How to break the game in 2022 behind Xiaomi's annual report

In recent years, Xiaomi's stock price has fluctuated like a roller coaster. According to media reports, from January 18, 2019 to January 19 this year, Xiaomi Group has repurchased 106 times in three years, with a cumulative amount of HK$12.3 billion, and the number of repurchases is jaw-dropping.

Following the recent release of the new earnings report, the company also announced a share repurchase plan again, which is expected to repurchase shares in the open market with an irregular maximum total of HK$10 billion, thereby demonstrating the company's confidence in its own business development prospects. Judging from the financial report data alone, Xiaomi's performance is indeed eye-catching.

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Expected good earnings

On the evening of March 22, Xiaomi Group released its financial report for the fourth quarter and full year of 2021. According to the financial report, the total revenue of Xiaomi Group in 2021 was 328.3 billion yuan, an increase of 33.5% year-on-year, and the adjusted net profit was 22 billion yuan, an increase of 69.5% year-on-year. The strong growth of Xiaomi's revenue and net profit is naturally inseparable from the growth of various businesses.

By business, in 2021, Xiaomi's smartphone business revenue was 208.9 billion yuan, an increase of 32.4% year-on-year; IoT and life consumer product revenue was 85 billion yuan, an increase of 25.7% year-on-year; Internet service revenue was 28.2 billion yuan, an increase of 18.8%; and other business revenue was 6.2 billion yuan. The growth of its various businesses naturally benefits from many aspects.

First of all, thanks to the growth of the number of Xiaomi users and monthly active users. By business type, the number of Xiaomi AIoT connected devices (excluding smartphones, tablets and laptops) has reached 434 million, an increase of 33.6% year-on-year, and the number of users with five or more connected devices to the Xiaomi AIoT platform (excluding smartphones, tablets and laptops) has reached 8.8 million, an increase of 40.4% year-on-year. As of December 2021, Xiaoai's monthly active users increased by 23.3% year-on-year to 107 million, and Mijia App's monthly active users increased by 42.0% year-on-year to 63.9 million.

In terms of Internet services, as of December 2021, the global MIUI monthly active users increased by 28.4% year-on-year to 510 million, while the global net new MIUI monthly active users reached 113 million in 2021, of which the number of Chinese mainland net new users reached 18.9 million. The scale of users and the monthly active growth, it can be seen that Xiaomi has a strong growth, which also drives the growth of its business.

Secondly, with the help of Xiaomi's high-end strategy, the unit price of many types of its products has increased. Taking Xiaomi's own smart phones and home appliances as an example, the ASP of Xiaomi smartphones in 2018-2020 was 959.1 yuan, 979.9 yuan and 1039.8 yuan respectively, while the ASP of Xiaomi smartphones increased to 1097.5 yuan in 2021, an increase of 5.6% year-on-year. In addition, the ASP of Xiaomi smart TV has also increased significantly, driving smart TV revenue to increase by more than 25% year-on-year, and the sales of Xiaomi air conditioners in 2021 have exceeded 2 million sets, an increase of more than 70% year-on-year.

Finally, under the joint action of the simultaneous growth of the number of users and the monthly active activity and the high-end strategy, Xiaomi's advertising business has also achieved substantial growth. According to the financial report, Xiaomi's advertising business revenue in 2021 reached 18.1 billion yuan, a year-on-year growth rate of 42.3%. In other words, Xiaomi's high-end has also increased the unit price of its advertising business, while the growth of the number of users and monthly activity has allowed more advertisers to see the commercial value of Xiaomi advertising.

