Revenue increased sharply, but net profit fell by 20%, why did iFLYTEK not increase profit?

Text/Yang Jianyong

iFLYTEK, which has been deeply involved in the intelligent voice track for more than 20 years, has received a large number of applications of AI technology, including education, finance, cities, automobiles, smart homes and other fields, and is a representative manufacturer of artificial intelligence applications. According to an earlier report by IDC, in the mainland speech semantic market, iFLYTEK's share ranks first in the industry. Overall, on the road of promoting the landing of artificial intelligence applications, focusing on the platform + track has opened up a new space for performance growth.

The change in fair value of Cambrian and SenseTime decreased, and the net profit of iFLYTEK fell by 20%.

On the track of artificial intelligence, the final competition between players is the ability to land AI technology, which is also an important basis for measuring AI strength. iFLYTEK benefited from the improvement of artificial intelligence application landing ability, which brought revenue and steady growth. Unfortunately, this year, due to the reduction in fair value changes such as Cambrian and SenseTime, net profit fell by 20%. In the first quarter of 2022, iFLYTEK's revenue reached RMB3.5 billion, an increase of 40% compared with the same period last year, and net profit was RMB110 million, down 20% year-on-year.

The decline in net profit was mainly due to the recognition of a gain or loss of -154 million yuan due to fair value changes due to stock price fluctuations in the first quarter. It should be pointed out that Cambrian, as a hot AI chip innovation enterprise in China, has attracted countless attention, but now the scenery is no longer beautiful. It is mainly affected by many factors such as continuous losses, single customers, and continuous reduction of important shareholders. Chips are a capital-intensive industry, and high R&D investment has made Cambrian's cumulative loss in the past five years exceed 2.8 billion yuan.

It is worth mentioning that behind the high research and development, the average salary of R & D personnel is more than 600,000 yuan. At the same time, the successive reductions of important shareholders have undoubtedly brought great pressure to Cambrian in the capital market. It should be known that in just a few trading days at the beginning of the listing, the highest market value of Cambrian reached 119.1 billion yuan, and now the market value is only 22.26 billion yuan, the market value has decreased by 96.8 billion yuan, and the stock price has fallen by 80% compared with the historical high.

Not only Cambrian, but also the fair value changes of Sanren Bank and SenseTime, which made iFLYTEK's fair value change income in the first quarter of 2022 drop by 287% compared with the same period last year, resulting in a 20% decline in net profit. However, net profit growth remained strong. Non-net profit for the quarter was RMB146 million, up 37.7% year-on-year. Excluding Cambrian, SenseTime and other fair value changes, the income from changes in fair value has decreased, and profitability is still very stable.

Harvesting the artificial intelligence dividend, iFLYTEK's revenue increased by 40%.

As the hottest track at present, the artificial intelligence market is showing a booming trend. According to IDC forecasts, the global AI market size will reach $88.57 billion in 2021 and increase to $221.87 billion in 2025, with a five-year compound growth rate of about 26.2%. Among them, as an important artificial intelligence market, with the continuous landing of AI applications, the size of the Chinese market will grow at a CAGR of 24.4%, and it is expected to exceed $18.43 billion in 2025.

The promising artificial intelligence track, including Baidu, SenseTime, iFLYTEK and other enterprises, have reaped the dividends of this industrial development. According to the financial report, in the whole year of 2021, Baidu's revenue was 124.5 billion yuan, an increase of 16% year-on-year. Driven by cloud computing and other AI businesses, non-advertising revenue grew significantly by 71%. It can be seen that artificial intelligence will be the driving engine of Baidu's performance growth.

SenseTime also showed phenomenal growth, with revenue of $4.7 billion in 2021, up 36% year-on-year. After landing on the Hong Kong Stock Exchange, the market value once exceeded HK$320 billion, and despite the recent sharp correction, the market value is still as high as HK$160 billion (133.3 billion yuan), which is 43.7 billion yuan higher than iFLYTEK. Of course, in the case of sustained losses and the increasing scale of losses, it is worrying whether it can support such a high market value, including the impact of net profit growth due to the reduction of SenseTime's fair value.

Although iFLYTEK's net profit was affected by the decrease in the fair value change income of Cambrian, SenseTime and Sanren, the scale of revenue was expanding day by day. Following the revenue of 10 billion yuan in 2019, the revenue in 2021 reached 18.3 billion yuan, an increase of 40% year-on-year, and the revenue in the first quarter of 2022 still increased by 40%, indicating that the star AI company in the A-share market will harvest artificial intelligence development. It should be pointed out that since its establishment, iFLYTEK has focused on research on artificial intelligence technologies such as intelligent speech, natural language understanding, machine learning reasoning and self-learning, and actively promoted the application of artificial intelligence.

The core of iFLYTEK's implementation of artificial intelligence lies in the promotion of the "platform + track" strategy. In terms of "platform" empowerment, relying on the artificial intelligence open platform - iFLYTEK open platform, it provides one-stop artificial intelligence solutions for developers, and the artificial intelligence industry ecology continues to be built. On the application track, in the fields of education, medical care, office, and smart cities, with the growing scale of revenue, its AI application scale has shown results, and it is a typical manufacturer of artificial intelligence applications in China.

By the end of 2021, the iFLYTEK open platform has opened 449 AI capabilities and solutions to the outside world, bringing together 2.93 million developers, and focusing on empowering 18 industry fields such as finance, agriculture, and energy, providing the industry with a wealth of intelligent voice and artificial intelligence capabilities and solutions. In 2021, revenue from open platforms was 2.988 billion yuan, an increase of 55.55% year-on-year, and it was the second largest revenue sector. In terms of platform strategy, we will continue to empower developers, and provide full-chain services for developers and upstream and downstream resource partners in the industry through technology empowerment, market empowerment, and business model empowerment.

In the application track, iFLYTEK has gained a lot from the smart education sector and has become the largest revenue sector. In 2021, the revenue of this sector was 6.007 billion yuan, an increase of 49.47% year-on-year. Of course, it has achieved remarkable results in smart cities, smart medical care, smart finance and other industries. Even smart medical care will be spun off and listed independently. According to the earlier announcement, in view of the healthy and good development of its holding subsidiary, iFLYTEK Medical, in order to promote iFLYTEK to accelerate the development and iteration of products and services, flexibly respond to market changes, and seize market opportunities to achieve rapid business growth, it was agreed to plan the spin-off and listing of iFLYTEK Medical, which is conducive to maximizing the long-term value of shareholders of listed companies.

At last

On the artificial intelligence track, iFLYTEK is undoubtedly one of the winners and harvests the artificial intelligence dividend. Benefiting from the continuous development of the artificial intelligence industry, iFLYTEK's breakthrough in artificial intelligence technology, its technology-driven strategic layout results continue to appear, and the scale of operation and operating efficiency are simultaneously improved. Especially in the 14th Five-Year Plan period, with innovation-driven, high-quality supply to lead and create new demand, which will accelerate the integration of all walks of life and artificial intelligence, for manufacturers in the artificial intelligence market, drive all walks of life to quickly achieve intelligent transformation and upgrading at the same time, will also obtain artificial intelligence development dividends.

Jianyong Yang, a contributor to Forbes China, is committed to in-depth interpretation of cutting-edge technologies such as the Internet of Things, cloud services and artificial intelligence.