"Mediocre" Xiaomi: Now Relies on Cars to Tell a New Story

XIAOMI-WR (1810.HK) released its 2023 fourth quarter financial report after the Hong Kong stock market closed on the evening of March 19, 2024, Beijing time, with the following highlights:

1. Overall Performance: Revenue & Gross Margin, basically in line with expectations. Total revenue for this quarter reached 73.2 billion RMB, a year-on-year increase of 10.9%, basically meeting market expectations (72.5 billion RMB). The revenue growth this quarter was mainly driven by the smartphone business and internet services. XIAOMI-WR's gross margin for this quarter was 21.3%, a year-on-year increase of 4.1 percentage points, basically in line with market expectations (21.4%). The increase in gross margin was mainly driven by the improvement in the gross margin of smartphones.

2. Smartphone Business: Recovery and Maintenance of High Gross Margin. XIAOMI-W's smartphone business achieved revenue of 44.2 billion RMB this quarter, a year-on-year increase of 20.6%. XIAOMI-W's global smartphone shipments increased by 23.9% year-on-year, with an average selling price of 1,092 RMB this quarter, a year-on-year decrease of 2.6%. The gross margin for smartphones was 16.4%, maintaining a high level, mainly benefiting from the upgrade of product mix and the reduction in overseas inventory impairment provision.

3. IoT Business: Continuously Weak. XIAOMI-W's IoT business achieved revenue of 20.3 billion RMB this quarter, a year-on-year decrease of 5.1%. Although smart home appliances still achieved double-digit growth this quarter, they were still affected by the decrease in revenue from smart TVs and laptops.

4. Internet Services: Reaching a New High. XIAOMI-W's internet services business achieved revenue of 7.9 billion RMB this quarter, a year-on-year increase of 9.9%. Both quarterly revenue and gross margin of internet business increased. Dolphin Jun calculated that the ARPU value of domestic users for XIAOMI-W this quarter was 35.86 RMB (a year-on-year decrease of 2.2%); while the ARPU value of overseas users was 4.74 RMB (a year-on-year increase of 9.3%). With the increasing monetization capability of overseas market users, the proportion of the company's future overseas internet business is expected to continue to rise.

5. Automotive Business: C-Class High-Performance SU7, to be launched soon. Among them, Xiaomi SU7 Max adopts dual-motor drive, with a maximum horsepower of up to 673PS, peak torque of 838N·m, 0-100 km/h acceleration in 2.78 seconds, a top speed of 265 km/h, and a CLTC range of 800 kmDolphin's overall view:

Driven by the mobile phone business and internet services, XIAOMI-W's overall performance basically meets expectations. Looking closely at the financial data, the company's profit margin exceeded expectations, mainly due to other income. Excluding this impact, there is no significant outperformance in operational performance.

In terms of hardware, the business is somewhat diversified. The recovery of the smartphone business is mainly due to new product releases and increased shipments in mainland China, while the IoT business continues to remain sluggish. On the software side, revenue and gross profit margins continue to improve. The growth in internet services is mainly driven by the advertising business. Overall, the company's business performance is relatively stable, especially with the smartphone business maintaining a gross profit margin of over 15% for two consecutive quarters, providing good support for the company's current profits.

As traditional businesses have not brought more highlights, the market is currently more focused on the company's automotive business. This quarter, the company continued to invest 2.4 billion yuan, which increased the company's expenses and had an impact on the current performance. At the same time, the automotive business has brought more room for imagination to the company. With the imminent launch of SU7, the sales volume of XIAOMI-W cars will directly affect the valuation of the company's automotive business, which can further push the upper limit of the company's stock price.

With the imminent launch of XIAOMI-W SU7, there is also high attention on the automotive business. From the company's choice of a C-class coupe model and using XIAOMI-W as the brand, the company does not seem to want to position the price of the first car too low. The company has already started pre-booking test drive activities, and 59 stores nationwide will also open simultaneously on March 25th. Based on the new car launch and the large fan base, Dolphin expects the initial data for SU7 to be promising. The specific pricing system will be announced on March 28th, and if there are further price concessions, it will inevitably lead to better-than-expected sales performance.

Without considering the automotive business, adding back the investment in the automotive sector, the current valuation of the company's traditional business is around 15 times PE, relatively neutral. However, if the automotive business outperforms, the valuation of the automotive business can further impact the company's market value. But since the company already has a market value of over 300 billion, even with the overall elasticity of entering the automotive business, it is relatively limited.