It is worth mentioning that the advertising business with high gross profit margin has directly driven the growth of xiaomi group's gross profit margin. According to the financial report, the gross profit margin of Xiaomi Group jumped from 61.6% to 74.1%

The secret behind high shipments

From the above data, it can be seen that Xiaomi's excellent results in 2021 are directly related to the high shipments of its hardware products. According to the financial report data, the global shipment volume of Xiaomi smartphones reached 190 million units in 2021, an increase of 30% year-on-year; the global shipment of Xiaomi smart TVs reached 12.3 million units; and the global shipment of Xiaomi smart air conditioners exceeded 2 million units, an increase of more than 70% year-on-year. Smart major appliances (air conditioners, refrigerators, washing machines) lead the market, with revenue growth of more than 60% year-on-year in 2021. And its ability to achieve high growth in shipments, mainly because of some of Xiaomi's own actions.

First, extensive investment provides Xiaomi with a sufficient hardware product matrix. According to the financial report, Xiaomi invested 290, 310 and 390 companies from 2019 to 2021. From the perspective of Xiaomi's investment in 2021, its investment is mainly concentrated in the two major areas of new consumption and hard technology. Specifically, Xiaomi's investment in the new consumption field is to build its own ecological chain, provide sufficient products for online and offline sales channels such as Xiaomi Home and Xiaomi Youpin, and improve the layout of the new retail strategy; while its investment in hard technology is to improve its own supply chain and stabilize the upstream and downstream business development for mobile phones, car manufacturing and other businesses.

In this way, both Xiaomi's ecological chain layout and supply chain layout can be delivered stably, so that the "mobile phone × IoT" strategy based on the hardware product ecology can be effectively implemented, and the feedback linkage between businesses has also driven sales growth.

Second, R&D investment has enhanced Xiaomi's product strength and attracted consumers to buy. R & D capabilities not only determine the growth boundary of technology companies, but also can raise the brand image, especially for xiaomi that impacts high-end, research and development strength is particularly important. According to the financial report, Xiaomi's research and development expenditure in 2021 reached 13.2 billion yuan, an increase of 42.3% year-on-year, and the compound growth rate since 2017 has reached 43%. Xiaomi's R&D investment is not only much higher than xiaomi's revenue growth, but also entered the top 20 of China's high-tech companies.

Judging from the research and development results, Xiaomi 12 Pro first developed the "Xiaomi Surging P1" charging management chip, which broke through the technical barrier that large batteries and fast charging above 100 watts could not be taken into account, and the battery endurance of the same capacity increased by 1 hour; MIUI13 realized the system-level full-link anti-fraud function, and the Xiaomi 12 series also became the industry's first high-end flagship with anti-fraud function. Xiaomi's breakthrough in research and development not only provides technical support for its various businesses, but also becomes its confidence in impacting the high-end battlefield.

Third, the construction of channels has enhanced Xiaomi's service capabilities, allowing it to further penetrate into the sinking market. According to the financial report, Xiaomi's offline stores increased from more than 3,200 at the end of 2020 to 10,200 at the end of 2021, and maintained a growth rate of more than 200 new stores per month, and its urban and township coverage rate has exceeded 97% and 85%. It is reported that in the first month after the launch of the Xiaomi 12 series, offline channel shipments accounted for more than 50%. In other words, Xiaomi's offline channel construction has successfully driven the growth of Xiaomi mobile phone sales and brought considerable benefits to Xiaomi.

An undercurrent of reality that cannot be ignored

However, it cannot be ignored that behind the sharp rise in xiaomi shipments and high performance, there has long been an undercurrent.

First, the shrinkage of investment income has brought huge losses to Xiaomi, which directly pulled down its net profit. According to the financial report, in 2021, Xiaomi's profit fell from 20.31 billion yuan in the same period last year to 19.28 billion yuan, down 5.1% year-on-year; adjusted net profit was 22.04 billion yuan, an increase of 69.5% year-on-year. For the change in net profit before and after the adjustment, Xiaomi said that it was due to the decrease in fair value gains from listed common stock investments.

Comparing the financial report, xiaomi's investment income in 2020 is 13.2 billion yuan, while the fair value of xiaomi's investment in 2021 is 8.1 billion yuan, down 38.3% year-on-year, about 5 billion yuan. It can be seen that diversified investment has also dragged down Xiaomi's net profit.

