If smartphones can’t support Xiaomi’s market value, let the Internet of Things do the job.

By Boone

On August 22, Xiaomi Group released its second quarter report for 2018, which is also the first financial report of Xiaomi Group since its listing.

According to the financial report, Xiaomi's revenue in the second quarter of 2018 was 45.236 billion yuan, up 68.3% year-on-year, and its adjusted profit was 2.117 billion yuan, up 25.1% year-on-year and 24.6% month-on-month. In the first half of the year, Xiaomi's revenue was 79.648 billion yuan, up 75.4% year-on-year, and its adjusted profit was 3.816 billion yuan, up 62.2% year-on-year.

Figure: Xiaomi 2018Q2 financial report core data Source: IT Home

According to the financial report, among Xiaomi's various business divisions, IoT and consumer products have achieved the most significant growth. In the second quarter of 2018, the division's revenue reached 10.379 billion yuan, a year-on-year increase of 104.3%. At the same time, the combined revenue of IoT, consumer products and Internet services increased from 27.9% to 31.7%.

Xiaomi IoT continues to lead the world, with an increasing number of active users. As of the second quarter of 2018, there were approximately 115 million users with connected IoT devices (excluding mobile phones and laptops), a 15% increase from the previous quarter; and nearly 1.7 million users with more than five IoT devices (excluding mobile phones and laptops), a 19% increase from the previous quarter.

Figure: Xiaomi 2018Q2 financial report IOT revenue Source: IT Home

It is worth noting that the percentage of Xiaomi's mobile phone revenue in total revenue has dropped from 71.5% in the second quarter of 2017 to 67.4%. At the same time, the percentage of IoT, consumer products and Internet service revenue has increased from 27.9% to 31.7%. The consumer Internet of Things grew 85% year-on-year in the first quarter of 2018, with a gross profit margin of 9.4%. In contrast, the gross profit margin of Xiaomi mobile phones in the same period was only 6.7%, highlighting the profit growth potential of the Internet of Things.

A week before the financial report was released, Xiaomi officially announced that as of the end of July 2018, Xiao Ai had more than 30 million monthly active users, with a cumulative wake-up count of more than 5 billion, and more than 1 billion wake-up counts in July alone.

Xiaomi is the world's leading consumer IoT, which can provide application scenarios, users, traffic and data for the development of AI. The combination of "IoT + AI" can help Xiaomi optimize user experience and enhance product competitiveness. It will also become another important traffic source for Xiaomi's Internet services after MIUI, and there is huge room for imagination in the future.

Xiaomi has the largest consumer IoT platform, connecting more than 100 million devices, ranking first in the world (excluding smartphones and laptops); daily active devices exceed 10 million, connected devices exceed 800 types, there are more than 400 partners, and devices are distributed all over the world.

The number of users on the platform is of great value, from 60 million devices to 80 million, and now exceeding 100 million; the number of connected devices is the foundation for future development. When the user scale grows to a certain level, promoting products becomes easy, and revenue and profits are naturally guaranteed; more importantly, the scale of the number of connections will lay a solid moat for future competition.

Xiaomi was actively exploring the business path of IoT beyond smartphones in 2013. Lei Jun set a goal of investing in 100 ecological chain companies within five years. By 2015, the ecological chain industry had developed to a considerable scale, with seven companies with revenues exceeding RMB 100 million.

According to iResearch Consulting data, Xiaomi's IoT connected devices account for 1.9% of the global total, ranking first in the world, ahead of Amazon and Apple.

Lei Jun once said: "Xiaomi has built the world's largest consumer-grade IoT platform, which can provide rich application scenarios, users, traffic, and data for artificial intelligence. At the same time, artificial intelligence can fully empower Xiaomi's products and Internet services. Artificial intelligence will help Xiaomi capture the opportunities of the next decade and has strategic significance for Xiaomi."

As of Q2 2018, Xiaomi had approximately 115 million connected IoT devices (excluding smartphones and laptops), a 15% increase from the previous quarter; nearly 1.7 million users had more than five IoT devices (excluding smartphones and laptops), a 19% increase from the previous quarter. Xiaomi's massive number of users of IoT devices, including smart speakers, smart routers, air purifiers, sweeping robots, and other devices, as well as the user data generated, will become an important weight in the competition of the Internet of Things.

Xiaomi started with smartphones and smart homes, and entered the IoT terminal side, cultivating user habits and expanding the number of connections; the surge in the number of IoT connections in the future will lead to a surge in the number of corresponding terminals. In the foreseeable few years, the consumer-grade IoT product terminals that Xiaomi has been deeply involved in will be expensive, ranging from one hundred to several thousand. Xiaomi's IoT and consumer product revenue increased from 8.69 billion yuan in 2015 to 23.45 billion yuan in 2017, with a CAGR of 64.27%. The proportion of this part of revenue in the overall revenue also increased from 13% in 2015 to 20.5% in 2017, and this was against the background of the explosive growth of Xiaomi mobile phones in 2017.

The contribution of Xiaomi's ecological chain enterprises cannot be ignored. For example, Huami Technology's Xiaomi wristband has accumulated sales of more than 30 million units; ZMI Electronics' Xiaomi mobile power bank has annual sales of more than 20 million units; Zhimi Technology's Xiaomi air purifier has annual sales of 1 million units, with sales exceeding 1 billion. As the number of connections continues to grow, Puhui Technology will further increase the sales of smart hardware.

Summarize

Xiaomi's IoT layout conforms to the development of the times and is consistent with what Lei Jun said about going with the flow. After the PC Internet and mobile Internet era, the IoT era is just around the corner. The huge number of connections will not only bring about an explosive growth in related hardware devices, but also the charge for each connection will be considerable. The growth in the number of consumer-grade IoT connections and sales scale shows that the IoT is gradually approaching.

From a business model perspective, Xiaomi currently relies on expanding the scale of hardware sales and incubating hardware companies to build an ecological chain to increase hardware sales to obtain returns; and the development strategy of small profits but quick turnover shows that more corporate value in the future lies in the users and data that Xiaomi has.

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