Below is Dolphin's specific analysis of XIAOMI-W's financial report:

I. Overall Performance: Revenue & Gross Profit Margin, Basically Meeting Expectations

1.1 Revenue Side

In the fourth quarter of 2023, XIAOMI-WR's total revenue was 73.2 billion yuan, a year-on-year increase of 10.9%, basically meeting market expectations (72.5 billion yuan). The company's revenue growth this quarter mainly came from the smartphone business and internet services. The smartphone business finally saw a recovery, with a 20% year-on-year growth this quarterIn the current quarter, the revenue distribution of XIAOMI-WR's major businesses is as follows: smartphones account for 60.4%, IoT for 27.8%, and internet services for 10.8%. The smartphone business remains the largest source of revenue for XIAOMI-WR.

1.2 Gross Profit Margin

In the fourth quarter of 2023, XIAOMI-WR's gross profit margin was 21.3%, a year-on-year increase of 4.1 percentage points, basically meeting market expectations (21.4%).

As hardware revenue accounts for nearly 90% of XIAOMI-W's total revenue, the company's gross profit margin is mainly influenced by hardware products. The sequential decline in gross profit margin is mainly due to the simultaneous decline in smartphone and IoT hardware gross profit margins. Hardware gross profit margin remains lower than the overall gross profit margin, while software gross profit margin continues to be maintained at over 70%.

II. Smartphone Business: Recovery and Maintenance of High Gross Profit Margin

In the fourth quarter of 2023, XIAOMI-W's smartphone business achieved revenue of 44.2 billion RMB, a year-on-year increase of 20.6%. The growth of the company's smartphone business in this quarter was mainly driven by the recovery in quarterly shipment volume.

Dolphin analyzes XIAOMI-W's smartphone business in terms of volume and price:

Volume: In the fourth quarter of 2023, XIAOMI-W shipped 40.5 million smartphones, a year-on-year increase of 23.9%.

Of the 7.5 million smartphones that XIAOMI-W grew year-on-year this quarter, approximately 1 million units were from the domestic Chinese market, while there was also an increase of around 6.5 million units in overseas markets. Looking at the market share in the fourth quarter, XIAOMI-W saw a year-on-year increase in market share both domestically and internationally.

Price: In the fourth quarter of 2023, the average selling price of XIAOMI-W smartphones was 1,092 RMB, a year-on-year decrease of 2.6%.

The year-on-year decline in the average selling price of XIAOMI-W smartphones this quarter is mainly due to the increased proportion of shipments to relatively low-priced overseas markets (Latin America and Africa), structurally lowering the company's smartphone average price.

In the fourth quarter of 2023, XIAOMI-W's smartphone business gross profit was 7.24 billion yuan, a year-on-year increase of 141.4%. It accounted for 46.4% of the company's gross profit.

The gross profit margin of the smartphone business this quarter was 16.4%, an 8.2 percentage point increase year-on-year. The increase in the gross profit margin of the company's smartphone business this quarter mainly came from product upgrades, reduced inventory provisions in overseas markets, and lower prices of core components (excluding a one-time cost of 700 million yuan this quarter, the gross profit margin of the smartphone this quarter is approximately 14.7% after excluding the impact).

IoT business: Continuously weak performance

In the fourth quarter of 2023, XIAOMI-W's IoT business achieved revenue of 20.3 billion yuan, a 5.1% year-on-year decrease. The decline in the IoT business this quarter was mainly due to reduced revenue from smart TVs and laptops.

XIAOMI-W's main IoT products mainly include TVs and laptops. In the fourth quarter of 2023, revenue from the main IoT products was 5.1 billion yuan, a 21.5% year-on-year decrease. This was mainly due to a decrease in smart TV shipments due to market demand.

In the fourth quarter of 2023, revenue from other IoT products of XIAOMI-W reached 15.2 billion yuan, a 2% year-on-year increase, mainly driven by the growth of air conditioners, refrigerators, and washing machines in mainland China. The smart home appliances business in this quarter grew by 14.6% year-on-year.

In the fourth quarter of 2023, the gross profit of XIAOMI-W's IoT business was 2.84 billion yuan, a 7.3% year-on-year decrease. The gross profit margin of the IoT business this quarter was 13.9%, a 0.4 percentage point decrease year-on-year. This was due to the decrease in gross profit margins of smart TVs, laptops, and some overseas IoT productsFour, Internet Services: Setting a New Record

In the fourth quarter of 2023, XIAOMI-W's Internet services business achieved a revenue of 7.9 billion RMB, a year-on-year increase of 9.9%, accounting for 10.8% of the company's total revenue.

