Production: Huxiang Pro Investment Group
Author Chen Mulei
On August 26, Xiaomi released its financial report for the second quarter of 2020. From the data point of view, Xiaomi’s performance is quite excellent, greatly exceeding market expectations. During the period, the company achieved a revenue of 53.538 billion yuan, a slight increase of 3.1% year-on-year, which was significantly higher than the market expected of 50.3 billion yuan; the net profit during the period was 4.494 billion yuan, with a year-on-year increase of 129.8%. Based on non GAAP, the net profit was 3.373 billion yuan, down 7.2% year on year.
In addition, due to the recent U.S. blockade of Huawei, there are some views in the market that this will constitute a wave of favorable market for Xiaomi in the domestic market. Driven by the optimism, Xiaomi’s share price has been rising day by day. Since August 12, it has achieved a strong rise. On August 26, when the financial report was released, it closed at HK $19.16, up 5.74%, with a cumulative increase of 27.56% in the past 11 trading days and 87.84% in Q2. It returned to the position two years ago with a very strong performance.
However, affected by the epidemic situation and the international situation, Xiaomi’s previous overseas base, India, performed very poorly this quarter. Fortunately, the European market’s shipment was very excellent, and it successfully entered the top three of the market share, which made the overall intelligent machine business not decline significantly. With the new base area and the rapid progress of Internet services, Xiaomi smoothed the impact of the epidemic in this quarter and finally achieved a positive growth significantly higher than the market expected.
Next, let’s take a look at the specific performance of millet this quarter.
What was Xiaomi’s revenue performance in the second quarter?
(data source: wind)
Xiaomi achieved revenue of 53.538 billion yuan in 20q2, a slight increase of 3.10% over the same period of last year. Although the growth rate was a low point in nearly eight quarters, it was obviously affected by the epidemic situation, but it still broke the previous market expectation of year-on-year decline. The company’s adverse growth through the epidemic mainly benefited from the overseas market, especially the good sales situation in Europe.
According to the financial report, Xiaomi’s overseas market revenue reached 24 billion yuan in Q2, a year-on-year increase of 10.0%, accounting for 44.9% of the total revenue, which has provided support for the company’s continuous growth.
In terms of profit, Xiaomi’s GAAP net profit in 20q2 was 4.494 billion yuan, the peak in nearly eight quarters, a 130% increase over the same period last year. However, looking back on the previous data, we can find that Xiaomi’s profit is very unstable and fluctuates greatly, which is mainly affected by the unstable return on investment assets of the company. If non GAAP is used to calculate, the current net profit of Xiaomi is 3.373 billion yuan, down 7.2% year-on-year, which indicates that the profitability of the company’s main business deviates from the revenue growth to a certain extent.
The main reason is that Xiaomi’s expenses in Q2 have increased significantly, with sales and promotion costs increasing by 40%, administrative expenses by 16%, and R & D expenses by 26%. All of the three are significantly faster than the growth of revenue, resulting in the obvious squeeze of net profit. In addition, Xiaomi’s gross profit rate has not been high, which ultimately shows that the revenue increase is not increased.
Xiaomi in the second quarter of each business sector performance?
This quarter, Xiaomi’s smartphone business lagged behind. Fortunately, the progress of Internet business is very obvious, and the success has driven the company to achieve positive growth.
(data source: company announcement)
In the second quarter of 2020, the revenue of Xiaomi’s smart phone business reached 31.6 billion yuan, a year-on-year decrease of 1.2%, which was mainly affected by the cutting down of Indian market shipment and further shrinking of domestic market share. But fortunately, the company’s performance in the European market is very good, relying on more than 60% of the shipping growth barely flattened the big hole in the domestic and Indian markets, which made the company’s mobile phone business line not decline significantly.
Another data worthy of attention is that the ASP price of Xiaomi mobile phone in the quarter, that is, the average price is 1116.3 yuan, with a year-on-year increase of 11.8%, which is nearly 80 yuan higher than that of 1038 yuan in 20q1. This group of data shows that Xiaomi’s medium and high-end models are sold smoothly, which is very good news for the company.
At the same time, IOT business, previously known as Xiaomi’s second growth engine, was very average, with a revenue of 15.3 billion yuan, a year-on-year increase of only 2.1%, mainly driven by the demand growth driven by the epidemic situation such as sweeping robots and routers. However, the revenue growth of this business is basically offset by the shrinkage of mobile phone business.
Looking back on Q1, it can be found that the performance of IOT business was not good at that time, with a growth of only 7.8% in the same period, which was significantly lower than the previous level. It can be clearly seen that the epidemic has made a great impact on this business, especially the films belonging to it. For example, air conditioners can not be installed in the home, so it can be said that the production, transportation and sales have been affected in an all-round way.
Internet service was the biggest contributor to the company’s positive growth in this quarter. The current revenue reached 5.9 billion yuan, up 29% year-on-year. Its share of total revenue increased rapidly from 8.8% in 19q2 to 11% in this quarter. The growth of this sector mainly benefits from the joint progress of advertising, games and other value-added services.
As for users, the number of monthly live users of MIUI has reached 343 million 500 thousand, as of June 2020, which has increased by 23.3% over the same period, with 109 million 700 thousand users living in MIUI from Chinese mainland.
In terms of splitting, the advertising revenue of 20q2 millet was 3.1 billion yuan, up 23.3% year-on-year; the game revenue was 1 billion yuan, a year-on-year increase of 54.5%; the revenue of other value-added services was 1.8 billion yuan, with a year-on-year increase of 27%. This revenue was mainly driven by financial technology, electronic commerce and television members.
We can see that Xiaomi has accumulated a large private domain traffic pool through smart phones and IOT services, and is gradually realizing the collaborative strategy of “mobile phone × aiot”, gradually realizing MIUI users, and further strengthening the moat of its business model.
