Another “unicorn” is about to hit the market.
Recently, Horizon officially submitted a prospectus to the Hong Kong Stock Exchange, with Goldman Sachs, Morgan Stanley and CITIC Construction International as joint sponsors. That evening, Horizon founder and CEO Yu Kai wrote in Moments,“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
When mentioning Horizon, many people will first think of autonomous driving chips, but in essence it is more like a company that combines software and chips, so it is ridiculed as a “software company disguised as a chip.” Horizon was founded in 2015. According to the prospectus, it describes itself as a “passenger car advanced assisted driving (ADAS) and advanced autonomous driving (AD) solution provider” and has proprietary software and hardware technologies.
Over the past few years, Horizon has been on the “edge of the limelight,” but it has indeed made many breakthroughs. Data shows that in 2023,Horizon ranks second in China's high-end and low-end smart driving markets, with shares of 35.5% and 21.3% respectively.The number one player in the high-end smart driving market is Nvidia, with a market share of 49%. The first place in the low-end smart driving market is Mobileye, with a market share of 26.6%.
Horizon’s “Transcript” | Image source: Horizon Prospectus
What deserves more attention is that Horizon's gross profit margin of 70% and abundant cash reserves are particularly valuable in the fierce price war. From 2021 to 2023, Horizon's gross profit margins were 70.9%, 69.3% and 70.5% respectively; as of the end of 2023, Horizon's cash and cash equivalents reached 11.36 billion yuan.
However, the chip industry is a high-investment, long-cycle industry. Can Horizon maintain its first-mover advantage? Where does the competitive advantage lie? Where will the future go? The answers to these questions may be found in its prospectus.
A software company disguised as a chip
Judging from the prospectus, Horizon’s business is very focused and is mainly divided into two parts.: Automotive solutions and non-automotive solutions.Among them, core automotive solutions contributed the majority of revenue. From 2021 to 2023, the business revenue of this part will continue to grow, reaching 410 million yuan, 801 million yuan and 1.470 billion yuan respectively. During the same period, the revenue proportion also showed a year-on-year growth trend, reaching 87.9%, 88.5% and 94.8% respectively.
Cars are a business with extremely high thresholds, and the core competitiveness here is trust. Currently, Horizon's solutions have been adopted by 24 OEMs (31 brands), equipped in more than 230 models, and have reached cooperation with the top ten OEMs in China. In 2023, Horizon has won more than 100 new models.
Horizon’s revenue details for the past three years | Image source: Horizon Prospectus
Further dismantling the automotive solutions can be divided into two parts: “product solutions” and “authorization and services”: product solutions mainly sell products integrating software and hardware, including L2 active safety function Horizon Mono, high-speed NOA solution Horizon Pilot, high-end intelligent driving solution Horizon SuperDrive.In the past three years, this part of the revenue accounted for 44.6%, 35.3% and 32.7% of the total revenue respectively. Although the share has declined slightly, it is still one of Horizon's main sources of revenue.
The licensing and service business provides licensing of algorithms, software and development tool chains, as well as related technical services. From 2021 to 2023, the proportion of this part of revenue will be 43.3%, 53.2% and 62.1% respectively.The proportion of this part of revenue continues to grow, showing that Horizon's market position in the field of technology licensing and services continues to improve.
Horizon's rapid development in the automotive business is closely related to the rapid growth of smart driving in the passenger car market. Especially in the first half of 2020, the commissioning of Tesla's Shanghai factory caused Tesla's market value to skyrocket, from tens of billions of dollars to hundreds of billions of dollars. This also brought new opportunities to companies such as Wei Xiaoli and Horizon . Previously in 2019, Horizon launched the Journey 2 car-grade chip, making it the only company in China that was ready.
According to industry data, China will sell approximately 7 million new intelligent connected passenger cars equipped with assisted autonomous driving systems in 2022, with a market penetration rate of 34.9%. In 2023, the penetration rate of advanced assisted driving in both the world and China will exceed 50%. During this period, Horizon became the largest company in China providing pre-installed ADAS and AD systems.
