Xiaomi: So-called "the strongest in history," is It That Good?

$XIAOMI-W(01810.HK) released its Q4 2024 financial report after the Hong Kong stock market closed on March 18, 2025, Beijing time. The key points are as follows:

1. Overall Performance: Revenue of 109 billion, a year-on-year increase of 49%, better than market expectations (104.4 billion). The real surprise should mainly come from the high growth of IoT and the ASP of the mobile phone business. The overall gross margin is basically in line with expectations, with no surprises.

2. Mobile Phones: 51.3 billion, with market expectations around 50 billion, especially since the shipment volume is basically public data, mainly due to the mobile phone ASP exceeding expectations, which also indicates that Xiaomi is gradually making progress in the high-end market, with the average price of mobile phones reaching 1,200 yuan, which is very good.

3. IoT: 30.9 billion, driven by national subsidies, with a low base last year, directly soaring by 52% year-on-year; although air conditioner sales have seasonally declined, TV sales surged by 33% quarter-on-quarter, benefiting from national subsidy bonuses.

4. Internet Services: 9.3 billion, about 300 million higher than market expectations; driven by overseas internet services, while domestically mainly relying on advertising; value-added services are very average, with no growth for several consecutive quarters.

5. Automotive Business: In the fourth quarter, automotive-related total was 16.7 billion, with a gross margin of 20.4%, and an adjusted net loss of 700 million. Although it has not yet turned profitable, the speed of loss reduction is already very impressive.

6. Profit: Core operating profit of 5.8 billion, adjusted net profit of 8.3 billion. The latter clearly exceeds the market consensus expectation of 6.5 billion, but even after adjustment, it includes financial income, dividends from investment companies, etc., which cannot reflect the main business situation.

The profit of 5.8 billion, which can reflect the main business profit, is not particularly impressive in the view of Dolphin Research.

With revenue exceeding expectations, there was no significant release of core main business, mainly due to high growth in R&D and sales expenses, which eroded some profits.

Overall View of Dolphin Research: Indeed, as Lei Jun said, Xiaomi has delivered the "strongest" performance in history, but from the perspective of expectation differences, the degree of surprise has been somewhat reduced On the revenue side: Due to the explosive growth of IoT under national subsidies and the success of the Xiaomi 15, the revenue side has been quite successful, whether considering the nearly 50% growth rate or the perspective of expectation gaps.

However, the gross margin, after aggregating all businesses, is basically within expectations; while the high increase in R&D and sales expenses has led to profits not being released in a corresponding manner. Of course, with the booming second curve of the automotive sector, the market does not need to overly criticize the high increase in expenses.

Looking ahead, from a short-term perspective, the home appliance sector is expected to be relatively flat in the first quarter due to seasonal off-peak periods, coupled with the fact that national subsidies have already been released. However, the mobile phone business, which accounts for a significant portion of the national subsidies starting in late January, should still see high growth along with decent profit releases in the first quarter.

As for the automotive business, the current implied pricing of Xiaomi has little short-term significance. This includes the newly announced target of 350,000 units for 2025, but the market has already adjusted expectations to above 350,000. Essentially, Xiaomi is no longer looking at sales guidance in the short term but is focusing on extreme capacity squeezing, the capping of new production lines, ramping up production, and so on.

From the perspective of expectation gaps, Xiaomi is not particularly stunning, and the stock price has continued to rise. Although this performance is good, it is hard to say whether it will repeat the pattern of opening high and closing low.

Of course, if we do not look at the daily trading dynamics, this time Xiaomi's business has not falsified the logic of previous investments in Xiaomi—national subsidies + high growth in automotive, bringing new vitality to Xiaomi, nor has it deviated from the range estimated in Dolphin Research's previous investment analysis.

Certainly, in a high prosperity cycle that is strongly correlated with AI, whether it is the story of Xiaomi's AI phone upgrades or the long-term story of automotive expansion overseas, under a favorable macro narrative, Xiaomi can further develop an optimistic narrative.

Here is Dolphin Research's specific analysis of Xiaomi's financial report:

1. Overall: Unmatched Glory

With the addition of the automotive business, Xiaomi's financial report now includes not only the previous "Mobile X AIoT" but also the new categories of "Automotive and Innovative Businesses."

