In February 2021, iFLYTEK (002230.SZ) proposed to achieve the goal of "one billion users, 100 billion revenues, and trillions of industrial ecology" in the next five years at the annual planning conference of enterprises.
Red Star Capital Bureau noted that according to the target, iFLYTEK needs to reach 100 billion yuan in revenue in 2025, according to the company's financial report, the total revenue of iFLYTEK in 2020 is 13.025 billion yuan, if you want to achieve the goal, iFLYTEK will achieve 45% growth per year.
This is obviously a big challenge for iFLYTEK, which has been established for more than 20 years. iFLYTEK's 100 billion revenue dream, is it blind confidence or victory?
(i)
What story is iFLYTEK telling?
Review of iFLYTEK's business structure
Founded in 1999 by 18 students of the University of Science and Technology of China, iFLYTEK was soon helped by the Hefei Municipal Government to raise a total investment of 30 million yuan from 3 institutions. In the 2001 Chaohu "Half Soup Conference", iFLYTEK officially decided to focus on the voice industry, break the monopoly of foreign companies on the Chinese voice market, and the language-related work of iFLYTEK has been working for more than 20 years.
iFLYTEK's early business is not far from us, including the speaking evaluation system for the Putonghua proficiency test, the crBT in the field of telecom value-added services, and so on.
iFLYTEK's early business structure Source: Corporate Prospectus
After several years of development, iFLYTEK's current business has diversified, with three main revenue sources, namely education, open platform and consumer business, and smart cities.
According to the 2020 enterprise annual report, the revenue of the education sector accounted for 32.14% of the total revenue in 2020, the smart city business accounted for 29.46% of the total revenue, and the open platform and consumer business accounted for 23.65% of the total revenue, and the total revenue ratio of these three businesses accounted for more than 85% of the total revenue.
Source: Company Financial Report, Red Star Capital Bureau
Specifically, these three business segments:
Education: The business is divided into B(business) products and C (consumer) products.
B-end products refer to smart classroom teaching products, through the construction of "cloud-platform-terminal" overall architecture, to create a networked, data-based, interactive, intelligent campus learning environment, to achieve efficient lesson preparation before class, accurate teaching during class, intelligent paper reading and personalized learning after class. According to the 2020 annual report, as of the end of 2020, smart classroom products cover more than 30,000 schools in 34 provincial administrative units.
C-end education products focus on the K12 education counseling field, including providing personalized learning manuals, zhixue network serving students and parents, and products and value-added services such as iFLYTEK learning machines.
Smart City: This part of the product is mainly for the G (government) side, including smart policing, smart court, smart procuratorial affairs, political and legal coordination platform related products; for example, when the court adjudicates a case, help the trial record, assist the rapid opening of the simple and expedited case, thereby improving the efficiency of the trial.
Open platform and consumer field: open platform refers to the use of iFLYTEK open platform intelligent voice and artificial intelligence capabilities and solutions for operators, finance, automotive and other industry customers, according to the financial report, as of December 31, 2020, the number of iFLYTEK open platform ecological partners is 2.7 million, the total number of developers is 1.75 million, the total number of applications is about 996,000; consumer business mainly refers to iFLYTEK voice recorders, iFLYTEK office books, iFLYTEK translation machines and other hardware products.
iFLYTEK Open Platform Architecture; Source: iResearch Consulting
In summary, iFLYTEK's current products are relatively complex, with layouts for the G-end, B-end, and C-end, and hardware and software are also involved.
iFLYTEK's business vision
Returning to the "100 billion target" mentioned by iFLYTEK at the annual planning conference above, founder Liu Qingfeng expects that about 1/3 of it comes from education business; 1/3 comes from digital economy transformation business, such as e-government, medical care, justice and other fields; and 1/3 comes from consumer products.
Liu Qingfeng believes that the driving force for iFLYTEK's revenue to break through 100 billion yuan mainly comes from two points: First, the application of education and medical care is through the economic cycle and is basically just needed. 4% of China's annual GDP invests in education and 6%-7% in health care. In the post-epidemic era, the use of artificial intelligence technology to make up for the shortcomings of primary medical care and carry out intelligent epidemic prevention and control are all needed by the country. iFLYTEK's education and healthcare business is in line with macroeconomic trends.
