Text / Five Lines
Producer / Node Finance
In 2019, Transsion Holdings (688036. SH) was listed on the Star Market before the National Day, and the capital market welcomed the "King of Africa" with great enthusiasm.
At the close of the first day of listing, the stock price was reported at 57.80 yuan, up 64.44% from the opening price, and the total market value reached 46.2 billion yuan, ranking third in the total market value of the science and technology innovation board on the 30th.
Today, the market's enthusiasm for the African king has waned, and his stock price has fallen by 58% from its peak, and its total market value has fallen to the 100 billion mark.
The development process of TRANSSION Holdings can be divided into two stages. Early on, with a keen sense of smell to discover the blue ocean market, coupled with a highly high localization operation strategy has been successful.
After that, it followed the example of its Chinese counterparts and extended its tentacles into Internet services and home appliances, with the intention of creating a second growth curve. At the same time, it has also entered the mobile phone market outside Africa such as India.
It is not difficult to see from the actions of Transsion Holdings that it does not want to "lie flat", and chose the latter between making a small and beautiful mobile phone brand and fighting a "bicycle to a motorcycle".
/ 01 /
Transsion embarks on a new battlefield
When it comes to Transsion Holdings (referred to as Transsion), the first impression is the reputation of "king of Africa". In fact, in addition to mobile phones, Transsion has embarked on a new battlefield.
In January this year, from Gome Retail (00493. HK) former senior vice president of Baidu and president of search company Xiang Hailong, officially joined TRANSSION as president of the mobile Internet business unit. The second curve of the sound layout for a long time has received attention from the outside world.
Transsion has embarked on a similar path to its domestic counterparts in this regard.
First of all, transsion's Internet business, the starting point is the same as xiaomi and other peers, "hardware products (mainly mobile phones) + based on Android self-developed OS (operating system)" constitutes the basis for development.
Transsion's mobile phone products can be divided into three levels, each level has a corresponding OS. Among them, iTelOS is applied to its entry-level mobile phone brand iTel; HiOS is applied to the high-end smart brand TECNO; XOS is applied to in the high-end Internet mobile phone brand Infinix, which is created for young consumers.
At present, TRANSSION has completed the transition from functional machines to smart machines. As of the first half of 2021, its smartphone revenue accounted for 85%.
Secondly, in addition to the mobile phone hardware and OS, TRANSSION has also launched application products on the OS, which is the same as Huami OV.
The difference is that Huami OV's Internet products, the development logic focuses on improving the use experience of its own mobile phone products, such as self-contained music, video and other applications, with limited independence. In contrast, transposition has to be done more deeply. According to statistics, TRANSSION's Internet services involve social, short video, streaming media, mobile payment and other segments.
Image source: Company official website
Among them, the music streaming platform Boomplay, which was launched in 2015, has achieved outstanding results, and under the premise of no promotion, Boomplay has reached 100,000 installs within 3 months.
For operating a streaming platform, TRANSSION does not have much experience. Transsion's response is to cooperate with NetEase, which created NetEase Cloud Music, and the two sides established a joint venture company TransEase at the end of 2017, and Boomplay subsequently began to develop independently from TRANSSION as a subsidiary of TRANSSION.
Judging from the results, this strategy is effective. Boomplay learned from the past of NetEase Cloud Music and reached a copyright cooperation with the world's three major record companies (Universal Music, Warner Music, sony music) early on, with a library of 15 million songs.
At the same time, Boomplay and TRANSSION Holdings also adopted a strong localization operation strategy when they entered the mobile phone market.
On the one hand, half of the staff on the team are Native Africans, and almost all of them are local employees in the local offices. On the other hand, the music industry in Africa is more dispersed than in Europe, the United States and the Asia-Pacific region, and many artists exist in the form of independent artists. Therefore, Boomplay not only invites musicians to settle in, but also provides promotion services for artists, thus forming a positive cycle in the supply of artists.
At present, Boomplay has 65 million users and 2 billion monthly singles plays, making it the largest music streaming platform in Africa. Including Boomplay, TRANSSION has developed 7 DAUs (monthly active users) with more than 10 million products.
A big premise that differs from Huami OV is that Internet penetration in Africa is not high. According to the Mobile Economy Report 2020 released by the Global Association for Mobile Communication Systems, the penetration rate of mobile users in sub-Saharan Africa will reach 50% in 2025, while China has already reached more than 90%.
/ 02 /
The same and the new business
It can be seen that transsion's Internet service business has a different development logic from Huami OV, which reflects the different goals of the two.
Huami OV's Internet products focus on improving the experience of mobile phone products, while TRANSSION hopes to seize the mobile Internet entrance with the help of product matrix, becoming the company's second growth curve.
When Transsion Holdings was listed on the top of the "King of Africa" reputation, its development history has been repeated many times by all parties, summarizing a total of three characteristics.
First, the time window is fully utilized.
In 2006, Zhu Zhaojiang, who served as the head of overseas market in Bird Mobile Phone, established Transsion Technology with Bird's overseas market team in the same year and entered the African market. At that time, Africa's mobile phone penetration, consumption capacity and infrastructure level showed three low states, the latter two are the two key factors restricting the popularity of mobile phones, which can be said to be a vicious circle.