As a core beneficiary of electric subsidies + the second curve of automotive seems to be smooth sailing, Xiaomi is currently unmatched in its glory. However, after the significant rise in stock price, it remains to be seen to what extent it can exceed market expectations, especially since buyer expectations are more important.

1.1 Revenue Side

Xiaomi Group's total revenue for the fourth quarter of 2024 was 109 billion yuan, an increase of 49% year-on-year, better than the market expectation of 104.4 billion yuan. Of course, the growth mainly relies on automotive and IoT, but the real driver of exceeding market expectations is primarily IoT, with a small portion attributed to mobile phones The automotive sector should be within expectations.

1) The original business - mobile phones and AIoT business (traditional business) achieved revenue of 92.3 billion yuan, a year-on-year increase of 26%. The key is relying on IoT, and the internet business performance is also quite good;

2) This quarter, Xiaomi's new businesses, including smart cars, achieved revenue of 16.7 billion yuan, and due to outdated seller expectations, there is not much reference value; this figure is basically in line with Dolphin Research's estimate of 16.8 billion.

1.2 Gross Margin

Xiaomi Group's gross margin for the fourth quarter of 2024 is 20.6%, which is basically in line with the market expectation of 20.7%. Year-on-year, due to lower costs of mobile phone components last year, the base is relatively high, resulting in a year-on-year gross margin decline of 0.7 percentage points, but this gross margin itself is considered good.

a) The gross margin of Xiaomi's old business is 20.6%, with appliance subsidies driving IoT business profits, and mobile phones performing well with new models in the domestic market; both hardware businesses have decent profits.

However, it should be noted that in Xiaomi's traditional business, the unremarkable other business gross margin this quarter is over 600 million, with a 75% gross loss rate.

According to Xiaomi's explanation, this is mainly due to high costs associated with air conditioning installation, meaning that part of the IoT business costs may be reflected in the gross loss rate of other revenues, and the IoT gross margin is not as high as the 20.5% reflected in the financial statements.

The overall traditional business gross margin is within market expectations, partly because the high gross margin internet revenue is slightly higher than expected, and on the other hand, the mobile phone gross margin performed well during the fourth quarter promotional season, with the new Xiaomi 15 resisting the seasonal pressure on gross margin.

2) The gross margin for new businesses such as automobiles is 20.4%, which looks better than expected; in fact, Dolphin Research's and the latest reliable sellers' estimates are not far off.

Dolphin Research does not understand how sellers can give a gross margin expectation of around 15% when the company is running multiple shifts and production and sales are at twice the rated capacity. In Dolphin Research's estimation, even if this car has a low planned gross margin to capture the market, with production and sales nearly double the capacity, the gross margin of this car should stand above 20%.

The actual gross margin for automobiles in the fourth quarter is 20.4%, consistent with Dolphin Research's expectations. In this case, Xiaomi's automotive gross margin has completely surpassed the combined gross margin of IoT and mobile phones, which is 15%.

Considering that the automotive business can also monetize software services for intelligent driving in the future, as long as the cars sell well, the profit potential of the automotive business is much higher than that of Xiaomi's traditional business. From this perspective, it can be said that Xiaomi's automotive venture is on a broad road to recreate another Xiaomi

II. Automotive Business: The market's task for Xiaomi has already exceeded 350,000, and the current expectation is the ultimate position of Xiaomi cars

The automotive business is 16.3 billion, plus the surrounding automotive business, totaling 16.7 billion, which is basically within market expectations.

Sales of 69,700 are basically known, with a unit price of 234,000, slightly down from the previous quarter's 239,000.

The reason is easy to understand; the SU 7 standard version has a much longer waiting time compared to the other two versions, and the company should have increased the production quota for the SU 7 standard, leading to a slight drop in unit price.

Gross margin is 20.4%. As mentioned earlier, short-term gross margin elasticity depends on the shipment structure. The high-priced SU 7 Ultra version is also produced on the SU 7 production line. Currently, the first-phase factory's full capacity is basically 300,000 units per year. As shipments increase and orders increase, the ASP structure is essentially based on the production allocation based on the order accumulation of each model.

