Earning Analysis: Xiaomi Corporation

Company Overview

Xiaomi Corporation is a Chinese electronics company headquartered in Beijing and listed on the Hong Kong Stock Exchange (stock code:1810). Xiaomi produces smartphones, laptops, and Internet of things (IoT) products, as well as internet services. It was founded by Lei Jun in 2010 and grew rapidly to a major tech player in China. Xiaomi started its international expansion from 2014 and went public on HKSE in July 2018.

Revenue & Income

Xiaomi increased revenue by 52.6% to 174 billion RMB (USD $26 billion) in 2018 from 114 billion in 2017. However, they only gained 1.1 billion RMB in operating profit, which was a 90% decrease from the previous year.

Breaking down the revenue by quarter, the company made 44 billion RMB in revenue and (decreased by 12.6% from the previous quarter) 3.2 billion RMB in operating profit. Their operating profit margin was at 7.2%. However, this drop was primarily due to short-term costs relating to their IPO in 2Q18.

Looking into the revenue by each business segment, smartphones sales decreased by 28.3% to 25 billion RMB in 4Q18 from 34 billion RMB in 3Q18; that was the main cause of the decrease in total quarterly revenue in the last quarter.

Xiaomi shipped 25 million units of smartphones in 4Q18, which decreased by over 8million from the previous quarter. Average selling price of smartphones was 1,004.7 RMB (approximately USD $150) which increased by 21.9% year-over-year.

explained that the decline in shipment is mainly due to the smartphone launch schedule during the reporting period. The company only launched two new smartphone models in the last quarter; Mi MIX 3 in October 2018 and Mi Play in late December 2018.

However, while smartphones sales have been declining, IoT products have been increasing significantly in sales. Revenue growth of IoT related products was up 75.4% year-over-year.

IoT sales accounted for 33.6% of total revenue in 4Q18 while smartphones have fallen in sales.

The main driver for IoT sales was their Smart TV, which gained 6.6 billion RMB (approximately USD $980 million) in 4Q18, which was approximately double from the previous year.

Xiaomi offers a big screen high-end TV under “Mi TV” brand. MiTV 65 Curve, a curved display TV, has been getting popular recently. On November 11 (11/11), which is popular among young people known as “single day” in China and also the biggest sale event, the company took the top sales in TV’s section across the big three e-commerce sites; Tmall, and

The most profitable segment of Xiaomi is internet services, as its profit accounted for more than half of the gross profit while its revenue only accounted for 9% of total revenue.

Gross profit margin of services is much higher compared to other two units. Xiaomi offers “MIUI” which is a software for smartphones and tablet computers developed by Xiaomi.


MIUI has been preinstalled to Xiaomi’s devices. Xiaomi earns revenues mostly from the advertisement in the app store and streaming services. Xiaomi’s strategy is like that of Apple as it makes its own hardware and software, which is highly integrated.

Monthly active users of MIUI are over 242 million. The increase of users has expanded and supported the company’s ecosystem.

Cost of sales ratio decreased by 2.3% to 87.3% in 4Q18 year-over-year. The increase in smartphones price and services profitability contributed to the cost improvement. In 2Q18, administrative expenses leaped due to IPO related costs.

At the time of IPO, convertible redeemable preferred shares were turned into shareholder’s equity (71 billion RMB), which accounted for 49.1% of balance sheet as of December 2018. The company did not release the breakdown of total equity. However, as paid-in capital has exceeded accumulated loss in 2018, total equity has turned positive at the end of 2018.

Xiaomi raised cash and cash equivalents through the IPO. Cash and cash equivalents and investments accounted for 46.1% of total assets. Inventories increased by 13.2 billion RMB to 29.5 billion RMB year-over-year, which accounted for 20.3% of total assets.

As Xiaomi aggressively invested in various business segments, cash flow from operating activities were negative two years in a row. Cash flow from financing activities surged through IPO in 2018.

The stock price has lowered to half of the price since IPO. Current market cap is 266 billion HKD (approximately USD $33.9 billion). EV is 251 billion HKD (215 billion RMB, USD $32 billion). EV / sales is 1.2 and EV / operating profit is 179.

Redmi Note 7

Xiaomi introduced new smartphone brand “Redmi Note 7” in January 2019 and
announced that Redmi series to operate an independent brand. According to the announcement, the company expects to ship Redmi Note7 series over 4 million units by the end of March 2019.

Xiaomi started a new cross-border e-commerce site, Share Save. It is available in India now, with plans to expand to other markets.

International revenue accounted for over 40% of total revenue in 4Q18. It is worthy of remark how Xiaomi develop new products and sales channel to regain market performance.

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The original article was published by Stockclip, Inc. on 21/03/2019.

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