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In recent years, smart wearable devices have developed rapidly. Wearable products such as smart watches and smart Bands have gradually penetrated into people’s daily lives. This smart product with sports and health detection functions is widely used by users because of its diverse health functions. Praise. For example, the Mi Band 5 released some time ago was popular with rice noodles for its main health detection functions such as heart rate and pressure monitoring, and its first sale was quickly sold out.
And it is Huami Technology, the representative enterprise of Xiaomi’s IOT ecological chain, who developed this explosive product. Huami Technology has devoted a lot of effort to the research and development of Mi Band 5, and this is why this hot-selling product is produced. The birth of this hot-selling product contributed to Huami’s second quarter revenue. However, while Huami Technology’s revenue has grown steadily, its net profit has plummeted.
As for the phenomenon of the sharp drop in net profit, Huami Technology explained that it was mainly affected by the epidemic, increased marketing and R&D investment. Huami Technology’s Q2 financial report data shows that its research and development expenses soared to 10% of revenue, which had a great impact on profitability. However, this is also not unrelated to Huami Technology’s push for its “AI + health” strategy. There are many giants participating in the “AI + health” market at the same time. Whether Huami, which lacks its own ecology, can stand out, it remains to be seen how its follow-up technical level is.
Can’t escape the vicious circle of “increasing income but not profit”
Huami Technology’s financial report released on August 18 showed that in the second quarter of 2020, revenue was 1.137 billion yuan, a year-on-year increase of 9.5%, and total shipments reached 8.9 million units, a year-on-year increase of 7%. good performance. But in terms of net profit, Huami Technology has shown a slack performance. The net profit of Huami Technology Q2 was only 13.3 million yuan, and its profit plummeted by 85.1% year-on-year.
Judging from the Q2 financial report released by Huami Technology, its revenue and shipments have both achieved growth, but it has not escaped the vicious circle of “increasing revenue but not profit”. What is particularly obvious is the decline in its profit margin.
Huami’s profit margin plummeted, which also had a direct impact on Huami Technology’s stock price. On the day Huami Technology released its Q2 financial report, its stock price fell 8% before the market. This is undoubtedly worse for Huami Technology, which has meager profits.
It is worth noting that this is not the first time Huami Technology has faced such a situation. In the financial report for the first quarter of 2020, Huami Technology’s net profit dropped from 207 million yuan in Q4 of 2019 to 19.2 million yuan, and profits plummeted by nearly 90%. And shortly after the Q1 financial report was released on May 12, Huami Technology’s share price fell by 7%.
The net profit of the Q2 financial report this time stretched the hips again, which also made Huami Technology’s share price decline faster than last time. In fact, Huami Technology’s profits have plummeted due to many factors. First of all, COVID-19 has an adverse effect on Huami Technology’s product manufacturing and channel sales. Secondly, the increase in marketing and research and development expenses of Huami Technology is also an important incentive for its profit decline.
Behind the plunge in profits
In general, the reasons for the sharp drop in Huami Technology’s profits are mainly divided into three aspects.
First, the prevalence of COVID-19 has had a great impact on the retail industry in the global market, hindering the production and sales of Huami technology products, and also adversely affecting overseas markets in the Americas and Europe. Secondly, channel sellers also reported to Huami Technology that under the influence of the epidemic, consumers’ spending power has declined and their willingness to consume wearable products is not strong, which in turn put pressure on Huami Technology’s second-quarter performance.
Second, the sharp increase in sales and marketing investment is also one of the main reasons for the decline in Huami Technology’s profits. Huami Technology’s Q2 financial report showed that its sales and marketing expenses in the second quarter totaled 71.3 million yuan, a year-on-year increase of 76.6% over the same period last year. The skyrocketing sales and marketing expenses will inevitably dilute its profit margins.
However, Huami Technology’s vigorous marketing efforts are not difficult to understand. For a long time, the high dependence of the distribution channel on Xiaomi is a heart disease of Huami Technology. In 2019, 72.2% of Huami’s product revenue came from Xiaomi. Under such circumstances, it is reasonable for Huami Technology to increase brand marketing and enhance its brand value. However, the high investment in marketing expenses also caused the problem of plummeting profits.
Third, the investment in research and development expenses has also had a huge impact on Huami Technology’s profits. Huami Technology invested 117.2 million yuan in research and development expenses in the second quarter, an increase of 25% year-on-year, accounting for 10.3% of Q2 revenue. The sharp increase in R&D investment has also reduced Huami’s profits again.
Analyzing from the perspective of profit, Huami should prevent a sharp drop in profits and reduce R&D investment. However, Huami still insisted on independent research and development after the profit decline, more because of the overall consideration of the “AI + health” strategy.