Image source @ Visual China
Institute of Literary | Value
After the Hong Kong stock market on March 22, Xiaomi Group announced its financial results for the fourth quarter and full year of fiscal 2021. The data shows that in 2021, Xiaomi's net profit and revenue will maintain year-on-year growth, and the automotive business that has been attracting much attention has also made a lot of progress, and it is expected to be officially mass-produced in 2024.
Before the earnings report, Xiaomi's stock price continued to fall, falling to its lowest point since May 2020. But after handing over this brilliant answer sheet, the stock price finally stopped falling and rebounded. During the early session on Wednesday, Xiaomi's stock price opened high and went high, and the gain expanded to more than 8% at one point, and finally closed up more than 4%.
Of course, the rebound in Xiaomi's stock price is not entirely due to the financial report. In addition to the announcement of the earnings report, Xiaomi announced on Tuesday evening that the board of directors formally resolved to repurchase shares with a maximum of HK$10 billion in the open market.
It is reported that this is another large-scale repurchase action by Xiaomi after announcing the repurchase of 120 Hong Kong dollars in September 2019. The big move of the board of directors is undoubtedly a means to stabilize the stock price and inject confidence into the market, but it also shows the financial strength of the group.
Nowadays, the smartphone market is shrinking, the highest gross profit in the high-end market is not Xiaomi's strength, and new businesses such as AIoT and smart cars are also the time when blood transfusions are needed. Xiaomi, which has good cash flow and a stable capital chain, does not lack the confidence of a big war.
Net profit rose sharply year-on-year, and overseas markets drove Xiaomi's performance growth
From the perspective of core financial indicators, Xiaomi's performance in the fourth quarter and the whole year of 2021 was decent, not too many highlights, but it did not disappoint the market too much. However, considering the epidemic, chip shortage and the global economic downturn, it is not easy to achieve a smooth transition.
Let's start with the overall revenue and profit profile. In general, although the growth rate of Millet's revenue has declined slightly, it has remained stable overall, and its ability to make money is still trustworthy.
According to the data, Xiaomi's revenue in the fourth quarter was 85.6 billion yuan, an increase of 21.4% year-on-year, and the adjusted net profit was 4.5 billion yuan, an increase of 39.6% year-on-year. For the whole of fiscal 2021, Xiaomi's revenue reached 328.3 billion yuan, an increase of 33.5% year-on-year; the adjusted net profit for the whole year was 22 billion yuan, an increase of 69.5% year-on-year, with a bright growth rate.
Second, let's look at the revenue structure.
At present, the smartphone business is still Xiaomi's basic disk and the most stable cash cow, regardless of revenue scale or revenue proportion, it is the highest among the three major business sectors.
Data show that in the fourth quarter, xiaomi's smartphone business revenue was 45.35 billion, accounting for 53% of revenue. Followed by IoT and consumer products business revenue of 21.79 billion, accounting for 25.5%, as for the Internet service business and other emerging business revenue accounted for less than 5% of the total, the contribution is still quite limited.
However, in terms of growth rate, the Performance of the IoT business is more prominent. The data shows that in the fourth quarter, the revenue of the smartphone business increased by 18.4% year-on-year, and the shipment volume increased by 4.4% year-on-year, while the revenue of IoT and consumer products increased by 19.1% year-on-year.
As for the Internet service business, although the current revenue is not high, the growth of overseas markets is quite good. According to the financial report data, Xiaomi's overseas Internet service revenue surged 79.5% year-on-year to 1.6 billion yuan in the fourth quarter. In the fourth quarter, Xiaomi's entire Internet service business revenue was only 1.74 billion.
It is worth mentioning that, similar to the Internet service business, the growth of the smartphone, IoT and consumer products business has gradually become more dependent on overseas markets.
In the whole year of 2021, Xiaomi's total overseas market revenue reached 163.6 billion, an increase of 33.7% year-on-year, with revenue accounting for nearly 50%, and the proportion of overseas market revenue in the fourth quarter also reached 48.7%.
In addition to the Internet service business mentioned above, the domestic smartphone business has long been killed into a red sea, and the overseas market is obviously more room for growth. From the statistics of data agencies such as Canalys, it can also be seen that Xiaomi's share of the smartphone market in Europe, Latin America and the Asia-Pacific region has steadily increased.
