Analysis of Xiaomi 2019 Annual Financial Report

Xiaomi was listed on the Main Board of the Hong Kong Stock Exchange on July 9, 2018 (1810.HK), so it’s the second year that we can see how Xiaomi developed and get the accurate financial results. 

Financial Analysis

Actually, I was amazed about the good financial performance in 2019. Total revenue of Xiaomi was RMB205.8 billion, an increase of 17.7% year-over-year. Adjusted net profit was RMB11.5 billion, an increase of 34.8% year-over-year. We should know that Xiaomi was only 10 years old, since it’s founded in 2010.

As I have discussed before, Xiaomi business can be divided into three parts: Smartphone, IoT and lifestyle products, and Internet services. Based on the financial report, the three parts of 2019 financial result are as follows:

The following graph shows the gross margin by business segment, and we can see that the three business segment 

Xiaomi has a strong cash flow performance, the cash flow from operating activities is much more than profit

As of December 31, 2019, the Company had invested in more than 290 companies with an aggregated book value of approximately RMB30.0 billion. We expanded our investment into supply chain companies to strengthen our partnership with key component suppliers, enhance our sourcing and manufacturing abilities in advanced technology and facilitate the development of the industries, in particular around 5G, IoT, AI, integrated circuits, advanced manufacturing and industrial internet. An increasing number of our investee companies have gone public. In February 2020, Roborock, one of our investee companies, was successfully listed on the Science and Technology Innovation Board of Shanghai Stock Exchange (“STAR Market”) in China, becoming our first ecosystem investee company to list on the STAR Market. This is a recognition of our ecosystem business model by the Chinese capital markets. As our businesses continue to grow, we believe more of our investee companies will go public over time., Xiaomi has cash resources up to 66 billion RMB. As the coravirus epidemic spread all over the world, cash is the king for all the business.

Business Analysis

Xiaomi strategy is implementation of “Smartphone + AIoT” dual-engine strategy and provide smartphone with ultimate price-performance ratio to attract users. As Xiaomi builds AIoT ecosystem, the smartphone users are inclined to use more and more Xiaomi IoT and lifestyle products. So we can see clearly that the IoT and lifestyle products takes larger revenue share than last year. From 2019 financial report: As of December 31, 2019, the number of IoT devices (excluding smartphones and laptops) on our IoT platform reached 234.8 million units, an increase of 55.6% year-over-year. The number of users who had five or more connected devices reached 4.1 million, an increase of 77.3% year-over-year.

Next, le’ts dive into each business segment one by one. 

  1. Smartphone

In 2019, revenue from our smartphones segment reached RMB122.1 billion, an increase of 7.3% year-over-year. In the fourth quarter of 2019, revenue from our smartphones segment was RMB30.8 billion, an increase of 22.8% year-over-year. For 2019, we shipped approximately 124.6 million units of smartphones, while in the fourth quarter of 2019, shipments were approximately 32.6 million, an increase of 30.5% year-over-year

As we can see, based on the shipment volume, Xiaomi performs much better than other vendors.

In 2019, Xiaomi dual-brand strategy showed encouraging results. The Xiaomi brand focused on pioneering advanced technologies and successfully established a solid foothold in the premium smartphones segment. The Redmi brand, on the other hand, continued to pursue the ultimate price-performance ratio across different price points and make innovative technologies readily accessible to the mass market.

As from Xiaomi 2019 financial report: In 2019, the average selling price (“ASP”) of our smartphones increased by 2.2% compared to 2018 and the gross margin of the smartphones segment increased to 7.2% from 6.2% in 2018. In 2020, we will continue to focus on 5G smartphones development and strengthen our presence in the premium smartphones segment, which will lead to further ASP expansion.

2. IoT and lifestyle products

In 2019, revenue from Xiaomi IoT and lifestyle products segment was RMB62.1 billion, an increase of 41.7% year-over-year. In the fourth quarter of 2019, revenue from Xiaomi IoT and lifestyle products segment was RMB19.5 billion, an increase of 30.5% year-over-year.

Xiaomi continued to grow IoT product portfolio and enhance the connectivity and user experience across devices. Xiaomi achieved leading positions in key IoT products that are controlling hubs for AIoT platform, including TVs, wearable devices and smart speakers. In 2019, Xiaomi global TV shipments reached 12.8 million units, an increase of 51.9% year-overyear. 

According to Canalys, Xiaomi were the world’s largest smart wearable device (including smart watch and wristband) brand in 2019 by shipments.

3. Internet Service

In 2019, revenue from internet services reached RMB19.8 billion, an increase of 24.4% yearover-year. For the fourth quarter, revenue was RMB5.7 billion, an increase of 41.1% year-overyear.

In December 2019, MAU of MIUI increased by 27.9% year-over-year to 309.6 million with mainland China’s MAU of MIUI standing at 109.0 million

Diversification of internet services has become a key growth driver of Xiaomi internet services revenue. In the fourth quarter of 2019, internet services revenue outside of advertising and gaming from mainland China smartphones, including those generated from the Youpin e-commerce platform, fintech business, TV internet services and overseas internet services, increased by 112.6% year-over-year and accounted for 43.0% of total internet services revenue.

Overseas markets

Like Huawei, Xiaomi takes overseas market as the next growth source, especially Western Europe and India. In 2019, overseas revenue was RMB91.2 billion, an increase of 30.4% year-over-year. In the fourth quarter of 2019, overseas revenue increased by 40.7% year-over-year to RMB26.4 billion, accounting for 46.8% of total revenue for the period.

In the fourth quarter of 2019, Xiaomi was the largest smartphone brand in India by shipments for the tenth consecutive quarter, capturing a market share of approximately 28.7%, according to IDC.

In Western Europe, Xiaomi continued to expand market share. According to Canalys, Xiaomi smartphone shipm