Secondly, the transformation of the digital economy itself is good for the artificial intelligence industry, and in the artificial intelligence industry, although there are some new unicorn companies, these companies only do a single point of technological innovation, comprehensive strength and brand credibility have not yet been built, so it is difficult to do major projects in the era of digital economy transformation, iFLYTEK can get opportunities from it.
However, Red Star Capital Bureau noted that iFLYTEK has been doing it for 22 years, and the revenue in 2020 is about 13 billion yuan. Relying on two dynamics and three revenue components, it is really difficult for iFLYTEK to achieve revenue of more than 100 billion yuan in 5 years. Let's take a look at the current business status and the obstacles that may be encountered in the future.
(ii)
From the financial report, IFLYTEK looks at the background of "technology" of iFLYTEK
Revenue growth has improved but gross margin has declined significantly
From the perspective of the change in the total revenue of iFLYTEK, according to the company's financial report, from 2017 to 2019, the revenue growth rate of iFLYTEK has declined significantly, with the total revenue of 5.445 billion yuan in 2017 and a revenue growth rate of 63.97%; the total revenue in 2019 was 10.079 billion yuan, and the revenue growth rate was 27.3%; the revenue growth rate in 2020 was slightly increased; in the first three quarters of 2021, the total revenue of iFLYTEK was 10.868 billion yuan and the revenue growth rate was 49.2%. There has been a significant increase, but the long-term nature remains to be seen.
Source: Corporate Finance Report, Red Star Capital Bureau
Generally speaking, gross profit margin is more intuitive to reflect a company's competitiveness in the market, but in recent years, iFLYTEK's gross profit margin has been in a downward trend.
From 2017 to 2020 and the first three quarters of 2021, the gross profit margin of iFLYTEK was 51.38%, 50.03%, 46.02%, 45.12% and 43.12%, respectively.
The continuous decline in gross profit margin shows that iFLYTEK may be challenged in the future in terms of its ability to "make money"; in terms of sub-business, the gross profit margin of major education areas is currently higher, more than 50%; the gross profit margin of smart cities, open platforms and consumer businesses is about 30%, and other businesses are not discussed due to their low contribution to revenue.
Overall, iFLYTEK has a wide range of products and a wide range of gross profit margins in a single business, but in addition to the education sector that has been deeply cultivated for many years, the market competitiveness of other business sectors is not strong.
Over-reliance on government subsidies, "giants" or "giant babies"
Behind the profitability of iFLYTEK, it has always been inseparable from the support and help of the government.
According to the company's financial report, from 2017 to 2020 and the first three quarters of 2021, the net profit of iFLYTEK was 435 million yuan, 542 million yuan, 819 million yuan, 1.364 billion yuan and 729 million yuan, respectively, while the government subsidies received were 0.77 billion yuan, 276 million yuan, 412 million yuan, 426 million yuan and 225 million yuan, and the proportion of government subsidies in net profit was 17.8%, 50.9%, 50.3%, 31.2% and 30.9% respectively.
That is to say, behind the net profit of iFLYTEK in 2018 and 2019, half of it came from the government's "help", and in 2020 and the first three quarters of this year, more than 30% of iFLYTEK's net profit also came from government subsidies. Behind the seemingly gorgeous net profit growth of iFLYTEK, it also contains a large "moisture".
Technology enterprises, technology priority or marketing priority
iFLYTEK has always been considered a technology giant, but the financial report shows that the company once attached much more importance to marketing than to research and development, which also made the "technology giant" of iFLYTEK quite questionable.
According to the company's financial report, in 2017, iFLYTEK's sales expense expenditure was about twice that of R&D investment; in the 2020 financial report, iFLYTEK's annual R&D expenditure was 2.211 billion yuan, an increase of 34.86% year-on-year, and finally exceeded the sales expense of 2.084 billion yuan in terms of amount; after that, hKUST also seemed to increase R&D investment, in the first three quarters of 2021, iFLYTEK R&D expenses were 2.022 billion yuan, and sales expenses in the same period were 1.656 billion yuan.
