Text: Ning Chengqian
Source: Bowang Finance
Despite the glory of "AI No. 1", iFLYTEK has a hard time.
Affected by the 2023 annual report and the first quarter of 2024, iFLYTEK's stock price has been hit. Up to now, iFLYTEK's share price closed at 41.66 yuan per share as of noon on July 4 before press time. The market value shrank to 96.307 billion yuan, which is almost "cut in half" compared with the peak of market value reached after the launch of the AI large model "Xunfei Xinghuo" a year ago, which is embarrassing.
Source: Baidu Stock Market
Even the release of the Spark model V4.0 failed to save the company's market value. At present, iFLYTEK is facing multiple challenges: the urgent task of achieving 100 billion yuan in revenue, the rapid rise in debt, and the internal pressure caused by downsizing. The recent sudden death of an employee has pushed iFLYTEK to the forefront of public opinion, and the public's attention and scrutiny have become more stringent.
In 2023, when AI technology is booming, iFLYTEK has failed to enter the fast lane of rapid growth as expected, and the dilemma of increasing revenue but not increasing profits still plagues this once star company.
This series of phenomena can't help but make people ponder: Is iFLYTEK's heavy bet on the AI large model track really the right path? In the wave of AI, how to balance long-term planning and short-term benefits, and how to ensure the effective transformation of R&D investment, has become an urgent topic to be answered by iFLYTEK and the entire industry.
01
Xinghuo large model V4.0 released, iFLYTEK won?
Back last year, when iFLYTEK officially released version 1.0 of the Spark model, its CEO Liu Qingfeng confidently announced that the model would compete with ChatGPT in October of the same year.
This ambitious declaration immediately sparked an enthusiastic response from the market, and the share price of iFLYTEK rose to a new all-time high, and the market value once exceeded the 170 billion yuan mark.
After a year, iFLYTEK released the iFLYTEK Spark model V4.0 in Beijing and its application in many fields such as healthcare, education, and commerce. The model is trained based on the country's first domestic Wanka computing power cluster "Feixing No. 1", and the model capabilities are fully benchmarked against GPT-4 Turbo, and surpass in text generation, language understanding, knowledge question and answer, logical reasoning, and mathematical ability.
What is particularly striking is that in the 12 mainstream test sets of large models at home and abroad, iFLYTEK Xinghuo V4.0 stood out in 8 of the tests, and the overall performance surpassed GPT-4 Turbo and other top international large models.
Liu Qingfeng further revealed that the number of downloads of the Xinghuo app has surged to 131 million, which not only attracted a large number of loyal users, but also gave birth to a series of popular app assistants. Powered by the Xinghuo model, the sales of some smart hardware products have achieved significant growth, with a year-on-year increase of more than 70%, and the average monthly use has exceeded 40 million times.
In addition, according to Qimai data, as of April this year, the cumulative downloads of iFLYTEK Xinghuo App on the Android platform ranked second, and the user evaluation and scoring on Apple's App Store were also ahead of domestic counterparts, and the user scale ranked among the top in the industry.
At the same time, iFLYTEK showcased its latest generation of "iFLYTEK Spark + Cockpit" solution at the 2024 Beijing Auto Show, which has been successfully applied to a number of models of many car companies, effectively solving the pain points of human-vehicle interaction and bringing unprecedented intelligent experience to drivers and passengers.
As an enterprise backed by powerful resources such as the Hefei government and the Chinese Academy of Sciences, iFLYTEK has been deploying the iFLYTEK open platform since 2010, and is committed to exporting its AI capabilities to downstream mobile Internet and intelligent hardware developers. At present, the company adopts the strategy of "platform + track", focusing on seven core business areas, including smart education, smart healthcare, smart city, smart automobile, smart finance, operator, platform and consumer business.
Last year, affected by factors such as the economic environment and fiscal expenditure, the smart education, smart city and operator sectors of the company's G-end business suffered a certain degree of decline. But the transformation of AI has paid off. In 2023, the company's C-end hardware GMV will achieve a growth of more than 84%, and the open platform revenue will also increase by more than 40% year-on-year. The open platform and consumer business contributed 6.19 billion yuan in revenue, a year-on-year increase of 33.4%, becoming the company's largest business for the first time, accounting for 31.47% of total revenue.
Despite these achievements, iFLYTEK will achieve a revenue of 19.65 billion yuan in 2023, which still fails to cross the threshold of 20 billion yuan in revenue, which is far from the 100 billion revenue target proposed by Liu Qingfeng in 2021.
What's more worrying is that the company's revenue growth rate in the past two years has failed to break through the bottleneck of 5%, with revenue growth rates of 2.77% and 4.41% in 2022 and 2023, respectively. This can't help but make people think: in today's rapid development of AI technology, why has iFLYTEK failed to take off as expected? Behind this may be more complex challenges and dilemmas.
02
The loss in the first quarter was 300 million, where did the money go?
Although the Xinghuo cognitive model has been iterated to version 4.0 and is the leader in the large model battlefield, iFLYTEK has come with significant financial challenges.
According to the financial report data, in 2023, iFLYTEK will deduct a non-net profit of 118 million, a year-on-year decrease of 71.74%, and in the first quarter of 2024, there will be a grim situation of a net profit loss of 300 million yuan attributable to the parent company, which is close to half of the profit for the whole year of 2023.
What is even more interesting is that since the first quarter of 2022, iFLYTEK has faced the dilemma of revenue growth but profit decline for four consecutive reporting periods, which has caused widespread doubts in the market about its "hematopoietic ability".
So, where exactly does the money go?
