The market value of the waist, millet “Jesus survival”

On July 9, 2018, Xiaomi Group (1810.HK) became the first “shared right” stock listed in Hong Kong, China. Xiaojun, founder of Xiaomi Group, said that it would buy Xiaomi Group’s shares on the first day of listing. Investors doubled.

The reality is very cruel. Xiaomi Group has landed in Hong Kong’s Hong Kong capital market for 6 months after the valuation of 53.9 billion US dollars. It is the relief of the cornerstone investors. Xiaomi’s share price has been cut in half, falling from the issue price of HK$17. To 9 Hong Kong dollars.

“waist” stock price
On July 9, 2019, after the six-year ban, the Xiaomi Group ushered in a second lifting of the ban: 4.387 billion shares of Class B shares were lifted, accounting for 18.25% of the total share capital (A and B). So far, Xiaomi Group has spent a total of 1.175 billion Hong Kong dollars, repurchased 123 million shares in 21 times, trying to stabilize the stock price, but the effect is not satisfactory.

On August 8, Xiaomi closed at HK$8.91 per share, and the market value shrank to a new low of HK$213.4 billion, or about RMB 192.1 billion. According to the Xiaomi Group prospectus, the company has about 5,500 employees with options.

After the frequent repurchase of Xiaomi, the founder Lei Jun and the president Lin Bin had to convert the A-shares into the B-shares, so as to maintain the proportion of different shares. According to data from the Hong Kong Stock Exchange, Lei Jun and Lin Bin converted their 18.83 million and 10.52 million Class A shares into Class B shares on July 25.

Why is Xiaomi only having such a huge market value gap after one year of listing? The reason goes back to the end of 2014. At that time, Xiaomi completed the F round of financing with a valuation of 45 billion US dollars, equivalent to 550 billion US dollars in 2018. Then it means that if Xiaomi is listed at a market value of less than 55 billion US dollars, the annualized rate of return of F-round financiers will be less than 8%, and Xiaomi will also bear a heavy payment for the gambling agreement signed by F-Financing. .

Based on this, Xiaomi Group and its institutional investors are pressing the valuation of Xiaomi’s listing. Therefore, when the Xiaomi Group began to prepare for the listing, it first revealed to the media that it would estimate the IPO with a value of 200 billion US dollars. When the news came out, it attracted market criticism. After feeling the public’s attitude toward the US$200 billion valuation, Xiaomi will soon lower its valuation to US$100 billion and intend to list it at the same time in Hong Kong and the Mainland of China, raising US$20 billion. Some commentators have said, “This is really a dream for Xiaomi, but it is definitely a nightmare for investors.”

At the IPO roadshow scene, Lei Jun believed that “the valuation of Xiaomi = Tencent × Apple!” Since then, the Hong Kong stock market has given him a tragic lesson.

The growth rate of Xiaomi’s revenue has slowed down, and the market value is swaying. Lei Jun faces enormous challenges.

Xiaomi achieved revenue of 174.98 billion yuan in 2018, and earned 13.545 billion yuan from turning losses into profits. However, the stock price closed at 11.76 Hong Kong dollars on the day of the release of the financial report, and the market value and sales volume shrank by 30%.

Although Xiaomi has learned Apple’s ultimate product view, Apple’s business model is that hardware creates an entry point for traffic, service and content distribution is the realization point of commercial value, while Xiaomi uses “mobile phone hardware + smart home appliance hardware” as its main business value. Cash point. Data show that in the first quarter of 2019, Apple’s revenue from services reached 11.45 billion US dollars, contributing about 20% of the income during the reporting period, becoming the second pillar of Apple’s revenue. In contrast, Xiaomi, in the first quarter of 2019, Internet service revenue was only 4.3 billion yuan, still less than 10% of total revenue. Although Xiaomi has tried many times to learn Apple’s strategy of “lifting the price of mobile phone hardware”, from the original Xiaomi Note series to the current Mix, the effect is not satisfactory.

Since the listing of Xiaomi, the capital market has had a big discussion about whether it is an Internet company or a manufacturing company. Although Xiaomi insists that he is an Internet company, and from its income share, Xiaomi has been trying to adjust the income structure. The income of Xiaomi’s mobile phone has declined for five consecutive years, but Internet revenue has never exceeded 10%. Today, from the valuation point of view, the 8 times P/E ratio of Xiaomi has been recognized as a manufacturing company by the market.

