In 2020, COVID-19 pandemic has put great challenges to businesses, especially overseas market. From another perspective, COVID has provide great opportunity to identify which company has resilient business, and beyond expectation even in difficult times.
Actually, the business performance of Xiaomi is beyond expectations in the first half year of 2020. As we can see from the financial result, the overall revenue is growing modestly by 7.9%, and the profit is growing fast by 29.3. If we are clearly aware of lockdown measures were imposed globally, we know it’s not easy to achieve the result.
Let’s look at the overall financial performance of Xiaomi half year of 2020.
It’s hard to believe that the revenue and profits still grows even in the global market lockdown period. Especially, the profit grows very fast, it’s need to dive into to see why.
When we see the Q2 financial results, it’s easy to see that the Q2 profit grew by 108%. So what happened in this period?
The Interim report gives the answer:
- Our fair value changes on investments measured at fair value through profit or loss changed from a loss of RMB670.7 million in the second quarter of 2019 to a gain of RMB2,366.2 million in the second quarter of 2020, primarily due to more fair value gains of equity and preferred share investments in the second quarter of 2020.
- Our share of gains/(losses) of investments accounted for using the equity method changed from a net loss of RMB12.1 million in the second quarter of 2019 to a net gain of RMB892.6 million in the second quarter of 2020, primarily due to the dilution gain from the initial public offering of Kingsoft Cloud Holdings Limited (Nasdaq: KC) (“Kingsoft Cloud’), partially offset by share of loss of iQIYI, Inc. (Nasdaq: IQ) (“iQIYI”) in the second quarter of 2020.
So, it’s clear that Xiaomi profit grows very fast in the first half of 2020 is due to the investment has good yields.
In the Interim report, it also mentioned: “As of June 30, 2020, we had invested in more than 300 companies with an aggregate book value of RMB36.8 billion, an increase of 28.4% year-over-year. In the second quarter of 2020, we generated net gains on disposal of investments (after tax) of RMB1,157.2 million. We actively invested in 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 key industries, in particular, those involved in 5G, IoT, AI, semiconductors, advanced manufacturing, and industrial internet. In the first half of 2020, we invested in more than 20 upstream supply chain companies.”
Xiaomi invested hugely into the supply chain companies which business has good collaboration with Xiaomi. As Xiaomi business becomes more success, the investment will has greater achievement.
Even we don’t consider the investment yields, the revenue and profit of Xiaomi still grew modestly, and we know it’s hard to achieve.
How can Xiaomi achieve that? In my opinion, Xiaomi has built successful strategy and right business principle.
As I has mentioned before, Xiaomi strategy is based on collaboration. “Smartphone x AIoT” is at the core of Xiaomi strategy. Smartphones will remain as the cornerstone of Xiaomi business, while AIoT platform will revolve around smartphones to build up a smart living ecosystem and enlarge user base. Smartphones combined with AIoT platform will create multiplier effects to strengthen economic moats for Xiaomi business.
This strategy has good business results. In the interim report, it said that “our data indicates that our smartphone users with connected IoT devices showed a higher smartphone retention rate than users without. Our AIoT platform has also demonstrated user stickiness. For our IoT users as of June 30, 2019, the average number of connected devices increased by over 25% in the subsequent 12 months.”
Strategy shows the path to the destination, which leads to business development, and business development leads to good financial performance.
Another one is about business principle, that demonstrate that what will do and what will not do in the business.
In the interim report, its said that “On Xiaomi’s 10th anniversary, we laid down three guiding principles for our business. Accordingly, we will “never cease to explore and innovate”, “continue to offer products with the best price-to-performance ratio”, and “always make the coolest products”. We will continue to focus on innovation and efficiency to consistently deliver value to our customers. In spite of near-term uncertainties and challenges from the macroeconomic environment, the strength of our vibrant global ecosystem gives us firm confidence in our sustainable growth potential.”
Every company will not have enough resource to do anythings, and the successful companies knows how to focus and leverage the limitations
- Analysis of Xiaomi 2019 Annual Financial Report
- Xiaomi, Build Largest Consumer IoT Platform, Make Quality Technology for Everyone