Although the weight of R&D expenses and marketing expenses has been adjusted, in the first three quarters of 2021, the company's R&D expenditure accounted for 18.61% of total revenue, compared with 22.43% in the same period of 2020; this also shows that to a certain extent, iFLYTEK's R&D expense investment has not kept pace with revenue growth.
(iii)
Where are the difficulties in achieving the goal of iFLYTEK?
In the education sector business, new and old rivals crowded the track
iFLYTEK's education business is currently the company's most important source of revenue, and founder Liu Qingfeng also expects that about 1/3 of the "100 billion revenue plan" comes from education business.
However, achieving this goal is actually not small. In the B-end business, iFLYTEK has a leading edge in this regard, but the technical barriers of the business itself are not high, and now the head Internet giants can become a strong competitor of iFLYTEK in the B-end education sector, such as Tencent (Tencent Holdings 00700.HK) announced at the digital ecology conference held in November this year that Tencent Education has served more than 1,000 provincial, municipal and county education authorities, covering more than 100,000 schools and more than 450 million users. In addition, as far as the business itself is concerned, it also faces many uncertainties such as long account cycles and policy changes.
From the perspective of the C-end market of iFLYTEK's education business, there are two types of monetization channels, namely the sale of iFLYTEK learning machines and the provision of personalized learning manuals to serve students' parents, and value-added services.
According to the data released by IDC, it is expected that the student tablet will reach 4.7 million units in 2021, but in fact, the current competition in the learning machine market is also extremely fierce, with veteran players who have been deeply involved in the field for many years, such as Backgammon, Youxue, Reading Lang, etc., and Ali (Alibaba BABA. US；09988. HK), ByteDance, Tencent and other technology and Internet giants have also long been laid out.
According to the data compiled by Prospective Economist from Tmall Mall, in 2020, BBK is far ahead in terms of learning machine transaction volume and market share by virtue of its core educational resource advantages and long-term brand influence; iFLYTEK can only be regarded as the second echelon player at present.
Source: Prospective Industry Research Institute
Offline, iFLYTEK's channel construction and user training are not currently the opponents of these established learning machine companies.
The consumer goods business is difficult to occupy the minds of users, and the AI war is about to erupt
iFLYTEK is also optimistic about the consumer goods business segment in the "100 Billion Plan", which can be divided into tool-based consumer goods such as translation machines, voice recorders, office books, etc.; and content-based consumer goods such as speakers, TV set-top boxes, smart headphones, etc.
However, at present, iFLYTEK has not formed a closed loop of product ecological chain, nor has it mastered the traffic entrance of consumption scenarios, and at the same time, it is not hostile in terms of cost performance, and the market competitiveness in the later stage needs to be discussed.
For example, in terms of smart voice recorders, the smart voice recorder brilliant version released by Sogou in August 2019 has more price advantages than the recorder SR301 youth version released after iFLYTEK.
In addition, in AI, the landing of AI concept is the primary problem of many AI companies, and the giant BAT (Baidu, Ali, Tencent) has mastered the absolute traffic advantage in this battle, and it has also laid out this earlier.
Baidu ranked fourth in the top 20 list of global artificial intelligence companies in the "2019 Artificial Intelligence Development White Paper", covering multiple fields such as intelligent buses, automatic driving, and intelligent car connection; Alibaba has established Alibaba Cloud, Dharma Academy and Pingtou Brother to improve its layout in AI by virtue of the natural traffic advantages of e-commerce and payment; Tencent built an AI lab in 2016 and achieved certain results in the AI layout of medical and financial aspects.
At the same time, the strength of the "AI Four Little Dragons" SenseTime, Megvii, Yuncong, and Yitu should not be underestimated, and the AI war can be described as "stars gathering".
brief summary:
iFLYTEK has many businesses, facing enterprises, governments and users, but it seems that it is difficult for iFLYTEK to find a core foothold that can dominate the rivers and lakes. The cake of artificial intelligence seems to be huge, but competitors are also menacing, and the 100 billion revenue dream of iFLYTEK may really need to be riveted, but at present, it is still not optimistic.
Red Star News reporter Yu Yao Liu Mi
Edited by Yang Cheng
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