Second, the shortage of supply chains makes Xiaomi still face delivery pressure in 2022. From the perspective of Xiaomi's revenue structure, the smartphone business is still the backbone of Xiaomi's revenue, but under the influence of factors such as the epidemic and the Conflict between Russia and Ukraine, global mobile phone manufacturers are facing serious shortages of core components. Due to supply chain shortages, Xiaomi mobile phones also shipped less in the third quarter than in the same period last year.

In this regard, Wang Xiang, the relevant person in charge of Xiaomi, said at Xiaomi's financial report meeting: "In the first quarter of 2022, the supply and transportation of parts will be a huge challenge. We hope that this short-term problem will improve significantly in the second, third and fourth quarters. "This means that Xiaomi's smartphones are still difficult to deliver in a short period of time."

Rushing high, building cars, Xiaomi has words of suffering

Although investment losses and supply chain problems still plague Xiaomi, the former is beneficial to the long-term development of Xiaomi, and temporary losses are not to be feared; the latter is the collective problem of mobile phone manufacturers, not Xiaomi's pressure. In fact, what really affects Xiaomi is the impact on high-end and car building.

Although 2021 is already the second year of Xiaomi's rush, Lin Meibing, chief analyst of WitDisplay, believes that "the high-end of Xiaomi mobile phones is not as good as expected, and the shipment of high-end mobile phones is achieved through price reductions." ”

From the perspective of high-end mobile phone market share, Xiaomi has not eaten the high-end mobile phone market dividends sold by Huawei. According to Counterpoint data, Apple's share of high-end mobile phones will increase to 60% in 2021, and Xiaomi will increase from 3% in 2020 to 5%, and the performance in the high-end mobile phone market will be mediocre. At the same time, Xiaomi's high-end mobile phones have a "water injection" situation in shipments. Judging from Xiaomi's marketing activities, the shipment of some of its high-end mobile phones is achieved through price reductions, such as Xiaomi MIX FOLD, which has reduced prices many times to stimulate users to buy.

From the perspective of ASP growth rate, Xiaomi's high-end mobile phones do not contribute much to ASP growth. According to Xiaomi's financial report, the ASP growth rate from 2018 to 2021 was 2.2%, 8.8%, 6.1%, and 5.5%, respectively, of which the high-end strategy was not implemented in 2018 and 2019, but the ASP growth rate of Xiaomi smartphones in 2019 was the fastest. In addition, from 2018 to 2021, the revenue growth rate of Xiaomi's smartphone business unit far exceeded the growth rate of ASP. In other words, Xiaomi's smartphone business revenue has maintained steady growth, relying more on sales volume than price. On the whole, Xiaomi's high-end strategy has not really succeeded.

In the case of weak mobile phone market and fierce competition in the IoT business, Xiaomi chose to build cars as a breakthrough, which can not only expand the growth boundary, but also extend the IoT ecology, but it is not easy for Xiaomi to build cars. The new car-making forces represented by "Wei Xiaoli" have occupied the main market share, and traditional manufacturers have also seized the market by launching various types of electric vehicles, and it is difficult for Xiaomi to get a piece of it. In addition, factors such as chip shortage and power battery price increases have also added resistance to Xiaomi's car manufacturing.

Although Xiaomi intervenes in the car-making industry chain in the form of investment, the current form of the new energy vehicle market is still grim, and it is still impossible to see what advantages Xiaomi has in making cars, and the impact of Millet's car-making has been reflected in its financial reports. According to the financial report data, in 2021, Xiaomi cash and cash equivalents were 23.512 billion yuan, compared with 54.752 billion yuan in the same period last year. Net cash from operating activities also shrank to $9,785 million from $21,879 million in 2020.

Therefore, although Xiaomi handed over a rather eye-catching financial report, it did not impress the capital market, and it is obvious that the big test belonging to Xiaomi has not yet ended.

Text/Leek Finance, public number ID: jiucaifin