On May 13, Huami Technology (ZEPP.US) received a notice from the NYSE that it did not meet the minimum share price requirement; on May 22, Huami Technology released its 2024Q1 financial report, with a year-on-year decrease of 55%; on May 24, Huami Technology's intraday stock price fell to 0.77 US dollars, setting a new low in the listing. Judging from fundamentals and secondary market performance, Huami Technology is unquestionably experiencing a “Davis double kill.”
However, in 2018, when Huami Technology was listed on the NASDAQ as “the first stock listed in the US in the Xiaomi Ecosystem”, this company was also favored by the market. Its listing price was $11 and reached an all-time high of $19.59 per share in February 2021.
However, in the context of a market where Xiaomi AIOT is stepping on the cusp of intelligence and the scale of business is increasing year by year, Huami has resolutely embarked on the “demi-demining path,” but now, looking at Huami Technology, which is trying to get rid of its status as a Xiaomi foundry, it seems difficult for its own brand to support the company's performance growth.
Behind the “countdown to delisting”
The Zhitong Finance App observed that as of the close of May 24 this year, Huami Technology's stock price was only 0.77 US dollars/share, far lower than the current net assets of 5.54 US dollars per share. At the same time, it was also a sharp reduction of 93% from the issue price that year. Its current market value is only US$46,1847 million, equivalent to RMB 335 million. In other words, the Q1 earnings report revealed on May 22 did not boost market confidence; on the contrary, it intensified the decline in stock prices.
According to financial reports, the company's Q1 revenue was 39.8 million US dollars, a sharp decrease of 55.5% from 93.9 million US dollars in the same period last year; in terms of profit, although the company's Q1 gross margin reached 36.8%, a record high, its net loss per ADS was only 0.23 US dollars, down 28% year on year.
A vertical comparison of Huami Technology's previous performance shows that since 2020, Huami Technology has fallen into a path of declining performance. According to previous annual report data, from 2020 to 2022, Huami's net profit gradually declined or even changed from profit to loss, to 229 million yuan, 138 million yuan, and -288 million yuan respectively. The year-on-year decline was 60.23%, 39.76%, and 309.22%, respectively. The company's net loss did not narrow until 2023.
Meanwhile, Huami's revenue shortfall in the Q1 quarter of 2024 began as early as 2022. In 2022 and 2023, Huami Technology achieved revenue of 4.143 billion yuan and 2,495 billion yuan respectively, a year-on-year decrease of 33.72% and 39.77%, respectively. It was only in the Q1 quarter of this year that the Huami business contraction further intensified. Revenue decreased 55% year over year and 51.67% month over month.
The contraction in revenue meant a further decline in Huami's shipments. Looking at previous shipments, shipments of Huami products from 2021 to 2023 were 36.1 million, 20.3 million, and 12.1 million, respectively, with year-on-year decreases of 21%, 43.80%, and 40.39%, respectively.
The 2024Q1 quarter was once again undercut from 2023. Compared with 3.5 million shipments in the 2023Q1 quarter, shipments during the same period in 2024 were only 1.2 million. Huami's explanation for this is “due to the decline in sales of Xiaomi's wearable products and the decline in sales of its own brand products.” However, regarding the decline in sales of its own brands, Huami further stated that it was because no new products were launched in the Q1 quarter, but it is still unknown whether its new products will be able to turn the tide in terms of shipments in the future.
Despite a sharp decline on the revenue side, Huami still narrowed its net loss due to strict control on the expense side. During the reporting period, Huami's sales expenses, management expenses, and R&D expenses were 773.13 million yuan, 45.961 million yuan, and 96.136 million yuan respectively, a year-on-year decrease of 10.08%, 7.89%, and 18.44%, respectively.
In terms of cash flow, Huami's total cash and cash equivalents during the reporting period was 896 million yuan, again showing a year-on-year decline. However, it is worth mentioning that Huami's current accounts payable have reached 153 million yuan, and short-term bank loans of 275 million yuan. If you add notes payable and accrued expenses and other current liabilities, its total current liabilities have exceeded 1,156 million yuan, which already exceeds the amount of cash and cash equivalents currently held by Huami. This shows that Huami had some pressure on cash flow in the Q1 quarter.
Connected ecosystem vs. fighting alone
Today, in the smartwatch product line, core functions such as exercise and health monitoring have almost reached the point where they can't be rolled. Many products on the market can easily monitor more than 100 sports modes, and have also covered the needs of the vast majority of users. Therefore, the current trend in the direction of specialization in the smart wearable device circuit seems to be clear. This is one of the logics that Huami wants to “get rid of rice” and follow the path of specialization of its own brands.
On the path of specialization, Huami not only launched the smart wearable chip “Huangshan 2S” in July 2021, the native smartwatch operating system Zepp OS that focuses on health, the Pump Beats blood pressure engine with 30-second one-click monitoring, and portable MRI nuclear magnetic resonance technology, but also launched a brand renewal in October of the same year, announcing updates from chip to algorithm to hardware.
The benefit that independent brands and specialization bring to Huami is the increase in gross margin. Huami's gross margin reached 36.8% in the Q1 quarter of this year, the highest level since the company was founded. This is mainly data generated on the basis that its own brand products accounted for 85% of shipments. However, on the other hand, revenue declined significantly during the quarter, mainly due to the sharp year-on-year drop in shipments of wearable products such as Xiaomi bracelets manufactured by Huami Technology.
While Huami is putting more emphasis on specific functions in specific scenarios, the smart wearable device market has begun to usher in an era of “connected ecology”. Products launched by mobile phone manufacturers place more and more emphasis on seamless connection with mobile phone terminals and a series of intelligent functions such as cross-screen interaction and car control. These advantages have also made them an incremental market within reach of mobile phone manufacturers, further enhancing the strong relationship between mobile phones and smart wearable devices such as smartwatches.
As can be seen from the report published by the market research agency Counterpoint Research, smartwatches are strongly linked to mobile phone brands. In the Q1 quarter of 2023, Apple, Huawei, OPPO, and Xiaomi, which ranked at the top, all had mobile phone terminal products, and their corresponding sales also ranked at the top. In comparison, the highest ranking of brands without mobile phone products in the country is only fifth.
Take Huami as an example. Although its smartwatch independently concentrates more functions on its own terminal, and users are expected to be able to get rid of their dependence on mobile phones, more in-depth functions such as exercise and sleep monitoring and analysis still need to be viewed on a mobile app. Therefore, in terms of market ecology, one of the key decision points for users to buy smartwatches is mobile phone terminal products in the ecosystem.
Therefore, the impact of losing Xiaomi as a mobile phone terminal on the decline in Huami's product shipments cannot be ignored.
In this Q1 quarterly report, although Huami's inventory size fell from 603 million yuan in the same period last year to 526 million yuan, the number of inventory turnover days rebounded sharply from 151.2 days to 279.7 days, and the turnover rate also fell from 0.60 to 0.32 times. This means that Huami may be facing inventory backlogs and poor turnover.
Judging from the current market shipment comparison and consumer choices, smartwatches that focus on connected ecology are more popular, while the market for specialized products is being further squeezed. Under this market trend, it seems difficult for Huami to reverse the defects in the positioning and functionality of its products in the short term, so it is difficult to reverse its reporting performance in exchange for higher stock price growth. However, the notice from the NYSE has already been issued, and there are only 6 months left for Huami. If it cannot get rid of its status as a fairy stock within this time, it will end in delisting.