An in-depth analysis of iFLYTEK's financial situation shows that there are two main destinations for its capital flow: one is the annual dividend, and the company generously distributes cash dividends of 229 million, accounting for 30% of the net profit attributable to the parent company in 2023.
From 2021 to 2023, iFLYTEK's cumulative investment has reached 10.128 billion yuan, of which 3.836 billion yuan will be invested in R&D in 2023, a year-on-year increase of 14.36%, accounting for 19.53% of revenue. Among them, the R&D capitalization amount of iFLYTEK open platform system and iFLYTEK AI input method was 65.87 million yuan and 62.5 million yuan respectively, both exceeding 60 million yuan.
In the first quarter of 2024, iFLYTEK's R&D expenses were 842 million yuan, an increase of 126 million yuan year-on-year.
In the AI industry, the research and development of large models is inseparable from algorithms, computing power, and data, and these three are extremely money-burning, and in 2023, iFLYTEK will spend 1.7 billion yuan on server equipment alone.
It is worth noting that compared with the research and development of core technologies, iFLYTEK's sales expenses have also grown rapidly. In 2023, sales expenses will reach 3.584 billion yuan, a year-on-year increase of 13.26%, accounting for 18.2% of operating income.
Liu Qingfeng, CEO of the company, said bluntly that as the promotion of the Spark model enters the "prairie fire" stage, market investment must be increased accordingly. This strategy has led to persistently high selling expenses, which has become another major factor in the erosion of profits. Entering the first quarter of 2024, sales expenses continued to rise, reaching 765 million yuan, an increase of 131 million yuan year-on-year.
In terms of financial pressure, iFLYTEK is facing the dual challenges of decreasing monetary funds and increasing long-term borrowings. As of the end of the first quarter of 2024, there were only 2.678 billion yuan of monetary funds left, a decrease of nearly 900 million yuan from 3.56 billion yuan at the end of 2023. At the same time, the total debt reached 19.797 billion yuan, a year-on-year increase of 32.21%, and the debt ratio climbed to 53.24%, which was at the highest level since listing.
Under financial pressure, iFLYTEK, which has no hematopoietic capacity, can only frequently raise funds through the capital market and rely on government subsidies to maintain its operations. This has led to deep thinking about the development model of iFLYTEK: as a technology company, how to balance input and output to achieve sustainable profit growth under the condition of high R&D expenses and sales expenses? iFLYTEK seems to be standing at a crossroads.
03
The struggle for large models is fierce, can iFLYTEK still fly? ”
iFLYTEK's journey on the large-scale model track is undoubtedly a big gamble full of challenges and uncertainties.
Since the official launch of the Spark model in May 2023, iFLYTEK has adopted a diversified monetization strategy, including empowering existing businesses, API authorization payment and enterprise customization models, however, at present, only the C-end hardware and smart car business has shown significant growth, of which the revenue of smart hardware reached 1.617 billion yuan, a year-on-year increase of 22.35%, and the smart car business achieved 695 million yuan, an increase of 49.71%.
Despite this, in the face of a huge revenue base, the Spark model has limited effect on the overall revenue.
What's more serious is that with the intensification of competition in the large model market, the price war is intensifying. iFLYTEK had to follow the market trend and announce that the iFLYTEK Xinghuo Lite API was permanently free, while sharply reducing the price of the Pro/Max API to only 0.21 yuan per 10,000 tokens, which undoubtedly further compressed profit margins. In this context, the application of large models is still in the initial stage and has fallen into the vortex of involution, and the future profit prospects are even more gloomy.
In addition, iFLYTEK also faces fierce competition from technology giants such as Baidu, Alibaba, Huawei, and Tencent. For example, Baidu's Wenxin model occupies the high ground in the industry with its industrial-level knowledge enhancement characteristics, Alibaba's Tongyi model has in-depth applications in multiple vertical fields such as e-commerce and healthcare, and Tencent relies on its huge user base and data resources in social networking and games to promote model iteration and innovation.
In contrast, although iFLYTEK Xinghuo has made some achievements, it is still insufficient in terms of comprehensive competitiveness.
To add insult to injury, companies in the automotive field are enthusiastic about self-developed large models, and Tesla, BYD, NIO, Li and other car companies have joined the ranks of self-development, which has further weakened iFLYTEK's market position.
What is certain is that iFLYTEK will continue to burn money. After all, the competition in the large model market is becoming increasingly fierce, and the iFLYTEK Xinghuo V4.0, which benchmarks GPT-4's current capabilities, has just been released, and Microsoft has quietly started training GPT-6 for OpenAI.
Under financial pressure, iFLYTEK shareholders have reduced their holdings and cashed out. In 2023, a total of 5 of the top 10 shareholders of iFLYTEK will reduce their holdings. In addition, the total number of employees of iFLYTEK has also decreased, especially the loss of core technical personnel. According to the 2023 annual report, the number of core technical personnel of iFLYTEK has decreased from 9,281 in 2022 to 8,908 in 2023, a decrease of 373. This undoubtedly casts a shadow over the company's future development. In the capital market, iFLYTEK's performance has also been unsatisfactory, and investor confidence has been tested.
In the big picture, the AI market still has great potential. According to the International Data Corporation (IDC), the global AI market size was $88.57 billion in 2021 and is expected to reach $221.87 billion by 2025, growing at a CAGR of 26.2%. This provides a broad space for the development of enterprises such as iFLYTEK.
Despite the current difficulties, iFLYTEK is still expected to break through in the large-scale model track, but whether it can truly "fly" depends on how it copes with these challenges and uncertainties.