The AB noodles of Huami

Author | Huang Yanhua

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Produced by | Bullet money view

Huami Technology, which was listed on the halo of "the first share of xiaomi ecological chain" on its head, recently handed over an unspeakable and qualified report card.

On March 17, Huami Technology (hereinafter referred to as "Huami") released its financial report for the fourth quarter and full year of 2021. According to the financial report, the company's revenue in the fourth quarter of 2021 was 1.662 billion yuan, down 15.76% year-on-year; net profit was 36.3 million yuan, down 68.49% year-on-year.

The earnings report also mentioned that Huami expects revenue in the first quarter of 2022 to be between 750 million yuan and 1 billion yuan. It is worth noting that this projected revenue fell between 13.04% and 34.78% compared with the same period last year.

The above news also directly stimulated Huami's stock price, as of the close of trading on March 17, 2022, Huami's stock price was quoted at $2.98 per share, down 4.49% from the previous trading day, which was more than 70% lower than the issue price of $11 when it was listed in 2018.

Since the beginning of the "de-milletization" in 2015, Huami has had a period of rapid growth, but now whether in the capital market or the consumer market, Huami seems to be difficult to hide the decline, what is behind this?

1. The revenue contribution rate of independent brands is nearly 50%

Objectively speaking, Huami's "de-milletization" strategy has achieved certain results.

According to the published financial report, in 2015, Huami's own brand contributed less than 3% to the company's total revenue, only 2.9%. Four years later, in 2019, this figure exceeded 40%. By 2021, Huami's own brands will contribute 46.5% to the company's total revenue, close to 50%.

In addition, Huami also performed well in cost control of R&D activities.

According to Huami's previous financial reports, in the last 8 fiscal quarters, the company's average R&D expense ratio (R&D expense ratio = R&D expenses / revenue * 100%) was only 8.74%. Among them, Huami's R&D expense ratio was the highest in Q1 of fiscal 2021, reaching 13.25%, and the lowest occurred in Q4 of fiscal 2021, which was only 5.66%.

Of course, in addition to the R&D expense ratio, Huami is also remarkable in the control of the management expense rate.

According to Huami's previously disclosed financial report, in the past 8 fiscal quarters, the company's management expense ratio (management expense ratio = management expenses / revenue * 100%) was as low as 3.29%, and the highest was not more than 6 percentage points.

Not only that, Huami's solvency indicators have also been at a relatively healthy level.

According to the financial report, in the last nine fiscal quarters, Huami's average asset-liability ratio was 52.52%, which is at the appropriate level of the recognized asset-liability ratio (40-60%).

2. Huami's decline is revealed

However, on the back of the coin is a number of Huami financial indicators showing a less than ideal situation.

For example, the growth rate of Huami's own brand product shipments is "stalling". According to the information disclosed in Huami's financial report, in the past five fiscal quarters, the company's own brand product shipment growth rate has dropped sharply from 114.30% in Q2 of fiscal 2021 to 14.30% in Q4 of fiscal 2021.

The growth rate of shipments of self-owned brand products has slowed down, resulting in a decrease in the overall shipment growth rate of Huami.

According to Huami's previously released financial report, in the past 8 fiscal quarters, the company's single-quarter shipment growth rate has fallen from 35.71% in Q1 of fiscal 2020 to -37.74% in Q3 of fiscal 2021, and its latest fiscal quarter has continued this negative growth momentum of -37.59%.

The growth rate of shipment volume decreased, and the direct result was the decline in Huami's revenue growth rate.

According to the published financial report, in the last 8 fiscal quarters, Huami's revenue growth rate reached the highest in Q2 of fiscal 2021 at 61.36%, and then two consecutive fiscal quarters were negative, -28.14% and -15.76%, respectively.

More importantly, Huami's quarterly revenue growth rate has hardly outperformed its marketing expense growth rate in the same period.

According to Huami's previous financial report, in the last 8 fiscal quarters, in addition to Q2 of fiscal 2021, the company's single-quarter marketing expense growth rate is above the revenue growth rate. Among them, the largest gap occurred in Q1 of fiscal 2020, as high as 110.72%, and the smallest occurred in Q3 of fiscal 2021, reaching 6.60%.