Specifically, the breakdown of Internet services is as follows:

Advertising Services: This is the largest component of the company's Internet services. In this quarter, XIAOMI-W's advertising services generated a revenue of 5.6 billion RMB, a year-on-year increase of 19.1%. The company improved its content distribution and monetization capabilities, with overseas advertising continuing to grow.
Gaming Revenue: Maintained stability. XIAOMI-W's gaming revenue in this quarter was 1 billion RMB, almost flat compared to the same period last year.
Other Value-Added Services: XIAOMI-W's other value-added services revenue in this quarter was 1.3 billion RMB, with the financial technology business maintaining a contraction.

Looking at the performance of XIAOMI-W and Apple's value-added services, companies that dominate the software entrance have relatively strong risk resistance. The company's Internet services business achieved a historical high in this quarter.

Dolphin Jun analyzed XIAOMI-W's Internet services business in terms of volume and price:

MIUI User Base: As of December 2023, the monthly active users of MIUI reached 641 million, a year-on-year increase of 10.2%. Although the growth rate of MIUI users in this quarter continued to decline, the user base still maintained a double-digit expansion rate.
ARPU Value: Considering the MIUI user base, the average revenue per user (ARPU) for a single quarter was calculated. In this quarter, XIAOMI-W's Internet services ARPU value was 12.3 RMB, almost flat compared to the same period last year. The increase in ARPU value for overseas users offset the decline in ARPU value for domestic users in this quarter.

In the fourth quarter of 2023, XIAOMI-W's Internet services business gross profit was 5.97 billion RMB, a year-on-year increase of 16.3%. The gross profit margin for Internet services in this quarter increased by 4.2 percentage points year-on-year, mainly due to the increased proportion of the company's advertising business.

Compared to other companies in the advertising industry, XIAOMI-W, which holds the terminal entrance, continues to maintain a high gross profit margin of over 70% in Internet business. In an era of intensified competition for existing traffic, the Internet entrance traffic track has a good structure with unique advantagesFive. Overseas Market: Continuous Growth in User Scale

In the fourth quarter of 2023, XIAOMI-W's overseas revenue reached 32.3 billion RMB, a year-on-year increase of 5.3%, accounting for 44.2% of the total revenue.

Among them, the overseas internet revenue of XIAOMI-W achieved a growth of 23.8% this quarter. However, the company's total overseas revenue only grew by 5% this quarter, mainly dragged down by the hardware business. Due to a 26.1% year-on-year increase in shipments of XIAOMI-W smartphones in overseas markets (excluding China) this quarter, Dolphin Jun believes that the main reason for the poor growth of XIAOMI-W's overseas revenue this quarter comes from the IoT business.

Due to XIAOMI-WR's business philosophy around the "hardware + software" model, driven by a 20% year-on-year growth in overseas smartphone sales, the number of overseas users on the software side continues to grow (new purchases exceed replacements). Looking at the distribution of MIUI users, XIAOMI-W had 641 million MIUI users by the end of this quarter, with 486 million coming from overseas markets. In other words, although XIAOMI-W originated from mainland China, now more than 3/4 of its users are from overseas.

Due to significant user differences between domestic and overseas markets, and the fact that the average revenue per user (ARPU) of overseas users is much lower than that of domestic users, the higher proportion of overseas users structurally lowers the company's ARPU level. This quarter, XIAOMI-W's internet service ARPU was 12.3 RMB, basically flat year-on-year.

Dolphin Jun estimates that the ARPU of domestic users of XIAOMI-W this quarter was 35.86 RMB, a 2.2% year-on-year decrease; while the ARPU of overseas users this quarter was 4.74 RMB, a 9.3% year-on-year increase.

Six. Expenses and Performance: SU7 Listing to Bring Pressure

In the fourth quarter of 2023, XIAOMI-W's three expenses totaled 12.86 billion RMB, an 8.5% year-on-year increase. The increase in expenses this quarter mainly came from sales and research and development expenses.

① Research and Development Expenses: 54.6 billion RMB this quarter, a 16.2% year-on-year increase, accounting for 7.5% of revenue. The number of research and development personnel increased by more than 200 this quarter, with research and development expenses continuously rising, mainly due to increased spending on innovative businesses such as smart carsFinancial Highlights:

Research and Development Expenses: Innovative expenses in smart cars reached 2.4 billion RMB this quarter.
Sales Expenses: This quarter, sales expenses were 5.91 billion RMB, a year-on-year increase of 1%, accounting for 8.1% of revenue. This increase was mainly due to higher promotional and advertising expenses.
Administrative Expenses: Administrative expenses this quarter were 1.48 billion RMB, a year-on-year increase of 14.2%, accounting for 2% of revenue. Administrative costs increased mainly due to higher costs related to administrative staff salaries, with the company adding nearly 600 employees this quarter.

