Since its listing in July 2018, Xiaomi Group has never been short of controversy. This includes a decline in mobile phone market share and a plunge in market value. Entering 2020, benefiting from Huawei being sanctioned by the United States, Xiaomi's mobile phone share has increased, its performance has recovered, and its market value has reached a record high. But facing the future, controversy still exists.
Although the market value has reached a record high, the controversy surrounding Xiaomi is far from over.
On the eve of Xiaomi’s release of its third quarterly report for 2020, the company’s stock price hit a record high since its listing. On the day of the financial report’s release on November 24, the stock price once climbed to a record high of over HK$28. As the "boot" came to fruition, Xiaomi's stock price fell back one after another, but overall, it still recorded a positive return of more than 140% during the year.
Xiaomi has multiple identities. It was once regarded as "the first stock owned by young people", but soon after its listing, it was ridiculed as "the first stock held by young people". There is always a long-short dispute between institutions around Xiaomi's performance and valuation. Today, Xiaomi's market performance seems to have given those "shorts" a heavy blow. But even so, with Huawei's restart of 4G mobile phones and the divestment of Honor, Xiaomi's performance and market share will be controversial again in the future.
Mobile phone market share surpassed Apple to rank third
Xiaomi’s continued efforts in the high-end mobile phone field are full of challenges
The third quarterly report shows that Xiaomi’s single-quarter revenue and profit Setting a record high, at the same time, mobile phone revenue and mobile phone shipments in a single quarter also hit new highs. According to IDC statistics, Xiaomi's mobile phone market share surpassed Apple's in the third quarter of 2020 and ranked third in the world. According to data from Canalys, the company's mainland smartphone shipments in the third quarter increased by 18.9% year-on-year, making it the only company among the top five manufacturers to achieve positive growth.
In the first 10 months of 2020, Xiaomi’s high-end flagship mobile phone sales exceeded 8 million units. At the same time, its average selling price (ASP) of smartphones in mainland China increased by 14.7% year-on-year. Xiaomi said in its financial report that this was due to the increase in the sales proportion of mid-to-high-end mobile phones. At the beginning of this year, Xiaomi released the first 5G true flagship Mi 10 series mobile phone of the year. In the third quarter, it released the Mi 10 Ultra Commemorative Edition. Xiaomi's high-end product strategy was successfully implemented.
There are certain reasons why Xiaomi has succeeded in its high-end strategy. Zhang Kexing believes that "Xiaomi's mid-to-high-end models are in line with the company's strategy. In the past, Xiaomi used cost-effectiveness to seize the market because the company did not invest enough in R&D. With the change in consumer concepts, and mobile phones becoming more and more important to everyone, consumers Xiaomi is willing to spend a little more money to get better models. In addition, Xiaomi also has a very good factor, that is, its 4G mobile phone inventory is relatively low compared to its competitors, so there is nothing in the process of 5G mobile phone transformation. "The burden."
Regarding whether Xiaomi can occupy a place in the fiercely competitive high-end mobile phone market, Yuan Wei believes that "Xiaomi's cost-effective brand image is too deeply rooted in the hearts of the people. This brand image is not suitable for high-end users in the high-end market. The core psychological appeal of the product does not match, and it is very difficult to reverse this user mentality in the high-end market. ”
Zhang Kexing said that based on the currently known data, Xiaomi has already achieved success. It has been recognized by many "rice fans". In this regard, it is relatively certain that it will occupy a certain market share in high-end models. But in the long run, Xiaomi's mid- to long-term strategy of developing high-end models will still face very strong competitors, such as Apple and Huawei. Facing strong competitors, Xiaomi may not necessarily be able to maintain sustained growth in market share in the high-end market.
Smartphones are still the core of the core
It is difficult to shift overseas focus to Europe in the short term
According to the "IDC China Smart Home Equipment Market Quarterly Tracking Report" it is expected , China’s smart home device market shipments are expected to be close to 220 million units in 2020, and will grow to nearly 500 million units by 2024, with a compound annual growth rate of as high as 23%.
Yuan Wei also believes that Xiaomi’s core competitiveness still lies in its mobile phones.
"This is the basic foundation of Xiaomi's business, which determines the market competitiveness and brand image of Xiaomi's entire series of products. If the mobile phone business fails, it is difficult to imagine that its IOT and smart home businesses can still thrive. However, on the other hand, IOT is a key element for Xiaomi to build its ecosystem. With the support of Xiaomi brand, design requirements, quality control, scale effect and network effect, I am still optimistic about the future development prospects of Xiaomi’s IOT business. ”
According to Canalys statistics, in the third quarter of 2020, Xiaomi's smartphone overseas market revenue reached RMB 39.8 billion, a year-on-year increase of 52.1%. This quarter, overseas market revenue and contribution to total revenue both hit record highs. Among them, shipments in Western Europe were particularly impressive, with a year-on-year increase of 107.3%, and the market share increased to 13.3%, ranking third.
In fact, in overseas markets, India and Southeast Asia have always been the key areas for Xiaomi’s smartphone development. As the company vigorously develops the European market and achieves remarkable results, it has also triggered market concerns about its overseas markets. There is a discussion about whether the center of gravity has shifted.
“The European market is a high-end market, and consumers there have higher purchasing power; but the European market is severely segmented, with various languages ??and cultures, and there are complicated and complicated issues in patents, data protection, consumer privacy protection, etc. Due to strict laws and regulations, the cost of market development is also relatively high, which is difficult to achieve overnight and requires long-term investment. Therefore, in the foreseeable future, I believe that the Indian and Southeast Asian markets will continue to be Xiaomi's main overseas battlefields and are worthy of continued development. Although we will actively explore and expand in the European market, it will take time, and the focus of overseas markets cannot and does not need to shift to Europe soon," Yuan Wei said.
"Triathlon" business model
The biggest challenge is user experience
Xiaomi's business model is "Triathlon" (hardware + Internet services + e-commerce and new retail) model. The purpose of Xiaomi's hardware products is to pursue high cost performance while satisfying high quality and sophisticated design. Lei Jun promised that the comprehensive net profit rate of the company's overall hardware business (including smartphones, IoT and consumer products) will not exceed 5%, otherwise it will The excess will be given back to users. According to Chen Hang, an analyst at Founder Securities, the ultimate price/performance ratio is the starting point of Xiaomi’s moat. He believes that "low gross profit + high efficiency" is the essence of Xiaomi's business model and is also Xiaomi's moat.
In Zhang Kexing’s view, Xiaomi’s “triathlon” business model can be understood this way, “Xiaomi uses its mobile phone business to drive the popularity and reputation of the entire brand, and at the same time uses smart hardware to expand its product line and business. We can compare it to Costco, a very cost-effective foreign supermarket chain. As for how to evaluate the effect of this business model, Yuan Wei believes that Xiaomi needs to realize the spiral drive from hardware to the Internet. The biggest difficulty is to make MIUI comparable to iOS in terms of user experience while being restricted by the underlying Android system.
Zhang Kexing added, “Many companies are now moving from hardware to hardware. Software is a business model for transition, but there are very few companies that have done it well. The only one that has done it very successfully is Apple, which forms a closed loop of the iOS system through mobile phones, computers, and tablets to purchase and pay for products. To achieve such an achievement, it is extremely difficult for Xiaomi. We can only take one step at a time. At present, the main source of revenue for Xiaomi's Internet services is advertising. To truly realize the drive from hardware to the Internet, the business model needs to be reshaped. ”
(This article was published in "Red Weekly" on November 28. The individual stocks mentioned in the article are only for example analysis and do not provide investment advice.)