It should be clear that Xiaomi's new businesses such as IoT, Internet services and automobiles are still in the climbing stage, and they need continuous blood transfusions and invest a lot of resources to seize the market. At present, the only one in Xiaomi's four major business sectors that can stabilize hematopoiesis is the smartphone business.
However, in the overall decline of the smartphone market and the increasingly cruel competitive environment, Xiaomi's cost pressure is also rising, posing a new test of its profitability.
According to the data, Xiaomi's operating profit in the fourth quarter was only 4.415 billion, a sharp drop of 54% from 9.602 billion in the same period of 2020, and the operating profit for the whole year of 2021 was only 2.602 billion, a slight increase of 8.3% year-on-year. As in the past few years, what drives up Xiaomi's operating costs is mainly sales and promotion expenses.
The data shows that the cost of sales of millet in 2021 is as high as 27.005 billion, which is a substantial increase from 20.911 billion in 2020. From a sequential point of view, Xiaomi's sales and promotion expenditure in the four quarters of last year recorded 4.16 billion, 5.68 billion, 4.88 billion and 6.25 billion, up 58.6%, 76.2%, -14.1% and 22.9% respectively year-on-year, except for the third quarter.
In the smartphone market that has gradually lost its growth momentum, Xiaomi wants to achieve the effect of reducing costs and increasing revenue, and there is only one way - the high-end mobile phone market that Lei Jun has in mind.
This can't help but make people want to ask: since Xiaomi shouted out a comprehensive entry into the high-end market, Lei Jun put words on social media "benchmarking Apple" has passed for a while, has Xiaomi's high-end road gone smoothly?
Is Xiaomi's high-end road smooth?
The reason why Xiaomi wants to hit the high-end market is actually easy to understand.
On the one hand, there is still room for growth in the high-end market, especially under the replacement trend driven by 5G and folding screens, the premium space of high-end flagship models has been further released.
Folding screen mobile phones can be said to be the only "small blue ocean" left in the high-end market. Taking the domestic market as an example, according to the data of DSCC statistics, the shipment of Folding Screen mobile phones in China in the third quarter of 2021 increased by 215% month-on-month, soaring by 480% year-on-year, and it is expected to exceed 17.5 million units by 2022.
Judging from the price of mainstream folding screen mobile phones that have been released so far, the highest price is Huawei Mate X2, which has entered the range of 17,000-18,000 yuan. Covering the high-end, multi-price range of the Samsung Galaxy Z series, the lowest price is also more than 7,000 yuan, which is much higher than all of Xiaomi's current main products.
As for 5G mobile phones, although the price is not as fully targeted at the high-end market as folding screen mobile phones, the growth prospects are also worth looking forward to.
According to the statistics of the Prospective Industry Research Institute, global 5G mobile phone sales are expected to be 1.397 billion units in 2022, reaching the peak of recent years, and may decline after that. From the perspective of growth, 5G mobile phone shipments will maintain an average annual compound growth rate of about 5% during 2021-2023.
On the other hand, the high gross profit margin and premium space of the high-end market are also Xiaomi's long-term pursuit.
The data shows that the gross profit margin of Xiaomi's smartphone business in fiscal 2021 is 11.9%, although it is higher than 8.7% in 2020, but it has no advantage in comparing business sectors such as IoT and Internet services, or comparing with other competitors.
According to IDC statistics, the cost of Huawei's Mate series of high-end models accounts for about 50%, and the highest Mate 40E is 51%, which is already the highest level of mainstream high-end flagship models on the market. In addition to the Huawei Mate series, the cost of the Samsung Galaxy Z Fold 3 is about 39.4%, and the Mi Mix Flod is 38.5%.
Apple, which has the best cost control, the iPhone 13 Pro MAX cost less than 37%, and the gross profit margin is as high as 63.5%. Even if other sales costs such as publicity and promotion, research and development, and logistics are removed, Apple's gross profit margin can be maintained at more than 40%.
Seeing this sharp contrast, I believe it is not difficult for everyone to understand why Lei Jun regards Apple as a catch-up target.
Back to the question we asked earlier: how is Xiaomi's high-end road going?
In the view of the Value Research Institute, Xiaomi is currently happy and worried, and in general, it is still a long way from the goal of benchmarking Apple.
