company believes Grizzly Research’s report is “without merit” and contains “unfounded allegations and misleading conclusions.” SenseTime asserted that the report demonstrates a lack of understanding of its business model and financial reporting structure.
Background on SenseTime’s Challenges
Once considered one of China’s most promising AI companies, SenseTime has faced challenges, including U.S. government sanctions. In 2019, the U.S. added SenseTime to the Entity List, restricting American firms from doing business with it, citing alleged links to human rights violations in China’s Xinjiang region. Although SenseTime denied having business in Xinjiang, it faced obstacles, including a delayed IPO in Hong Kong in 2021.
SenseTime’s Limited Market and Technology Critique
Grizzly Research emphasized SenseTime’s limited market due to its U.S. government blacklisting, hindering any significant improvement in outlook. The short seller also questioned the competitive advantage of SenseTime’s technology, asserting that it operates a “fundamentally dead-ended facial recognition software business” with limited chances of scalable future profits.
Shares Drop 64% Below IPO Price
SenseTime’s shares closed at 1.37 Hong Kong dollars on Tuesday, marking a 64% decline from its IPO price of 3.85 Hong Kong dollars. Grizzly Research’s critical assessment of SenseTime’s technology and business model adds to the challenges faced by the Chinese AI firm, which is navigating both regulatory and competitive pressures.