Adjusted Net Profit in Q4 2023 was 4.9 billion RMB, showing significant year-on-year growth. From an operational perspective (excluding fair value changes in investments), the company mainly benefited from a significant increase in the gross profit margin of the mobile phone business this quarter. With the hardware gross margin rising to above 16%, the company's profitability significantly improved. However, the upcoming launch of XIAOMI-W cars will bring further pressure on the company's profits due to increased expenses on the automotive side.

Dolphin Research on XIAOMI-WR Historical Articles:

Financial Report Season
- November 20, 2023: Conference Call "XIAOMI-W Management Discusses the Source of Margin Improvement (3Q23 Conference Call Summary)"
- November 20, 2023: Financial Report Review "XIAOMI-W Strikes Back"
- August 29, 2023: Conference Call "Inventory Clearance Completed, Reversal of Impairment Boosts Profit (XIAOMI-W 2Q23 Conference Call)"
- August 29, 2023: Financial Report Review "India Crisis, Huawei's Rise, Can XIAOMI-W Make a Comeback?"
- May 25, 2023: Conference Call "Investing in Chips, a Long-Term Strategic Must for XIAOMI-W (XIAOMI-W 23Q1 Conference Call Summary)"
- May 24, 2023: Financial Report Review "Reduced Inventory, Lost Market Share, Where Does XIAOMI-W Go From Here?"March 25, 2023 Conference Call "Effective Inventory Turnover, Demand Recovery Not Yet in Sight (XIAOMI-W 22Q4 Conference Call)"

March 24, 2023 Financial Report Review "XIAOMI-W: Falling to the Bottom, When Will It Rise Again"

November 23, 2022 Conference Call "Inventory Digestion Begins, Supply and Demand Trends Towards Balance (XIAOMI-W 22Q3 Conference Call)"

November 23, 2022 Financial Report Review "XIAOMI-W Has Been Down for Too Long, Finally Seeing the 'Light'"

August 19, 2022 Conference Call "After a Comprehensive Decline in Financial Reports, How Will Management Explain (XIAOMI-W 22Q2 Conference Call)"

August 19, 2022 Financial Report Review "Layoffs Can't Save XIAOMI-W from Its Heavy Predicament"

May 19, 2022 Conference Call "XIAOMI-W in a Dilemma, What Does Management Say? (XIAOMI-W 22Q1 Conference Call)"

May 19, 2022 Financial Report Review "With Internal and External Challenges, XIAOMI-W Is Not the Best Choice"

March 22, 2022 Conference Call "XIAOMI-WR: After a Mediocre Financial Report, What Does Management Say? (Conference Call Summary)"

March 22, 2022 Financial Report Review "XIAOMI-W: Mediocre Performance, a Waste to Abandon"

November 30, 2021 Conference Call "Launching Pure Electric Models Before and After XIAOMI-W, What Is Li Auto Relying on to Compete? (Meeting Summary)"2021 年 11 月 23 日电话会《Out of stock causing a decline in smartphone sales? Listen to what XIAOMI-W management has to say (XIAOMI-W conference call)》

2021 年 11 月 23 日财报点评《Ups and downs, where is XIAOMI-W heading?》

2021 年 8 月 26 日电话会《XIAOMI-WR: After a splendid report card, what did the management talk about?》

2021 年 8 月 25 日财报点评《No more doubts, XIAOMI-W ascends to the "altar" again》

2021 年 5 月 26 日财报点评《Impressive performance, is XIAOMI-W aiming for a double-click from Davis?》

2021 年 3 月 25 日电话会《Chip shortage, slow progress in Internet/IoT, car manufacturing? This is how XIAOMI-W responded!》

2021 年 3 月 24 日财报点评《Such a huge deviation from expectations that it makes you doubt life, what's really going on with XIAOMI-W?》

In-depth

2023 年 12 月 7 日《Consumer electronics "climbing out of the pit": XIAOMI-W recovering, Apple holding on》

2022 年 12 月 1 日《XIAOMI-W: The "three arrows" of a turnaround》

2022 年 6 月 17 日《Consumer electronics "ripe", Apple standing strong, XIAOMI-W enduring hardship》

2021 年 12 月 1 日《Honor attacking the city, XIAOMI-W facing another "life and death crisis"》November 24, 2021 "Behind the sharp decline of XIAOMI-W, what went wrong?"

June 11, 2021 "2021, XIAOMI-W undergoes a transformation | Dolphin Research"