In Horizon's automotive business, the “marriage” with Volkswagen is particularly interesting.The prospectus shows that approximately 68.8% of Horizon's total revenue (1.55 billion yuan) in 2023 will come from the top five customers, and CoreCheng, a joint venture with Volkswagen's software company CARIAD, has become Horizon's top customer.
Data shows that CoreCheng brought 630 million yuan in revenue to Horizon in 2023, accounting for 40.4% of Horizon’s total revenue that year. Without this revenue, Horizon's revenue in 2023 would be essentially the same as in 2022. It can be said that Corecheng’s contribution played a key role in Horizon’s financial status.
CoreCheng was established in November 2023, with Volkswagen and Horizon holding 60% and 40% of the company's shares respectively. This is of great significance to Horizon. The first is financial returns, the second is increasing the international component, and the third is expanding Horizon’s business from Chinese car companies to international car companies.
In addition to automotive solutions, Horizon also provides non-automotive solutions, mainly providing intelligent solutions for equipment manufacturers, such as lawn mowers, sweeping robots and other equipment. It is understood that Horizon is not only China’s largest autonomous driving chip supplier, but also the largest chip supplier for home service robots. The products involved include Ecovacs sweeping robots, Hisense fitness smart screens, Xiaodu Tiantian smart fitness mirrors, etc. .
However, although the non-automotive solutions business has good prospects, it is not a strategic focus of Horizon. The prospectus shows that the revenue of this part of the business from 2021 to 2023 will be 57 million yuan, 105 million yuan, and 81 million yuan respectively, and the revenue proportion will decrease year by year, reaching 12.1%, 11.5%, and 5.2% respectively.
This business structure reflects Horizon’s flexibility and strategic prediction in the face of uncertainty. When he founded Horizon in 2015, Yu Kai’s goal was to create “brain chips for the robot age.” Initially, Horizon believed that automobiles and the Internet of Things were the most likely application scenarios, so it was involved in the two major business areas of AIoT and automobiles at the same time.
However, with development, Horizon discovered that the business scenarios of AIoT were too fragmented, resulting in many small businesses with limited value. Therefore, in 2019,Horizon has decided to shrink its AIoT business, focus on the field of autonomous driving, and expand its business beyond automobiles.All cuts.
The upcoming Journey 6 chip | Image source: Horizon
At present, Horizon's automotive-grade chip “Journey” has been updated to the third generation. The shipments are mainly Journey 2 and Journey 3, and Journey 5 is relatively small. The latest generation of Journey 6 chips will be released in the first half of 2024. This series of adjustments will help Horizon focus more on its core business, enhance its competitiveness, and lay a solid foundation for future development.
Loss of nearly 4.7 billion in three years
With the increase in the penetration rate of smart cars, Horizon has ushered in its own “outlet”, but it has also suffered from “three highs”:High growth, high R&D, high losses.
In terms of revenue, Horizon has experienced rapid growth over the past three years. From 2021 to 2023, Horizon's revenue will be 466 million yuan, 905 million yuan and 1.551 billion yuan respectively, with a compound annual growth rate of an astonishing 82.3%.
Although it is only 1/10 of the industry leader Mobileye in terms of size, Horizon's growth rate is much higher than the latter. Data shows that Mobileye's full-year revenue in 2023 will be US$2.079 billion (approximately 15 billion yuan), a year-on-year increase of 11.23%.
It is worth noting that Horizon’s business continues to expand. The prospectus revealed that Horizon has obtained a large order reserve for models that have not yet been mass-produced. By the end of 2023, models that have not yet achieved mass production account for more than 50% of all models that have been designated. This indicates that Horizon is expected to further expand its market share in the future.