According to IDC’s market research data, in the Chinese market, in the first quarter of 2018, Xiaomi’s mobile phone market share was 15%. This data continued to decline in the next three quarters. In the fourth quarter of 2018, the market share of Xiaomi mobile phone dropped to 10%. %, shipments fell by 34% year-on-year. According to the financial report, Xiaomi Group’s revenue in the first quarter was 43.718 billion yuan, and the sales revenue of smart phones was about 27 billion yuan, accounting for nearly 62%. Based on statistical data, Xiaomi is a hardware company or an Internet company, and the answer is clear.

Xiaomi’s share price broke and went all the way down. Another big reason was the overvaluation bubble of the IPO issue price. According to Wind Financial Statistics, the 20-day breakout rate of Hong Kong stocks on the first day of listing was 34%. The break-up rate reached 82% within one month after listing, and the break-up rate reached 88% within 3 months after listing.

Delayed disclosure of equity incentives
On July 17, a number of media reported that the Xiaomi Group issued an award share to the major shareholder ARK Trust on May 27, but the incident was disclosed to the Stock Exchange on July 16. According to the disclosed documents, ARK Trust was granted shares, involving 1.776 billion shares, which increased its shareholding from 17.62% to 27.87%. Prior to the listing of the Xiaomi Group, the ARK Trust was established as a trustee by the founder and major shareholder Lei Jun, and was held by a trust that Lei Jun and his family were beneficiaries.

Before the listing, in April 2018, Xiaomi Group issued about 64 million shares of Class B common stock to Smarshifshifent Mobile Holding Limited controlled by Lei Jun as equity incentives. According to the valuation at the time, the stock value was nearly 9.9 billion yuan. . There is no additional condition for this equity incentive, which has nothing to do with future company performance, and is not linked to the stock price performance after Xiaomi started the IPO.

Subsequently, Xiaobin President Lin Bin responded to investors’ doubts about the equity incentive. He said, “Xiaomi’s equity incentive is based on the fact that Lei’s total ignorance, several directors’ meetings, and everyone unanimously agreed to Decided.” Lin Bin’s response was not generally convinced because of the question of whether the company was transferring benefits to the major shareholders. In early January 2019, Lei Jun announced that all the equity incentives obtained before the listing were donated to charitable funds for charitable purposes. However, based on the stock price of 11 Hong Kong dollars on the same day, the equity incentive has shrunk by more than 2 billion yuan.

The Xiaomi Group’s 2018 annual report disclosed that the top five remunerations including Chairman Lei Jun had a total annual salary of RMB 10.22 billion, of which RMB 10.21 billion was “share-based compensation expense”. Staff welfare expenses surged 3.23 times.

In addition, Xiaomi Finance of Xiaomi also sold 42.07 million shares to Lei Jun at a price of 3.83 yuan in June 2018, close to 42.07% of the issued shares of Xiaomi Finance.

The mobile phone market
According to IDC data, in 2018, Xiaomi’s mobile phone shipments ranked fourth in the world, and the comprehensive net profit margins of the top three mobile phone manufacturers were higher than Xiaomi. Among them, Apple ranked highest with a net interest rate of 22.41%, followed by Samsung Electronics 18%, Huawei’s net profit margin also reached 8.23%, and Xiaomi was only 7.75%.

Of course, this is also related to Lei Jun’s commitment to a certain extent. On the announcement date of the annual report, Lei Jun reiterated that the comprehensive net interest rate of Xiaomi Hardware will not exceed 5% through the “open letter of the chairman of the board of directors”. If there is any excess, it will be returned to the user.

The nodes in the domestic market are from May 2019. The US ban has seriously affected the sales of Huawei’s overseas markets. Ren Zhengfei confirmed that Huawei’s mobile phone international market shipments are expected to fall by 40%-60%. Huawei began a large-scale “export to domestic sales” and transferred the original overseas mobile phones back to China. The channel will also significantly reduce the price of inventory. Xiaomi, who is at a low point, has had a positive encounter with Huawei on the soft side of the online channel.

