TechWeb May 3rd report / little fishing
In eight years, millet has grown from a newly developed Internet mobile phone brand to nearly 100 billion of the market value of the Empire. In addition to the top of the world’s mobile phone business, millet and millet TV and other services have become the leader of the industry. From the HKEx’s official website, Xiaomi has formally submitted IPO application documents.
It can be seen from the prospectus file that Xiaomi’s revenue reached 114 billion 600 million yuan in 2017, and became a member of the 100 billion revenue club. Besides, it has made remarkable achievements in the main business of mobile phones. In an open letter, Lei Jun claims that millet is a Internet Co. However, from the prospectus, we can see that most of the revenue is mainly from the mobile phone hardware business. Moreover, the gradual expansion of overseas business also makes Millet’s future full of uncertainties.
Two years ago, revenue broke $1 billion, and revenue was 114 billion 600 million yuan last year.
In 2010, Lei Jun and a group of like-minded partners set up millet company. For Lei Jun, the creation of millet is a dream of its own, and also a challenge after financial freedom. In other people’s eyes, Lei Jun at that time could be transformed into an investor. However, in Lei Jun’s own mind, there is only one simple idea: to make a smart phone that you like and feel cool.
In eight years, the millet phone, which has failed to become a giant brand like apple and Samsung, has also succeeded in the top five of the world’s array, and once was the best – selling mobile phone in China. Even in 2016, when Xiaomi encountered a downturn, Lei Jun personally caught the supply chain, changed the way of playing and laid down the line, and millet ushered in the Jedi counter attack in 2017. According to the data disclosed in the prospectus, millet mobile phone sales in 2017 were 91 million 410 thousand, compared with 55 million 410 thousand in 2016. Not only that, the business of multi faceted blooming also lets Millet’s revenue exceed 100 billion yuan.
The data showed that after two years of establishment, the income of millet in 2012 broke through 1 billion dollars, sales in 2014 broke through 10 billion dollars, and 2015 to 2017 income was 66 billion 811 million yuan, 684.34. billion yuan and 114 billion 625 million yuan. In terms of growth, Xiaomi’s revenue in 2017 increased by 67.5% over the same period last year. At the same time, compared with companies with revenue of more than one hundred billion yuan in 2017 and profits, millet ranked first in Internet Co and second in all companies according to the growth rate.
Not only is the outstanding performance of the revenue, but according to the data disclosed in the prospectus, Xiaomi has also enjoyed a rapid growth in its operating profit. Data show that the operating profit of Xiaomi from 2015 to 2017 was 1 billion 373 million yuan, 3 billion 785 million yuan and 12 billion 215 million yuan respectively, compared with 222.7% in 2017.
It is noteworthy that, while the revenue and operating profit grew rapidly, the group of millet still had a loss of 43 billion 900 million yuan in 2017. Prior to that, Xiaomi lost 7 billion 630 million yuan in 2015 and 490 million yuan in 2016. As of December 31, 2017, the group had a net debt of 127 billion 200 million yuan and a cumulative loss of 129 billion yuan. Behind this, the main factors are the change of the fair value of the convertible redeemable preferred stock, the compensation based on the shares, the net value of the fair value of investment, the amortization of intangible assets, and the amortization of the intangible assets.
The prospectus showed that as of 2015, 2016 and December 31, 2017, the changes in the fair value of redeemable redeemable preferred shares were 8 billion 800 million yuan, 2 billion 500 million yuan and 54 billion 100 million yuan respectively. If in accordance with non international financial reporting standards, in 2015, millet was adjusted to a loss of RMB 300 million yuan; in 2016, millet was adjusted to 1 billion 900 million yuan, and millet was adjusted to 5 billion 400 million yuan in 2017.
Industry professionals say such “loss” is a proof of the company’s value growth. Usually, the actual loss is different. The larger the “loss”, the better the company’s development and the greater the value.
The right to vote of the same shares is over 50%
In April 30th, the system of different rights of the same stock came into force in Hongkong and accepted the listing application immediately. This is also the reason for the HKEx to restart the “different rights” mechanism after 1989. Before the official submission of IPO application by millet, insiders revealed that millet will become the first benefiting enterprise after the restart of the same rights.
According to the content of the millet prospectus, millet will be divided into a Class A shares and B shares, a share holder of 10 votes per share, and a share holder of class B for one vote per share.
On the equity structure, the proportion of the executive director, the chairman and chief executive of the board of directors and chief executive, Lei Jun, is 31.4%, such as the option pool, which accounts for the total equity ESOP employee stock ownership plan, and the share ratio of the Lei Jun is 28%. Through dual ownership structure, Lei Jun’s voting power exceeds 50%, which is the controlling shareholder of Xiaomi group.
In addition, millet co founder and President Lin Bin shares 13.33%, co founder and brand strategy officer Li Wan strong shareholding 3.24%, co founder and senior vice president Hong Feng hold 3.22%, co founder and senior vice president Liu De 1.55%, co founder and senior vice president Wang Chuan hold 1.11%, which is listed as capital CEO Xu. 2.93%. Huang Jiangji, co-founder of millet and vice president of the former strategy, owns 3.24% shares, and co founder and former chief scientist Zhou Guangping owns 1.43%.
In terms of investors, morning Xing capital shares 17.19%, and other investors share a total of 21.34%.
Prospectus again mentioned hardware comprehensive net profit margin not exceeding 5%
In the previous millet 6X conference, the Lei Jun publicly expressed that the future of the integrated net profit rate of the millet will not exceed 5%, if more, it will return to the consumer. When the thunder announced the decision, the field of rice noodles “boiling”, especially in the Lei Jun’s alma mater, the place like the Wuhan University, is to let the scene of the atmosphere to the highest point.