On the one hand, it is gratifying that from the perspective of sales and sales ratio, Xiaomi's high-end mobile phone business has made a lot of progress in the past year.
According to the information disclosed in the financial report, the ASP of Xiaomi smartphone increased from 1009.1 yuan in the fourth quarter of 2020 to 1143.6 yuan in 2021, mainly due to the increase in shipments and proportion of high-end models. According to the data, xiaomi is priced at more than 3,000 yuan (or 300 euros) in fiscal 2021, and the global shipment of high-end smartphones exceeds 24 million units, accounting for 13%, far higher than the 10 million units and 7% in 2020.
But on the other hand, the lack of core technology, insufficient hard technology content and core components such as chips and screens are subject to people, which is xiaomi's biggest problem at present.
On the black cat complaint platform, the two high-end models of Xiaomi 11 and Xiaomi Mi 12 have 12282 and 6966 complaints respectively, and consumers mainly target the performance of mobile phones, cost performance and after-sales service of the platform. This phenomenon is also enough to show that these two high-end market asking stones that Xiaomi has high hopes for, the effect is not satisfactory.
However, from the revenue change curve of various businesses, the Value Institute believes that everyone should also pay attention to a key message: although the smartphone business still supports half of Xiaomi's sky, the proportion of revenue has gradually decreased.
On a month-on-month basis, the first three quarters of smartphone revenue accounted for 67%, 67.3% and 61.3% respectively; year-on-year, it was 54.2% in the fourth quarter of 2020, which was higher than the fourth quarter.
In other words, Xiaomi's New Businesses such as IoT are rising, and what is needed now is a complete long-term strategy to guide and integrate relevant resources as soon as possible to allow these two emerging services to better control costs and develop synergistically.
Smart car + AIoT, Xiaomi needs to play a good growth combination punch
At this stage, the automotive and AIoT businesses are future growth promises for Xiaomi, as well as a heavy burden – because both businesses need to be sustained, burn money sharply, and face increasing competitive pressure.
First, look at the cost.
At the beginning of 2019, when Xiaomi put forward the slogan of "All In AIoT", it said that its plan is to invest 10 billion yuan in 5 years and continue to increase investment in research and development and marketing. In the past two years, Xiaomi's strategy has not changed much, and the 100-year investment plan is still continuing.
However, it should be noted that with the escalation of the existing user battle, the user scale growth rate of Xiaomi's AIoT business is declining, and the cost of customer acquisition will also rise, which will further push up operating costs.
According to the financial report data, in the past three quarters of 2021, the main consumption and connection scenarios of Xiaomi's AIoT business - that is, the monthly active user growth rate of Xiaoai Classmate and Mijia APP are between 30% and 40%. However, in the fourth quarter, the year-on-year growth rate of Xiao Ai's MAU fell to 23.3%, and the growth rate slowed down.
Image source @ Zheshang Securities Research Institute
The speed and intensity of the car-making business is even faster than AIoT, especially in terms of R&D innovation and personnel recruitment.
In 2021, Xiaomi's R&D expenditure increased by 42.3% year-on-year to 13.2 billion. According to the information disclosed in the financial report, this part of the increase in expenditure is mainly used to pay the remuneration of R & D personnel. Public information shows that the scale of Xiaomi's intelligent car business research and development team has now exceeded 1,000 people, and there is a trend of further increase.
It can also be seen from the quarterly change curve of R&D investment that as the car-making plan is on the right track and R&D personnel are in place, the scale of xiaomi's expenditure growth has risen sharply. According to the data, Xiaomi's R&D investment in the first three quarters of fiscal 2021 was 3 billion, 3.1 billion and 3.2 billion, respectively, and surged to 3.8 billion in the fourth quarter.
More importantly, R&D is only one aspect: large-scale acquisition/integration of upstream and downstream industrial chains, and the establishment of factories in Beijing, all of which cost a lot of money. On November 27 last year, Xiaomi Automobile Factory officially announced the settlement of Majuqiao Town in Beijing, and the official news is that it is expected to invest 63 billion yuan to build the factory in the next few years, which is not counting the daily operating funds that need to be spent after the full start of the production line in the later stage.
Second, let's look at the competitive environment.
