iFLYTEK's performance changes: the effect of the large model shows the proportion of business structure adjustment

Reporter Chen Jialan reports from Guangzhou

In the context of domestic substitution and increasing investment in resources to seize the opportunity of cognitive intelligence, iFLYTEK (002230. SZ) has maintained resilient revenue growth over the past year. However, due to the sharp increase in R&D expenses and sales expenses, iFLYTEK's net profit in the first quarter of this year fell sharply by 242 million yuan.

On April 22, iFLYTEK disclosed its 2023 annual report and 2024 first quarter report. According to the financial report, in 2023, iFLYTEK will achieve revenue of 19.65 billion yuan, a year-on-year increase of 4.41%, of which the year-on-year growth rate in Q4 will rebound significantly, reaching 14%, the net profit attributable to shareholders of listed companies in the current period will be 660 million yuan, a year-on-year increase of 17.12%, and the net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses will be 118 million yuan, a year-on-year decrease of 71.74%.

In addition, iFLYTEK's total revenue in the first quarter of 2024 was 3.646 billion yuan, a year-on-year increase of 26.27%, however, the net loss in the quarter was 300 million yuan, compared with a net loss of 57.895 million yuan in the same period last year, an increase of 418.17% year-on-year. At the same time, the non-net profit loss attributable to the parent was 440 million yuan, an increase of 30.29% year-on-year.

The reporter of "China Business Daily" learned from the 2023 performance briefing of iFLYTEK on April 23 that Liu Qingfeng, chairman of iFLYTEK, talked about the reasons for the expansion of losses in the first quarter of this year, saying: "The company continues to increase investment in research and development, and also increases market investment at the same time. ”

The proportion of C-end business continued to increase, and the G-end business was under pressure

According to the annual report of iFLYTEK, the operating income in 2023 will be 19.650 billion yuan, an increase of 4.41% year-on-year.

At present, iFLYTEK's main businesses include education (education products and services, teaching business), smart city (information engineering, smart politics and law, digital government), open platform and consumer business (open platform, smart hardware, mobile Internet products and services), operators, smart cars, smart healthcare, smart finance and other businesses.

The reporter noticed that with the blessing of the iFLYTEK Xinghuo model, iFLYTEK will have a significant growth rate in many businesses in 2023, with a high growth rate of B-end and C-end businesses, but in the context of the government's reduction of spending, the growth of G-end business is under pressure.

It can be seen that in 2023, iFLYTEK's B-end intelligent car networking and smart finance business will be more prosperous, with a year-on-year increase of 49.7% and 23.0% respectively; Boosted by the Spark model, the C-end intelligent hardware increased by 22.4% year-on-year (of which, the GMV of intelligent hardware office hardware increased by 84% year-on-year), the revenue of the open platform increased by 41.6% year-on-year, and the entire open platform and consumer business achieved operating income of 6.19 billion yuan, a year-on-year increase of 33.4%, accounting for 31.47% of the total revenue, surpassing the proportion of business revenue in the field of education and becoming the largest business segment of iFLYTEK.

According to iFLYTEK, the iFLYTEK open platform has added 2.47 million developers in the past year. From the perspective of user scale, according to Qimai data (as of April 2024), the cumulative number of Android downloads of Xinghuo APP ranks second, second only to Doubao, and the top five are Doubao, Xunfei Xinghuo, Wenxin Yiyan, Zhipu Qingyan, Tongyi Qianwen, and Kimi. Talking about the ranking of the user market size, Jiang Tao, senior vice president and secretary of the board of directors of iFLYTEK, said that iFLYTEK Xinghuo is mainly oriented to work scenarios, while Doubao is mainly positioned in the entertainment field, with a wider user scale, and Internet manufacturers have invested more in marketing than iFLYTEK.

The growth of information engineering, smart politics and law, and education products and services, which account for a high proportion of G-end business, was under pressure, down 28.8%, 0.6%, and 9.7% year-on-year respectively, but the revenue of digital government business increased by 22.8%.

The pressure on iFLYTEK's G-end business is related to the current financial difficulties of some local governments and the continuous reduction of expenditures.

It can be seen that the accounts receivable of iFLYTEK in 2023 will be 12.165 billion yuan, an increase of 2.292 billion yuan from the beginning of the period, and the provision for bad debts will be 2.442 billion yuan. "The collection of revenue on the government side has really slowed down. Liu Qingfeng said frankly.

However, Jiang Tao stressed: "Although the pressure on payment collection has increased, there will be no large-scale bad debts, and the actual bad debt rate in 2023 will only be 0.01%. ”

Judging from the revenue performance of iFLYTEK in the first quarter of 2024, although the revenue growth maintained a good trend, there was also a situation similar to the pressure on the G-end business, and the financial report showed that the company achieved operating income of 3.646 billion yuan in the quarter, a year-on-year increase of 26.27%.