In other words, if Huami's marketing expenses maintain the same growth rate as revenue, then the amount of revenue it receives is actually lower than that that has been disclosed so far. If you want to get the current considerable revenue, it means that Huami will have to spend more marketing expenses. Therefore, the rapid growth of data such as the revenue contribution rate of independent brands on the surface does not mean that Huami's income-generating ability is excellent.

On the contrary, because of the increase in marketing efforts, Huami's profits have been continuously swallowed up.

According to the financial report, in the last 8 fiscal quarters, Huami's gross profit growth rate reached the highest in Q2 of fiscal 2021, at 59.06%, and then turned negative in the next two fiscal quarters, namely -29.63% and -14.41%, respectively.

It is also worth noting that in the past 8 fiscal quarters, Huami's gross profit margin has been low, with a minimum of 19.01% and a maximum of no more than 23%.

The underperformance is not only gross profit, but also Huami's net profit.

According to Huami's previously disclosed financial reports, in the last 8 fiscal quarters, except for Q2 of fiscal 2021, the growth rate of Huami's net profit in other fiscal quarters is negative. Among them, the lowest net profit growth rate appeared in Q1 of fiscal 2021, which was -310.42%.

Moreover, for the past 8 fiscal quarters, Huami's net profit margin has been at a low level, with a maximum of less than 6% and a low of -3.49%.

In addition, what bothers Huami may be that it is difficult to eliminate inventory.

According to Huami's previous financial reports, as of March 31, 2020, the company's inventory amount was 719 million yuan, and as of December 31, 2021, its inventory amount has soared to 1.249 billion yuan.

If inventory is seen as pressure, then an increase in inventory is equivalent to an increase in pressure. According to this logic, the surge in Huami's inventory means that the pressure released by the company to clean up the old inventory is far less than the new pressure brought about by its new inventory.

As we all know, as a Xiaomi ecological chain enterprise, Huami's shipments to Xiaomi are strictly based on Xiaomi's orders, and there should be no large-scale, long-term inventory of Xiaomi's business. According to this analysis, most of the inventory is Huami's own brand.

In fact, inventory must be impaired after a period of time, because the inventory products that exceed the time must be treated at a low price, and the intermediate loss must be included in the asset impairment loss.

In addition to the inventory that is difficult to eliminate, Huami is also facing the dilemma of tight cash flow.

According to the published financial report, as of March 31, 2020, Huami held cash and cash equivalents of 2.528 billion yuan. After only one year and nine months, the company's value was updated to 1.468 billion yuan, a shrinkage of 41.93%.

3. The six major difficulties faced by Huami

In addition to the problems arising from many of the above financial indicators, Huami and the smart wearable device track are facing many industry challenges.

First, Huami is being challenged by the giants of the ICT industry (ICT). These "giants" include both domestic manufacturers such as Huawei and Xiaomi, as well as foreign manufacturers such as Apple and Samsung. In addition to the advantages of technology and channels, the above giants also have a strong user advantage.

"After all, the users of smart wearable devices have a high degree of overlap with the previous users of communication and mobile phone products." Ding Shao, the founder of Nail Technology, told the "Bullet Financial Outlook".

(Photo / Photo Network, based on VRF protocol)

Therefore, in the next few years, the "scramble" between major manufacturers at the user level is particularly fierce, but this is also a contest based on the overall performance of the product, and the market will eventually follow the iron law of survival of the fittest.

Secondly, "how to ensure the stability of production capacity" has also become a major problem in front of smart wearable device manufacturers.

Previously, some insiders said that this year's chips are still in a relative shortage, and the real capacity release may not be until 2023 or so. In the case of chip shortage, chip foundries will generally tilt more production capacity to mobile phone or automotive enterprise customers.

After all, factories have limited capacity, and they will prioritize the supply of key categories and the interests of important customers. "Obviously, compared with the giants, the pressure on small and medium-sized smart wearable device manufacturers is greater." Major General Ding said.