Xiaomi is currently facing severe challenges. According to Canalys, in the first quarter of 2019, Xiaomi’s mobile phone shipments in China were 10.5 million units, and Huawei’s domestic mobile phone shipments during the same period were 22.9 million units. Huawei, which has withdrawn from the European market, will not have to give Xiaomi a feeling of affection in the domestic market in the second quarter.

In terms of overseas markets, Huawei’s withdrawal did not bring more space to Xiaomi. Unlike Huawei’s model of directly cooperating with overseas operators, Xiaomi is also selling through social channels overseas, that is, direct retail. In the first quarter of 2019, despite the expansion of other regional markets such as Europe, the global shipments of Xiaomi’s mobile phones still dropped by 10%.

India is a strong market for Xiaomi overseas. According to Canalys data, in the first quarter of 2019, Xiaomi shipped 9.5 million units in the Indian market, with a market share of 31.4%. Of course, OPPO and Vivo will not let go of the big cake in the Indian market. According to statistics, Vivo shipped 4.5 million units in the first quarter, with a market share of 15%; OPPO’s independent sub-brand Realme also became the fifth in the Indian market in less than a year.

It is worth noting that Xiaomi’s mobile phone must use Google’s native Android system in overseas markets. The vast majority of revenue from application distribution and advertising belongs to Google. This situation directly determines that the Internet business of Xiaomi is mainly relying on the domestic market.

However, the continuous decline in domestic mobile phone shipments has led to a continuous decline in the active users of Xiaomi mobile phones. The question that comes with it is how Xiaomi maintains a rapid increase in net profit in the face of declining mobile phone users, thus giving enough market value. support?

The reality is that from July 2018, the monthly and daily users of the Xiaomi App Store began to decline. The number of monthly livelihoods in April 2019 fell to 70.41 million, down 21.5% from the 89.74 million in July 2018. . Xiaomi’s current business model is to sell mobile phones and other hardware with low gross margin, and then earn profits through Internet service revenue. The net profit in Xiaomi’s earnings report is directly related to Xiaomi’s Internet service revenue. Therefore, the decline in active user data has a direct impact on the market value of Xiaomi Group.

According to the data of Xiaomi Group’s quarterly report, the company’s Internet business revenue in the quarter was 4.3 billion yuan, a year-on-year increase of 31.8%. In terms of splitting, the advertising business revenue reached 2.3 billion yuan, up 21.8% year-on-year; the game business revenue reached 823 million yuan, a year-on-year increase of only 6.8%; these two incomes totaled 3.123 billion yuan, up 17.4% year-on-year. Among them, other Internet value-added services revenue reached 1.2 billion yuan, a year-on-year increase of 96.4%. The announcement said that the main reason was the rapid growth of revenue from Internet finance business and quality goods platform.

It can be seen that the continuous decline of active users has made Xiaomi’s Internet revenue growth weak, and it can only rely on Internet financial lending and Xiaomi to maintain growth. It should be pointed out here that the Internet financial lending business is an obvious risk-post-type business. When Xiaomi Finance issued loans, in order to maintain the growth rate, a large number of external advertisements were put in, and the quality of these loans is controllable in the long run. means? This poses a huge risk to the rapidly expanding millet mutual gold business.

With the global mobile phone market shrinking, competition in the domestic mobile phone market is also growing. According to IDC’s April data, the global mobile phone market experienced a decline for the sixth consecutive quarter, with shipments falling by 6.6% in the first quarter of 2019. According to Canalys data, in the first quarter of 2019, China’s mobile phone shipments fell back to 2014 levels, the worst performing quarter in the past six years.

In addition, Xiaomi still has a backlog of inventory. According to the 2018 financial report, as of the end of December, Xiaomi’s finished goods inventory reached 19.112 billion yuan, more than double the year-on-year. In January 2019, Xiaomi’s inventory turnover days were as high as 55 days. Under normal circumstances, the inventory turnover period of the mobile phone market was about one month. In order to maintain market share and clear inventory, Xiaomi had to reduce gross profit and sell inventory at a reduced price.

The growth rate of the Internet business has been slowing down, and Xiaomi can only rely on Internet finance and Xiaomi to make the financial report figures look better. This may be the main reason why Xiaomi Group’s share price has continued to fall to HK$8.91 since its listing in 2018.

