Shares of SenseTime, a Chinese artificial intelligence firm, experienced a significant decline after U.S. short seller Grizzly Research accused the company of inflating its revenue. Grizzly Research’s allegations were centered around SenseTime’s involvement in a “revenue round-tripping” program, whereby the company funds customers who then purchase goods from SenseTime that may never have been delivered. This article critically analyzes the claims made by the short seller and their potential impact on SenseTime’s reputation and stock value.
Grizzly Research asserts that SenseTime engages in questionable practices by providing funds to customers, either directly or through intermediaries, who then use these funds to purchase goods from SenseTime. However, the short seller fails to provide concrete evidence to substantiate these allegations. Instead, they mention obtaining information from two court cases in China that described the scheme. As a result, the validity and credibility of the claims made by Grizzly Research are questionable, and further investigation is necessary to ascertain the truth.
SenseTime responded to the allegations by stating that it is reviewing the claims and considering the appropriate actions to safeguard shareholders’ interests. The company strongly denies the allegations, labeling Grizzly Research’s report as “without merit” and filled with “unfounded allegations and misleading conclusions and interpretations.” SenseTime argues that Grizzly Research’s report demonstrates a lack of understanding of the company’s business model and financial reporting structure, as well as a failure to thoroughly study the company’s public filings. Notably, SenseTime highlights that Grizzly Research did not contact them to verify the information before publishing the report.
SenseTime was once regarded as one of China’s most promising artificial intelligence companies, renowned for its cutting-edge computer vision technology and facial recognition software. However, the company faced setbacks when the U.S. government imposed sanctions on it in 2019. SenseTime was added to the Entity List, restricting American firms from conducting business with the company due to alleged human rights violations in China’s Xinjiang region. SenseTime vehemently denied any involvement in the region, but the incident impacted the company’s reputation and business opportunities.
Implications for Shareholders
SenseTime’s initial public offering in Hong Kong was postponed after the company was added to a list of “Chinese military-industrial complex companies” by the U.S. government. Eventually, the company completed its listing at the end of December, but the stock price has plummeted significantly since then. The shares closed at 1.37 Hong Kong dollars on Tuesday, a staggering 64% decline from their IPO price. Grizzly Research’s allegations of revenue inflation may further undermine investor confidence in SenseTime, potentially leading to a continued decline in share value.
Grizzly Research also criticized SenseTime’s technology, claiming that it lacks a competitive advantage in the field of artificial intelligence (AI). The short seller argues that SenseTime operates a facial recognition software business that lacks a scalable future for profits, with limited prospects for success in additional AI research and development projects. However, it is essential to note that this assessment is made by a short seller and may not represent an accurate portrayal of SenseTime’s technological capabilities or its potential for growth and profitability.
The allegations made by Grizzly Research have had a significant impact on SenseTime’s stock performance, causing shares to plummet and shareholders to question the company’s financial practices. However, a critical evaluation of the claims reveals a lack of concrete evidence and warrants further scrutiny. SenseTime’s response emphasizes the need for a thorough investigation and asserts that the allegations are unfounded. As the situation continues to unfold, it is crucial to gather additional information to assess the true extent of SenseTime’s involvement in revenue round-tripping and its overall financial integrity.