However, when Lei Jun announced the decision, there was support and doubts. Supporters believe that millet is still conscience, leaving the best for consumers, so that everyone can use black technology products. However, there are also skeptics that this is Lei Jun’s routine and gimmick, just flickering consumers. At the GMIC2018 conference, Zhao Ming, the leader of the glorified cell phone, said that few companies could reach a level of 5% comprehensive net profit margins, and it would be happy to be able to achieve it.
In the IPO prospectus, millet once again mentioned the 5% comprehensive net profit margin argument. The thunder army says that a great company is a good thing to do better and cheaper, and to concentrate every effort on the product to make every penny paid by the user is worth it. The comprehensive net interest rate of hardware will never exceed 5% is the proof that millet is efficient. Our insistence, continuous investment and resolute implementation will eventually come to an ideal realization.
According to the information published in the prospectus, the gross profit of Xiaomi mobile phone and ecological chain in 2017 was 8.8% and 8.3% respectively, and the comprehensive profit margin in 2017 was 4.7%. Although the net profit margin of the specific sum of hardware business is small, Xiaomi did not disclose it. However, due to the high profit rate of the Internet, the overall net profit margin of Xiaomi should be less than 5%, which is consistent with Lei Jun’s commitment and statement.
In fact, on the eve of the market, Lei Jun shouted “5%” slogan, not only for the C end consumers, but also in the capital market shouting, millet is not only Hard Suits Inc, but also a Internet Co.
Mobile phone income accounts for big head millet from Internet Co
“Millet is a Internet Co with mobile phones, intelligent hardware and IoT platform as its core.” Lei Jun emphasized this point at the beginning of the open letter. In Lei Jun’s view, millet is not just a Hard Suits Inc, but an innovation driven Internet Co.
However, according to the data disclosed in the prospectus, millet is not the real Internet Co at present, and most of its income is still from mobile phone sales.
Data show that as of 2015, 2016 and December 31, 2017, smart phones contributed 80.4%, 71.3% and 70.3% of the total revenue respectively. In comparison, the Internet service for millet is not only a big gap with the smartphone business, but also in the last year. From the chart, we can see that in the past three years, the proportion of Internet revenue accounts for 4.9%, 9.6% and 8.6% respectively.
Prospectus shows that in terms of Internet services, advertising is the largest source of income, and the income of other Internet services mainly comes from online games. Xiaomi said that it would further expand its revenue source by expanding Internet services and selling IoT and consumer products. But at the same time, Xiaomi also stated that if the income source could not be expanded as expected, it would continue to rely heavily on smartphone sales to earn most of its revenue.
For a higher valuation in the future, millet has always wanted to change the image of Hard Suits Inc inherent in people’s minds and become a Internet Co. However, from the point of view of revenue structure, Xiaomi still has a distance from a real Internet Co. Moreover, in the minds of consumers, millet is more of a mobile phone company, the most concerned about is mobile phone products. It is a long way to go, and millet is trying to transform and change. But perhaps, as it said, it is very difficult to make clear expectations for the future because of its short operating time.
The unknown risk of Millet’s future remains
In 2017, the Jedi met each other and let millet pass the biggest difficulty since its establishment. Returning to the top five of the world and the 100 billion revenue mark, let millet become one of the most popular mobile phone brands in the past year. Looking back on the past, three years ago, it became the number one smartphone company in mainland China. In four years, its sales volume exceeded $10 billion. Millet performance is amazing, but it is the past, for the future, after the millet listing, the challenge will be greater, in addition to the previous external factors, more capital consideration.
Most of its current income comes from mobile phone sales, although it is expanding the Internet and selling IoT and consumer products, but it does not give a clear answer to whether the future can balance the impact of the mobile phone business. Now, the whole mobile phone market is a blood sea, market saturation plus mobile innovation is weak, so that the smart phone market has no more rapid growth momentum in the past. In the future, the pressure of millet in the mobile phone market will only increase.
At the same time, from the prospectus, we can learn that millet is doing well in overseas business. In 2015, 2016 and 2017, the overseas market income was 4 billion 50 million yuan, 9 billion 150 million yuan, and 32 billion 80 million yuan respectively. Especially in the India market, Xiaomi became the number one smartphone company in the fourth quarter of 2017 in India.
However, Xiaomi said in the prospectus that the expansion of the international market will increase a certain cost in the future, and competition will also intensify. It is important to note that many of the products and services provided by millet are related to or rely on third party intellectual property rights, coupled with local legal constraints, and the future of millet will inevitably be affected in the process of expansion, such as Ericsson’s prosecution. If we encounter problems in patents, the blow of millet will be enormous, not only the outflow of capital, but also the expansion of future business.
In addition, Xiaomi disclosed more risks in the prospectus, and said it could not guarantee profits in the future. Xiaomi said that if we can not maintain or increase the operating profit margin, we may continue to lose money in the future.
In eight years, Xiaomi went to Hong Kong IPO, which not only has different meanings for the domestic mobile phone market, but also represents the success of millet innovation mode. At the end of the open letter, Lei Jun said, “the journey of millet is the sea of stars, and now is just the first step.” After listing, the pressure on Millet will be greater and there will be more opportunities. Before becoming a real Internet Co, what millet needs to do is not only service but also more investment in core competitiveness, patent research and development. Otherwise, even if the future is very big, it will be controlled by others.