According to the GSMA, even in 2019, South Africa (Sub-Saharan) is still in the 2G/3G era, with 2G/3G coverage of 91% and 4G coverage of only 9%; the Middle East and North Africa region is in the transition stage of 3G to 4G, with a slightly higher 4G coverage rate of only 29%, and 2G/3G coverage is about 2.5 times that of 4G.
According to the World Bank, the per capita GDP of sub-Saharan Africa (excluding high incomes) in 2020 was only $1498.6, while the average GDP of Chinese was $10,500.
Second, relying on the advantages of the industrial chain of the Chinese market, we will use advanced experience to "reduce dimensions" and attack competitors in the African mobile phone market.
On the one hand, Bird mobile phone has ranked first in China's mobile phone market for seven consecutive years, and the Zhu Zhaojiang team from this place has rich experience in trading; on the other hand, in 2006, the shipment volume of China's mobile phone market has reached 126 million units, the industrial chain is mature, and the TRANSSION team has taken advantage of the industrial chain advantages of the Chinese market.
According to the prospectus, half of the company's six major own factories at that time were in China, and the top five suppliers in 2016-2018 were all from China, accounting for about 33%. By 2020, the top five suppliers accounted for 32.14%, of which the fourth largest proportion of suppliers has changed, considering the position of Chinese manufacturers in the mobile phone supply chain, the fourth place after the change is still a Chinese manufacturer.
Image source: Transsion Holdings prospectus
The third step, which is also the most interpreted part of the outside world, is localized operation.
The economic base determines that the ASP (average selling price) of the African mobile phone market is low. In the third quarter of 2020, low-end smartphones (less than $200) accounted for 89% of shipments in the African smartphone market, and mid-to-high-end mobile phones (more than $200) accounted for only 11, and the competitive advantage of cost-effective products was more obvious. Transsion's entry-level mobile phone brand iTel series of ASP, it has dropped to about $50.
Similar examples include the development of mobile phone cameras for African users that can identify their skin color and facial features; African users generally like the preference of large volume, and the built-in volume of TRANSSION mobile phones is also larger than other brands; incomplete communication facilities make mobile phone signals in Africa poor, and TRANSSION mobile phone products are generally equipped with dual-SIM dual-standby functions.
Under the combined force of the three-step strategy, TRANSSION has harvested more than 40% of the African smartphone market, and the overall shipment of mobile phones will reach 174 million units in 2020.
In horizontal comparison, TRANSSION's Internet business and mobile phone business have two similar characteristics.
First, the entry time was early, boomplay's main competitor Spotify did not enter Africa until 2018, three years later than Transsion, transposition seized the time window.
Second, the operational strategy is highly localized, whether it is staffing or artist operation, it has a strong localization color. At the same time, the cooperation with NetEase has drawn on the advanced experience of the Chinese market.
It can be seen that the development path of TRANSSION's Internet business and mobile phone business is in the same vein, but the specific details are slightly adjusted.
/ 03 /
There is no lying flat capital
Before Xiaomi's listing, Lei Jun, who was worried about valuation, had said that Xiaomi's valuation should be Tencent's valuation by Apple. Although after Xiaomi's successful listing, Lei Jun called this remark a "joke", but it did express some views.
The logic of the Xiaomi model is the "three-stage rocket" in the Internet industry, mobile phone products and IOT products are responsible for opening up the market and attracting users, while the Internet service business is responsible for making money.
Reflected in the performance, Xiaomi's Internet service business Millet's three major businesses have the highest gross profit, with more than 70% in the past three quarters, and the revenue scale in the same period is about 7 billion yuan. For the smartphone business, which is the largest business, the gross profit margin of about 10% is already a high level.
Theoretically, the Internet business is not only a gain in the business, but also helpful in improving valuation. However, from the perspective of precedent, there is a big gap between theory and the actual situation, and in the case of sound transmission, the gap will only be greater.
In order to drive the overall profit through the Internet business, only high gross profit is not enough, but also has enough scale, so that the high gross profit attribute of the Internet business can play a real value. Apple and Xiaomi in the mobile phone brand provide the opposite reference case for TRANSSION.
First look at Xiaomi, xiaomi's Internet business, although the three major businesses have the highest gross profit margin, but the scale is the bottom of the three major businesses, the revenue in the past three years accounted for 0.7%, 9,6%, 2.5%, the growth rate is the same as other businesses, are continuing to decline. That is to say, in the matter of increasing profits for Xiaomi, its Internet service business can only decorate the façade.
Looking at Apple, according to the first quarter of fiscal 2022 (October to December 2021), its service business revenue scale was $19.52 billion, accounting for 15.7%, which is the company's second largest source of revenue.
The reason for this gap is not only the scale of the business, but also the user's ability to spend and the willingness to pay, and Buffett, who prefers consumer stocks, will reposition Apple. According to the user's spending power, Apple > Xiaomi > Transsion. Although the Internet business, the soil of transfiguration is too poor, resulting in too many restrictions.
Transsion did not disclose the revenue of the Internet service business in the financial report, but according to Cinda Securities, in the third quarter of 2021, transsion mobile Internet business accounted for less than 1% of the revenue market, with a scale of only 130 million yuan.
It is not difficult to see that whether it is a horizontal comparison with peers or focusing on the feedback provided by its own business, TRANSSION's Internet service business is difficult to help it change its valuation logic.
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