"iFLYTEK's revenue from government business (smart city business) and education G-end business (excluding learning machine business) fell by 20% in the first quarter, but the growth of other businesses was mostly outstanding, which also led to an overall revenue increase of 26.27%. Liu Qingfeng said that this is not only because of changes in market factors, but also because the government's current financial pressure is relatively large, and iFLYTEK is also taking the initiative to slow down government business.

"If a government is determined to invest in a city project, but can't see the source of funds, especially if the local government has a high debt ratio, we will stop the project unless the project applies for special funds. Liu Qingfeng said that iFLYTEK has made some adjustments to the product business structure, and some G-end business projects will be suspended in the first quarter of 2024, but it is also possible to see that some businesses may get national special funds in the second quarter.

Talking about the sustainable prospects of the growth rate of C-end business development in 2024, Jiang Tao said that the current penetration rate of the C-end business of education and the hardware operation business of the C-end of the medical business represented by the learning machine is still very low among 10,000 typical target customers, which belongs to the early stage of business development, and there is still a lot of room for market growth in the future.

The investment of large models affects the profit performance

From the perspective of overall performance, iFLYTEK's revenue has maintained good growth in the past year, and the net profit attributable to the parent company has also performed well, reaching 657 million yuan, an increase of 17.12% year-on-year, but the non-net profit attributable to the parent company is 118 million yuan, a year-on-year decrease of 71.74%.

As for the reason for the 71.74% year-on-year decline in non-net profit in 2023, iFLYTEK explained that the main reason is that the company's investment in independent and controllable platforms in terms of independent and controllable localization substitution of core technologies and controllable industrial chains and increased investment in research and development of cognitive large models, which affected the current profit data to a certain extent. However, iFLYTEK emphasized that the company's core capabilities built in terms of independent and controllable core technology and the leading edge of the Xinghuo cognitive model have laid the foundation for the company to maintain its advantages in the industrial competition of large models.

According to the financial report, iFLYTEK's R&D investment in 2023 will reach 3.837 billion yuan, an increase of 14.36% year-on-year, accounting for 19.53% of revenue. Jiang Tao revealed that in the past year, more than 2 billion yuan was invested in the research and development of the Xinghuo large model.

It is worth noting that iFLYTEK's net profit attributable to the parent company in the first quarter of 2024 failed to continue the growth momentum of the previous year. According to the financial report, iFLYTEK achieved a net profit attributable to the parent company and a decrease of 242 million yuan and 102 million yuan respectively in the first quarter of 2024 compared with the same period last year. iFLYTEK explained that it was mainly due to the increase in R&D in large models, core technologies and large models, the increase in R&D expenses, and the year-on-year decrease in investment income from financial assets such as Sanrenxing and Cambrian held by the company.

The reporter noted that iFLYTEK's R&D expenses in the first quarter were 842 million yuan, an increase of 126 million yuan over the same period last year, and sales expenses were 635 million yuan, an increase of 130 million yuan over the same period last year. Liu Qingfeng said that last year was the "first year of the spark", with more R&D investment and less market investment, while this year is a "spark fire", while increasing R&D investment, it has also increased investment in the market.

"In addition, the stocks held by the company, such as Sanrenxing, Cambrian, and SenseTime, have all been cleared at the right time in order to fight the battle of large models, and some of the asset appreciation in the first quarter of last year is not there this year. Liu Qingfeng said that despite the increase in investment, he was optimistic about the net profit for the whole year of 2024.

Ding Daoshi, an analyst in the Internet industry, told reporters that for the current large-scale model enterprises, they are currently in the stage of strategic investment, and strategic investment is for strategic profits in the future. At present, profitability is not so anxious for large model companies, and all large model companies are currently rushing to run, and it is more important to lay a good foundation.

With the continuous development of the iFLYTEK Xinghuo model in the future, more and more computing power will be invested, how to ensure the future computing power investment of iFLYTEK?

In this regard, Jiang Tao responded: "In the face of the situation of 100 models and mixed fish, only a few companies will participate in the global competition of the general model base on behalf of the country in the future. As a national team of artificial intelligence and a representative of the domestic computing platform, iFLYTEK will give more support to the country, and we are very confident in the future guarantee of computing power. ”

In the face of opportunities in the era of artificial intelligence, iFLYTEK said that it would not hesitate to saturate its investment.

iFLYTEK expects that in the first half of 2024, the company will launch a model that benchmarks GPT-4 turbo, and in the second half of 2024, the model capability will benchmark GPT-4V and DALL-E3 to the current best level.

(Editor: Wu Qing Review: Li Zhenghao Proofreader: Yan Jingning)