Indian market suffers, European market rises
Affected by the epidemic, India’s entire mobile phone market in Q2 showed a nearly collapsing decline, and the overall shipment volume shrank sharply. The escalating contradictions between China and India and the deliberate pandering of modi government to public opinion have made the situation worse. However, similar to Q1, Xiaomi once again achieved very good growth figures in Europe in Q2, which supported the company’s performance.
As Xiaomi’s most important overseas base, India’s mobile phone market only sold 17.3 million mobile phones in 20q2, down 48% compared with the same period last year.
Although millet has dominated the Indian market for many years, under the impact of the epidemic, it can only swallow the bitter fruit of 48% year-on-year decline, and the 5 million shipment volume has disappeared with the epidemic. Although the decrease rate is basically the same as that of the big market, Xiaomi’s decline rate is second only to Samsung, whose global performance is very bad in the second quarter.
At the same time, the domestic sales of vivo (- 36%), realme (- 27%) and oppo (- 35%) decreased much less than Xiaomi, which made the market share of the three mobile phone brands increase by at least 2%.
Reviewing the data of previous periods, we can find that Xiaomi has been unable to keep up with the market expansion in the Indian market before, and the downward trend of sluggish growth has begun to appear. Under the impact of Q2 epidemic, the company has also shown that it is significantly inferior to other domestic mobile phone brands.
Tiger sniff Pro has previously warned that the epidemic situation in India is not optimistic, and the uncertainty of economic activities is very strong. Q2 is the real “dark moment”, which is also true from the data. What’s worse, not only is the epidemic still almost uncontrollable, but the sudden conflict between China and India has made the situation even more uncertain.
Since June, there have been continuous border conflicts between China and India, and the confrontation between the two countries has continued to escalate. India has repeatedly blocked the business activities of Chinese enterprises in India. Recently, it has announced that it will kick Huawei out of the list of operators. At present, we can’t rule out the possibility that this isolationist trend from the Indian government will further spread to the mobile phone hardware market. After all, there are four Chinese brands in the top five mobile phone market in India, and there is a precedent that the United States blocked Huawei on the grounds of national security. At the same time, the current modi government has always been more dependent on populism, and has a strong appeal to the needs of voters and has banned Chinese manufacturers The machine is not completely impossible.
Although the Indian market is not small trouble, this once hot land makes Xiaomi very uncomfortable, but the company successfully opened up its territory in the European market in the second quarter, to a certain extent, smoothed the impact from the South Asian subcontinent.
Under the blockade of the United States and its close allies, Huawei is under great pressure overseas. For European consumers living in the old-fashioned capitalist regions, choosing Huawei mobile phones will face great uncertainty. Under the influence of the embargo and the inability to install Google software, Huawei’s shipment volume in the European market fell by 17% in the second quarter.
And this vacant share, since is Xiaomi accepted.
According to the data provided by canalys, Xiaomi’s shipment volume in Q2 in the European market is about 7.1 million units, slightly more than that of Huawei by 100000 units, with a year-on-year increase of 65% and the market share rapidly rising to 17%. Xiaomi has become the fastest growing mobile phone brand.
While the whole of Europe performed well, the performance of Western Europe was even better. The market growth rate exceeded 116%, and the shipment volume more than doubled than that of 19q2. Among them, in the Spanish market, Millet’s market share has come to the first place (Q2 is unknown, Q1 is 28%).
In other emerging markets, according to the data provided by canalys, in 20q2, Xiaomi’s intelligent machine shipment in Latin America / Middle East / Africa market increased by 99.4% / 66.3% / 113% year on year. Among them, Latin American market and Middle East market share are ranked fourth, while Africa ranks fifth.
In the case of hindrance to the Indian market, how far can Xiaomi go overseas and how big the cake can be made will be dominated by the European market to a large extent.
In terms of international market, affected by the continuous impact of the epidemic, the global smartphone market in 20q1 further shrank by 14%, which is the second consecutive quarter of sharp decline. With the excellent performance of the iPhone se, apple became the only mobile phone manufacturer to achieve positive growth in the past three months.
Another noteworthy point is that although Huawei’s shipment volume dropped by 5% due to the US blockade, it still achieved the reverse overtaking of Samsung by 30% lower than that of Samsung. This is also the first time in nine years that a mobile phone manufacturer other than apple or Samsung has taken the lead in global handset shipment
Xiaomi with – 10%, a not high and not low in the middle of the decline to stabilize their market share of the fourth position, and also slightly opened the gap with vivo.
In the second quarter of 2020, although the domestic mobile phone market shrank by 7% compared with the same period last year, the shipment volume still exceeded 90 million units, obviously benefiting from the sharp rebound of national economic activities.
E-commerce platform is the main help for the rapid recovery of domestic mobile phone sales. Benefited from the vigorous promotion and promotion activities of mature e-commerce companies such as Alibaba, Jingdong and pinduoduo, although the offline sales in this quarter were still slightly weak, the mobile phone manufacturers finally achieved a better than expected performance.
Although the macro trend is good, it is obvious that Xiaomi has fallen behind in the domestic market. The company’s Q2 shipment volume was 9.3 million, down 19% from last year. Among the top five mobile phone brands in China, vivo was at the bottom of the list – which was almost in line with the trend of Q1. The last quarter was also the last couple.
However, at present, Huawei is greatly affected by the ban. If it fails to solve the chip blockade, it will face the problem that subsequent production cannot be carried out, and a large number of markets will be released at that time. This situation is a foreseeable opportunity for Xiaomi. If it can be grasped, it will be a powerful shot in the arm for the company’s domestic performance, and it is also the leading logic of Xiaomi’s recent stock rise.
It can only be said that this is the honey of this and the arsenic of that.