In addition, in addition to how to ensure the stability of production capacity, smart wearable device manufacturers should also consider "how to reduce the negative impact of the epidemic", including Huami is also affected by the epidemic to a certain extent and lead to a decline in sales.

At present, the global epidemic situation is still rising and falling, and the new cases in some neighboring countries and regions are still growing rapidly. The epidemic will directly affect the sales of offline stores, the stability of logistics supply chains, and the consumer demand and direction of consumers, so enterprises must develop more flexible sales strategies, be closer to consumer demand, and ensure stable sustainability in logistics and production capacity.

In addition, "how to create product differentiation" is also a headache for smart wearable device manufacturers.

At present, the homogenization of smart wearable device products on the market is more serious, and the appearance design and product performance are similar, and it is easy to fall into the blue ocean of price competition.

"'Fighting the price war' is more obvious in the smart headset and the once hot VR glasses market," Internet analyst Zeng Xianyong told "Bullet Finance", "whether it is internal core components such as CPU, memory and batteries, or external devices such as screens and shells, they basically come from several major upstream suppliers and foundries at home and abroad." According to the "2019 World Intelligent Mobile Terminal Industry Development White Paper" released by the China Electronics Information Industry Development Research Institute, Shenzhen has become the largest R&D and production base of smart wearable devices in China, producing about 80% of the world's wearable products. ”

In Zeng Xianyong's view, in addition to the two major factors of brand and market, at present, smart wearable device manufacturers are secretly competing in patented technology and constantly accumulating strength. "Whoever can take the lead in achieving a major technological breakthrough will have the opportunity to emerge."

Not only that, the current application scenarios of intelligent devices are still single or non-connected, like "one island after another", so "how to open up more intelligent application scenarios" is also a dilemma that major manufacturers must break through.

Major General Ding mentioned that smart wearable devices emphasize intelligence, since it is intelligent, in order to adapt to the needs of escalating users, it is necessary to open up more application scenarios. "It's not that the equipment is connected to a network, and an APP is installed to open up the data, which is called intelligence." He said.

However, in different application scenarios, the needs of users are not the same. Moreover, the degree of matching of product functions with application scenarios will directly affect the needs of users. "Frankly speaking, at present, everyone is not doing a good enough job in the scene." Major General Ding said frankly.

Finally, smart wearable device manufacturers still need to face the major test of "how to ensure data and privacy security".

Zeng Xianyong believes that in addition to the rigidity of demand, fashion sense, brand sense, stability, cost performance and unique selling points, the future smart wearable products will further build the connection between people and provide big data services to achieve their own industry value.

With the increase in the application scenarios of smart devices, the growth of user groups and the extension of the use time, the user privacy data owned by manufacturers will grow exponentially, and how to ensure the security of all data is particularly critical.

For example, once people use smart watch devices, then manufacturers can more or less grasp people's blood pressure, pulse, sleep and other health privacy data, "once the user's health privacy data is leaked, it is bound to trigger strong supervision by relevant departments, so in the future, smart wearable device companies will definitely accept the market test in terms of compliance, security and privacy." Zeng Xianyong said.

However, for all smart wearable device manufacturers, it is not easy to do a good job in data security protection, which will involve smart chip research and development, program design and user agreements, and even related to laws and regulations, multi-sectoral coordination and cooperation in society, etc., which will be a social systemic problem.

4. Conclusion

It is undeniable that huami's independent brands contribute more and more to the company's total revenue, but the growth rate of core indicators such as shipments, revenue, and profits has collectively slowed down, and there are also unfavorable situations such as surging inventory pressure and tight cash flow, which means that its road to "de-milletization" is bumpy and long.

Overall, Huami's current situation is quite "internal and external troubles", after all, in the external smart wear industry is still facing the above six collective problems, and it is particularly difficult to break through. When Huami can rely on the development of its own brand and new business to reverse the financial situation of the enterprise and optimize the capital structure, it can be regarded as a real "independent road" to truly take this difficult "road of independence".

*The title picture in the text comes from: Photo Network, based on VRF protocol.