|17 July, 2019

SoftBank's robotics IPO faces a reality check

Founded in 2015 by telecoms entrepreneur Bill Huang, CloudMinds has big dreams

Pepper the robot is seen at a cafe in Budapest, Hungary, January 24, 2019. Picture taken January 24, 2019.

Pepper the robot is seen at a cafe in Budapest, Hungary, January 24, 2019. Picture taken January 24, 2019.

Reuters/Bernadett Szabo

HONG KONG  - China’s CloudMinds faces a reality check. The SoftBank Vision Fund-backed cloud-robot company wants to raise $500 million in a U.S. float. The loss-making startup is selling a vision of a world serviced by artificial intelligence-powered androids, which is a long way off. It’s a tough sell in the real world, where most Chinese tech floats this year are underwater.

Founded in 2015 by telecoms entrepreneur Bill Huang, CloudMinds has big dreams. It believes robots could one day effectively replace humans as receptionists, cleaners, security guards and domestic helpers, and has developed cloud-based technology to power such creations simultaneously. It also boasts a pre-existing suite of cloud-powered robots, including one that can pour drinks and a smart vending machine that uses AI to make product recommendations. The IPO proceeds will be spent on making these dreams reality.

The reality is less rosy. CloudMinds made a $160 million pre-tax loss last year as it splurged on research and development expenses, more than triple what it lost in 2017. Turn sales of $130 million in April and May into an annual figure and assume the company trades at 7 times revenue, in line with hardware and software comparable Axon Enterprise, and it would have an enterprise value of $5 billion, according to Breakingviews calculations.

That’s a bold pitch in the current market. Dealogic indicates just one of the five Chinese tech companies that listed in New York this year - a plastic surgery app called So-Young – trades above its listing price. DouYu , a company that lets fans live-stream top video gamers, added to jitters on Wednesday after pricing its IPO at the bottom of a marketed range.

Investors don’t have many successful precedents to look to, either. In 2017 Alphabet offloaded U.S. robotics company Boston Dynamics to SoftBank after concerns about the length of investment needed, Bloomberg reported. China’s Viomi , which makes Internet-of-things-enabled smart home products and listed last year, is now trading below its IPO price. Investors may wonder why CloudMinds is choosing public scrutiny over further private cash injections either from the Vision Fund or another tech-obsessed investor. Particularly when, after AB InBev’s pulled IPO, those markets are pretty jumpy.

CONTEXT NEWS

- CloudMinds, a Beijing-based company that builds and operates robots powered by cloud technology, has filed to raise $500 million in a U.S. initial public offering.

- The company claims to be the world’s leading cloud robot and services business, and the first to commercialise related products and services. Its products include humanoid and patrol robots, as well as a vending machine powered by artificial intelligence.

- The SoftBank Vision Fund, backed by Japanese technology-to-telecoms conglomerate SoftBank, owns 34.6% of CloudMinds via its wholly owned subsidiary SVF Cloud. CloudMinds also customises SoftBank’s humanoid Pepper robots with its own technology.

- The company generated $121 million in revenue in 2018, up from $19 million the previous year. It made a net loss of $157 million last year, compared to a loss of $47.7 million in 2017.

- Citigroup, JPMorgan and UBS are working as underwriters of the IPO.

(Editing by George Hay and Katrina Hamlin)

© Reuters News 2019

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