Analysis of Xiaomi 2020 Annual Report: Smart Device or Investment Company?

In 2020, Xiaomi posted solid performance amid the pandemic and global economic uncertainty, with revenue and adjusted net profit growing 19.4% and 12.8% year-over-year to RMB245.9 billion and RMB13.0 billion, respectively. The most amazing financial figure is the net profit, which grew more than 100% year-over-year to RMB 20 billion. 

This shows Xiaomi has great resilient capability. As Leijun said in the letter to shareholders: “Good timber does not grow with ease. The stronger the wind, the stronger the trees.” In times of greater uncertainty and unpredictable challenges, the more we need to stay persistent with our dreams, to keep pace with the times, to stand by our users, to adjust, to adapt, to innovate, and to make advancements. These are the characteristics expected of an excellent company in these unique times.

As we have discussed before, Xiaomi has three major business: Smartphone, IoT and lifestyle products, Internet service. Under “Smartphone × AIoT” strategy, these three businesses has great synergies, and Xiaomi is aim to build a global smart living ecosystem centered around smartphones.

We can see that the Smart Devices (Smartphones, IoT and lifestyle products) contributes around 90% of revenue, and we can easily say that Xiaomi is a Smart Devices company. 

However, as we dived more deeply into the 2020 financial reports, we can have a different result. 

As we can see, the investment has contribute 70% of total net profit up to 14 billion. From the 2020 annual report, it said as of December 31, 2020, we had invested in more than 310 companies with an aggregate book value of RMB48.0 billion, an increase of 60.1% year-over-year. In 2020, we generated net gains on disposal of investments (after tax) of RMB2.2 billion. As of December 31, 2020, the total amount of our investments (including (i) fair value of our stakes in listed investee companies accounted for using the equity method based on the stock price on December 31, 2020 (ii) book value of our stakes in unlisted investee companies accounted for using the equity method and (iii) book value of long-term investments measured at fair value through profit or loss) reached RMB67.3 billion. Our investments not only yield capital gains, but create deep business synergies and help us drive the evolution of smart manufacturing.

From the profit perspective, Xiaomi is an investment company. I have been witness the transition in the Xiaomi 2020 interim report.

However, the investment profit of Xiaomi will be impacted with the market up and downs. The key for longterm growth is still the main business operation, and Xiaomi also have good operation results in 2020. 

  1. The main businesses kept growth rhythm, especially Smartphones. The revenue from Smartphones grew more than 60% compared with 2019, which should take credit of Huawei Smartphone business is severely impact of US government lockup the key components. 
  2. The gross margin improved across all business segments. The total gross margin increased from 13.9% for the year ended December 31, 2019 to 14.9% for the Reporting Period.
  3. Overseas market expansion fast. The revenue from overseas markets increased 34.1% year-over-year to RMB122.4 billion, accounting for 49.8% of total revenue. As of December 31, 2020, Xiaomi products have been sold in a more than 100 countries and regions around the world. According to Canalys, Xiaomi ranked among the top five vendors in terms of smartphone shipments in 54 countries and regions globally in the fourth quarter of 2020.

 

Relative Posts:
  1. Analysis of Xiaomi 2019 Annual Financial Report
  2. Analysis of Xiaomi 2020 Interim Report: Investment Creates Good Yields
  3. Xiaomi, Build Largest Consumer IoT Platform, Make Quality Technology for Everyone

 

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