In addition, Xiaomi’s cash flow is equally worrying. In the first quarter, if Xiaomi removed the influence of Internet finance business, the cash flow of its business activities was -15 billion yuan. The data shows that in 2018, Xiaomi’s revenue reached 174.9 billion yuan, but it still failed to achieve the positive flow of cash flow. In the years before the listing, Xiaomi’s cash was always in a state of being consumed. The reason is that Xiaomi pays the supplier in advance, or buys raw materials from the supplier and commissions the foundry to produce it, and then sells it. In the whole process, although Xiaomi has paid the supplier first, but when Xiaomi’s products are put into the market but cannot be sold at the planned price completely, the product will have to face the risk of short-term upswing when the price has to be reduced. The reality is that regardless of product price cuts or inventory surges, it will put tremendous pressure on Xiaomi’s cash flow.

Difficult AIOT story
Due to the blocked growth of the mobile phone business, Xiaomi said that the company will establish and accelerate the “mobile +AIoT” dual-engine strategy and significantly increase the number of devices connected to the IoT platform. According to statistics, as of March 2019, MIUI monthly active users reached 260 million, an increase of 37.3%. The number of connected IoT devices (excluding smartphones and notebook computers) on the IoT platform increased by 70% year-on-year to approximately 171 million units.

From the data of the previous quarters, Xiaomi’s IoT business growth momentum is really good. However, in the first quarter of 2019, the gross profit margin of IoT and the consumer products segment rebounded from 10.7% in the first quarter of 2018 to 12%. The company explained that the gross profit margin of the smart TV business increased. In the case of the decline of the mobile phone business, the well-functioning IoT business has become the support point of the current Xiaomi performance.

But from the three product areas of smart speakers, smart TVs and wearable devices, the future of Xiaomi AioT story is not necessarily satisfactory.

According to the data provided by IDC China Smart Home Equipment Market Quarterly Tracking Report, in the first quarter of 2019, China’s smart speaker market shipments reached 11.22 million units, an increase of 787.2% year-on-year, exceeding the full year sales in 2018. Among them, Ali and Baidu ranked first with 3.4 million units of shipments, and Xiaomi ranked third with 2.9 million units. There is no doubt that artificial intelligence and consumer-grade Internet of Things, represented by smart speakers, have ushered in a period of rapid growth, but behind the rapid growth is the serious homogenization of products and user experience. As of March 31, Xiaomi AI speakers shipped more than 10 million units. In March 2019, “Little Love Classmates” had more than 45.5 million monthly active users and currently has more than 1,400 skills. On the other hand, Alibaba officially announced on March 4 that the cumulative sales of Tmall Elf smart speakers exceeded 10 million units, and the equipment can be connected to over 100 million. The skills of the Tmall Elf store have reached 1,400. Among them, Baidu did not announce the sales of smart speakers.

It is undeniable that the products of the three companies lack sufficient differentiation in terms of product design and user experience. When the product is homogenized and the market enters an explosive growth period, the price war becomes an unavoidable problem. For example, in 2018, Alibaba once reduced the 189 yuan Tmall Elf to 89 yuan, and Xiaomi also reduced the 199 yuan small love speaker to 99 yuan. Baidu even reduced the 249 yuan small speaker to 89 yuan. During the “Double Eleven” period, it was down to the price of 69 yuan. In summing up the reasons for the rapid growth of China’s smart speaker market, IDC pointed out that high subsidies are the best way for giants in the smart speaker market to promote.

Looking at Xiaomi TV, global shipments reached 8.4 million units in 2018. In the first quarter of 2019, global shipments reached 2.6 million units, a year-on-year increase of 100%. Xiaomi first deployed IoT hardware. Smart TV currently has a leading position in the domestic and Indian markets. However, Huawei is a latecomer. Huawei brand and glory brand will release smart TV products with “Smart Screen” as the core strategy in the second half of the year. The same as the mobile phone market, Huawei brand is the main high-end, glory brand is focused on cost-effective, the main low-end. Although Xiaomi has obvious marketing and channel advantages against domestic traditional home appliance manufacturers, compared with Huawei, Xiaomi TV has no advantage to highlight. As the most important smart TV in the Xiaomi AIOT business segment, it will face daunting challenges in the second half of the year and 2020.