However, despite rapid revenue growth, Horizon also faces the challenge of high losses. From 2021 to 2023, Horizon's net losses were 2.064 billion yuan, 8.72 billion yuan, and 6.739 billion yuan respectively; the adjusted net losses were 1.103 billion yuan, 1.891 billion yuan, and 1.635 billion yuan, with losses of nearly 4.7 billion yuan in the past three years. However, judging from the trend, although it has not yet turned around, as its scale grows, Horizon's loss rate has shown a downward trend.
Compared with peers, Mobileye's net loss in 2023 has been significantly reduced, to only US$27 million; while Black Sesame Intelligence, which was listed earlier, has mediocre financial performance and its losses continue to expand. The prospectus shows that Black Sesame Intelligence has adjusted net losses of 614 million yuan, 700 million yuan, and 1.254 billion yuan in the past three years, with a cumulative loss of 2.568 billion yuan.
Regarding the loss, Horizon explained that this was mainly due to large research and development expenditures to enhance key core technologies, as well as changes in the fair value of preferred shares and other financial liabilities.
Data shows that in 2023, Horizon's total expenses will reach 3.14 billion yuan, of which research and development expenses account for the largest proportion, reaching 2.37 billion yuan, equivalent to 153% of operating income. As of the end of 2023, Horizon has 1,478 full-time R&D personnel, accounting for 71.5% of the total number of employees.
In addition, Horizon's selling expenses were 330 million yuan, and general and administrative expenses were 440 million yuan. Although the total revenue proportion of the three expenses has dropped from 258.7% in 2021 to 202.2% in 2023, it is still relatively high.
Horizon's gross profit and gross profit margin in the past three years | Image source: Horizon prospectus
Although expenses are higher, it is worth noting that Horizon's gross profit margin is also not low. From 2021 to 2023, Horizon's gross profits were 331 million yuan, 627 million yuan, and 1.094 billion yuan respectively, and the corresponding gross profit margins were 70.9%, 69.3%, and 70.5% respectively, which are close to Nvidia's 76% in 2023.
In comparison, friendly company Mobileye's gross profit in 2023 will be US$1.047 billion, with a gross profit margin of 50.4%, and Black Sesame's 24.7%.
However, Horizon founder Yu Kai believes that excessive gross profit margins are unreal and a kind of poison. he thinks,The gross profit margins of the world's top chip companies will eventually converge to around 60%, including Nvidia, Mobileye, etc.
Horizon's high gross profit margin is mainly due to its unique revenue structure and delivery model, especially its licensing and services business.This part of the business helps customers develop applications that meet their customized needs by licensing algorithms, software and development tool chains to customers, and provides design and services to integrate solutions into customers' vehicles. This business model is low-cost and has a high premium, so it can achieve higher gross profit margins. In 2023, the gross profit margin of Horizon's licensing and service business reached 89%.
In contrast, Mobileye's business is mainly selling standardized chips. Among them, the EyeQ series SoC accounts for 89% of the revenue, and the remainder is mainly SuperVision?.
Another conspicuous figure in this prospectus is Horizon’s cash on its books. As of the end of 2023, Horizon's cash and cash equivalents reached 11.36 billion yuan, exceeding peers Mobileye's 8.58 billion yuan and Black Sesame's 1.3 billion yuan.
Moreover, as of the end of January 2024, Horizon still has unused bank financing of 700 million yuan. Such abundant cash reserves are particularly rare in 2023 when the intelligent driving industry generally performs poorly, and provides considerable financial support for Horizon's future development.
It is understood that Horizon's high cash and cash equivalents mainly come from financing activities. In 2023, its net cash from operating activities was negative 1.745 billion yuan, its net cash from investing activities was negative 667 million yuan, and its net cash from financing activities reached 7.219 billion yuan. This shows that Horizon has successfully raised a large amount of funds through financing activities, providing a solid financial foundation for its future research and development, expansion and market expansion.