The automotive business faces much more competitive pressure than AIoT. According to the information disclosed in the fourth quarter financial report, Xiaomi Automobile mainly focuses on A+ and B-class models, and the price is expected to be in the range of 150,000-300,000, aiming at the mid-to-high-end market. If you compare the smartphone market, it is roughly in the price range of 3000-4000 yuan. From this positioning point of view, Xiaomi cars and high-end mobile phones are basically aimed at the same price range.
However, like smart phones, the competition in the mid-to-high-end new energy vehicle/smart car market is also very fierce.
In terms of horizontal comparison, the direct competitor of Xiaomi's 150,000-300,000 range models will be Xiaopeng. After the recent announcement of a new round of price increases, the price of Xiaopeng's main models is basically in the range of 250,000-370,000, and it will compete with Xiaomi head-on for the market. But today, Xiaopeng has the ability to deliver nearly 100,000 new cars throughout the year, and has established a perfect offline sales network, which Xiaomi does not have.
In other words, Xiaomi does not have a first-mover advantage and user accumulation in the automotive market, and although the IoT business has a large user base, it is trapped in low gross profit and low premium space like smartphones, and both have their own troubles.
However, the Value Institute believes that the above differences just create a basis for the complementary advantages of the two businesses of automobile and AIoT - the former can provide broad growth prospects and rich software and hardware consumption scenarios, and the latter has deep user accumulation and ecological chain advantages, which can completely learn from each other.
What Xiaomi needs to consider now may be how to make these two new services that carry growth hopes better integrate together and exert synergies to achieve the effect of "1+1>2".
In February this year, foreign media reported that Tesla is developing an exclusive app store, and will build a developer platform, which may gradually "drive out" the Tesla ecosystem for Android and iOS systems.
In the era of internet of everything, the internet of intelligent vehicles is an incremental scenario that cannot be ignored, and software and hardware services can provide a steady stream of additional revenue. In the view of the Institute of Value, it seems that there is nothing wrong with treating smart cars and Tesla's self-developed app stores as another smartphone and App Store.
Xiaomi, which has been deeply involved in the AIoT market and has accumulated a huge user base, certainly has more advantages than competitors such as "Wei Xiaoli" in this regard.
According to the data, by the end of 2021, the number of Xiaomi AIoT connected devices reached 434 million, an increase of 33.6% year-on-year. Among them, the number of users with five or more devices was 8.8 million, an increase of 40.4% year-on-year. With the growing synergy effect of Xiaomi's AIoT hardware and software, as well as the further upgrading of the MIUI system, its intelligent ecosystem has become quite mature.
For Xiaomi, these two years are a critical period to get rid of anxiety, seek transformation and open up new growth points, and it is also a tough stage for car manufacturing, AIoT and other businesses. This hard battle is not easy to fight, and I hope that Lei Jun and his team are really ready.
Write at the end
When Zhou Hongyi talked about Lei Jun's style of conduct, he once said the following passage:
"For our generation, Lei Jun is a legend. By the time I had to squeeze the bus for three hours a day to work, he was already driving a white Santana. In our group of people (referring to Ding Lei, Ma Huateng and other Internet bigwigs), he is also the earliest debut and the first to win social recognition. ”
Young and famous, used to pointing out the country in front of the spotlight, but also created Lei Jun's flamboyant personality. Before every important decision of Xiaomi in recent years was introduced, it was indispensable for Lei Jun to wave the flag in front of the stage. In August last year, he made a vision of "winning the world's first in three years", and at the end of the year, he shouted out the bold words of "high-end mobile phones against Apple", pushing himself to the cusp of public opinion again and again.
But everyone may also be able to notice that Lei Jun, who has been active in hot searches, has been much more low-key in recent times.
But since the beginning of this year, Lei Jun has appeared in the public, spoken less on social media, and seems to understand the truth that "silence is gold". At the same time, he also intensively withdrew from a number of Xiaomi affiliated companies, including Guangzhou Xiaomi Communication Technology Co., Ltd. and Guangdong Xiaomi Technology Co., Ltd., focusing on the group's long-term strategic planning.
Of course, this is not necessarily a bad thing.
In the face of an increasingly cruel competitive environment and increasing pressure to transform, Xiaomi may really need to reduce external noise interference and concentrate on doing big things.
Moreover, we have no doubt that when Xiaomi really phoenix nirvana, Lei Jun will definitely be the first to jump out to announce the good news and return to the center of the stage.