In terms of wearable devices, Xiaomi has been the second largest wearable device manufacturer in the world after Apple. According to IDC data, in 2018, the global shipment of millet wearable devices was 23.3 million units, a year-on-year increase of 44.6%, and the market share reached 13.5%. Among them, China’s domestic market shipments were 16.97 million units, a year-on-year increase of 20.5%, and the market share was 23.2%. It should be noted that the shipment of Xiaomi wearable devices includes the shipment of Xiaomi’s Huami. It can be seen that the growth rate of Xiaomi wearable devices in China is much smaller than that in the global market. The reason is also in Huawei.

According to statistics, Huawei’s wearable devices shipped 11.3 million units in the global market in 2018, up 147.3% year-on-year, with a market share of 6.6%. The domestic market shipped 9.28 million units, up 136% year-on-year, with a market share of 12.7%. It should be noted that Huawei’s wearable devices increased significantly in the fourth quarter of 2018: in the third quarter of 2018, Huawei shipped only 1.59 million units, which is significantly different from Xiaomi’s 4.19 million units, but in the fourth quarter, Huawei Shipments surged to 4.39 million units, a year-on-year increase of 206%. The gap with Xiaomi instantly narrowed to only 940,000 units. By the first quarter of 2019, Huawei’s growth momentum was still rapid, with domestic shipments reaching 3.6 million units. The gap in Xiaomi has further narrowed to 670,000.

In terms of valuation, Xiaomi, which has a price-to-earnings ratio of 8 times, has been recognized as a manufacturing company by the market.

The main products of wearable devices are smart bracelets, smart watches and Bluetooth headsets. In the current market, the price of the smart bracelet is generally less than 200 yuan: the Xiaomi bracelet 4 standard version released on June 11 is 169 yuan, and the glory bracelet 5 released on July 23 is 189 yuan, two Prices are similar, with only minor differences in functionality and design. In the case of very similar similarities, the profit of the smart bracelet will be very thin. According to IDC’s analysis in the report, the growth of the Chinese bracelet market has shown a significant slowdown. Although the bracelet manufacturers upgrade their products through the optimization of software and hardware such as screens, battery life and algorithms, the bracelets are in function and scene. The expansion still lags behind the watch. With the gradual maturity of the wearable device market, the user’s needs are gradually cultivated and expanded, and the transition from the wristband to the watch becomes an inevitable trend. In the fourth quarter of 2018, shipments of Xiaomi’s smart bracelets have fallen year-on-year.

According to NPD statistics, in the past 12 months of November 2018, sales of smart watches in the United States increased by 61%, and total sales increased by 51% year-on-year, which indicates that smart watches represent the future in the global wearable device market. The profit margin of smart watches is relatively high. Except for Apple Watch, the sales of Xiaoma’s brand Huami’s Amazfit series of smart watches have performed well. As of July 16, the total shipment of Amazfit brand of Huami series watches exceeded 4.5 million units. However, Huawei’s smart watch WATCH GT series sales growth is even more rapid: on June 21, Huawei officially announced that since its launch in October 2018, the WATCH GT series has sold 2 million units. According to IDC data, in the first quarter of 2019, Huawei’s smart watch shipments have surpassed Huami’s 17.1% with a market share of 24%, making it the number one market in China.

The growth rate of Xiaomi wearable devices in the domestic market has been slowing down, and it is also closely related to the poor sales of mobile phones. On July 30, Huawei held its first half of 2019 results. According to the data, in the first half of 2019, Huawei achieved sales revenue of 401.3 billion yuan, a year-on-year increase of 23.2% and a net profit margin of 8.7%. Among them, the shipment of wearable devices has doubled. According to this growth rate, it is only a matter of time before Huawei wearable devices fully surpass Xiaomi.

Since 2018, the year-on-year growth rate of Xiaomi’s operating income has been declining every quarter. Xiaomi has also witnessed a severe encounter in the second quarter. In 2019, it has been ten years since Lei Jun established Xiaomi, and Lei Jun will also welcome himself at the end of the year. 50th birthday. In the face of unknown challenges and opportunities, I wonder if Lei Jun can hand over a satisfactory answer to himself and investors.