Just the end of the beginning
Horizon is a company founded by scientists. It is also one of the very few companies in China's autonomous driving and chip entrepreneurship fields that has truly realized a closed-loop business.
Horizon was co-founded by Yu Kai and a group of scientists and entrepreneurs. From the perspective of ownership structure, the top three individual shareholders are Yu Kai, Huang Chang and Tao Feiwen.
Among them, founder Yu Kai holds 17% of Horizon shares and 56% of the voting rights. He is the company's major shareholder and controller. CTO Huang Chang and COO Tao Feiwen hold 3.8% and 1.7% of Horizon shares respectively, and correspondingly have 12.6% and 5.5% of the voting rights.The total shareholding of these three management members reached 22.6%, corresponding to 74% of the voting rights. The founding teamStill have full control over the company.
Over the course of Horizon's development, its financing journey has been truly unique. Its financing frequency is extremely intensive, which has exceeded the scope of traditional A- and B-round financing, and has even raised financing multiple times a year.
So far, Horizon has conducted more than a dozen rounds of financing, with a cumulative financing amount of US$2.36 billion (approximately 17 billion yuan). The post-investment valuation after the last round of financing reached US$8.71 billion (approximately 63 billion yuan). Among them, the bets and optimism of industrial chain companies are particularly eye-catching. These companies include top automakers and suppliers, such as SAIC, Volkswagen Software Company CARIAD, CATL, FAW, BYD, GAC, Great Wall Motors, etc.
Of particular concern is Horizon's Series C financing that started in 2020. It has completed 12 rounds of financing, totaling more than one billion US dollars, but the company's valuation has not increased. Yu Kai said that the strategy at that time was to raise more funds during the capital carnival, rather than focusing too much on the growth of valuation. He values the overall development strategy more than short-term equity interests. This also allows him to behave more calmly in negotiations with the Volkswagen Group in 2022.
After nine years of exploration, Horizon has successfully achieved a leap from zero to one and gained entry into the industry.However, even with this achievement, Horizon still faces its own challenges.
As a supplier, Horizon faces the challenge of balancing standardized products with customers' individual needs. Although it is easier to make a profit by offering standardized products, the diversity of customer needs requires Horizon to do a lot of custom development for customers, which poses a challenge to its business model.
Horizon ideal project team photo | Image source: Horizon
In order to meet customer needs, Horizon will send R&D personnel to the customer site for each mass production of chips to work with customers to build a prototype room. Both Journey 3 and Journey 5 mobilized teams of hundreds of people when they were mass-produced on Li Auto. However, this custom development model also comes with high costs.
In order to cope with the increase in the number of projects and customers, Horizon has proposed an ecological strategy, positioning itself as a second-tier supplier, providing standardized chips and underlying software to ecological partners, and making them responsible for providing delivery and services to car companies.
At present, Horizon has begun to see the results of its ecological strategy, but it still needs to invest a lot of resources to build “model rooms.” In particular, “Autonomous driving in urban areas is a huge technical challenge for the entire industry. If we don't build a 'model house', then algorithm partners will have to step into many pitfalls in their own chip platforms.”
In addition, car companies have begun to independently develop car-level artificial intelligence chips, accelerating the pace of market competition. At present, the car companies that have begun to develop their own chips include not only new car manufacturing forces, such as Weilai, Ideal, Xpeng, Leapmotor, etc., but also traditional car companies such as BYD, Dongfeng, Great Wall, Geely, SAIC, GAC, and BAIC. . This has put some pressure on Horizon as a supplier.
For the future, Yu Kai hopes that Horizon can become a company like Microsoft, Intel, and NVIDIA. If you want to become a great company, you will have to go through many difficulties and dangers. It depends on who can survive the darkest hour before dawn. Horizon seems to be ready. Yu Kai emphasized the importance of slow development. (Horizon) should not be too behind, but not too far ahead. It is crucial to keep pace with the times.