The addition of the SU 7 Ultra plays a key role in improving the ASP structure of shipments for this already full production line, which means the automotive gross margin. Throughout the first half of 2025, Xiaomi's automotive sales will depend on production, which is now basically at full capacity.

The company's new guidance of 350,000 sales is actually lagging behind market expectations. The market sell-side has generally adjusted this year's sales to over 350,000 units, with Dolphin Research estimating 380,000 units, with the additional 80,000 units mainly depending on the capping and ramp-up progress of the second-phase factory.

The expected growth elasticity for Xiaomi cars in the first half of this year mainly comes from the single vehicle ASP and gross margin space. In the second half, we await the debut of the second production line + YU 7 combination.

Overall, Xiaomi's automotive brand appeal, which is increasing with more sales and orders, has already led the market to surpass Xiaomi's current production capacity and production base planning, interpreting Xiaomi's long-term market position—currently, a three-year sales target of over one million is almost the market's standard expectation, although the production lines planned by Xiaomi in the past two years can probably only sell 600,000 cars.

In summary, focusing on sales in Xiaomi's automotive business is not very meaningful; it essentially depends on the order rhythm of new car releases. The simplest way is to check the waiting time for orders on the Xiaomi automotive app.

Currently, the waiting time for car delivery is too long. It will only revert to the valuation logic of peers when it falls back to 4-5 weeks. The current supply-side driven valuation logic makes the PS appear very high.

III. Mobile Phone Business: Growth Accelerates

In the fourth quarter of 2024, Xiaomi's smartphone business achieved revenue of 51.3 billion yuan, accelerating year-on-year growth to 16%. Since the national subsidies for mobile phones have not yet started in the fourth quarter, mainly some local subsidies, this performance is considered quite good

Dolphin Research has conducted a volume and price breakdown of Xiaomi's smartphone business:

Volume: In the fourth quarter of 2024, Xiaomi's smartphone shipments reached 42.7 million units, a year-on-year increase of 5%.

This is mainly due to the launch of the Xiaomi 15, which performed well in the domestic market; according to third-party data, Xiaomi's domestic market share increased by 3 percentage points year-on-year, showing commendable performance.

Price: The average selling price of smartphones was 1,101 yuan, a year-on-year increase of 10.5%.

Xiaomi's average smartphone price this quarter was 1,202 yuan, a year-on-year increase of 10%, driven by an increase in the proportion of high-end models in the domestic market, leading to a steady rise in Xiaomi's ASP.

The gross profit from the smartphone business was 6.2 billion yuan, a nearly 15% decline year-on-year; the year-on-year decline in smartphone gross profit looks poor, mainly due to significant price increases in raw materials like memory in 2024, which eroded gross profit on a year-on-year basis.

Looking solely at the fourth quarter, the gross margin was 12%, an increase of three percentage points from the third quarter, indicating that the new models offset the impact of promotions in the fourth quarter, which is quite good.

Looking ahead to the first quarter, Xiaomi's smartphone price range is basically aligned with the national subsidy policy starting in January; both shipments and gross margin should reach a small peak in the first quarter. The smartphone business contributes nearly half of Xiaomi's revenue, and the upward trend in gross margin has significant profit release elasticity, indicating that Xiaomi has very high certainty in the short term.

IV. IoT Business: Unlimited Glory Under National Subsidies

In the fourth quarter of 2024, Xiaomi's IoT business achieved revenue of 30.9 billion yuan, a year-on-year increase of 52%. This is mainly driven by national subsidies, leading to a surge in traditional home appliances; for example, revenue from Xiaomi TVs in a single category soared by 33% quarter-on-quarter. In the case of large appliances, air conditioner sales saw a seasonal decline, while washing machines continued to sell well under subsidies.

Overall, the IoT business achieved an 18% quarter-on-quarter growth, fully reflecting the effects of national subsidies.

The gross profit from the IoT business was 6.34 billion yuan, a year-on-year increase of 124%. This quarter, the gross margin for the IoT business was 20.5%, an increase of 6.6 percentage points year-on-year. This was mainly due to the higher gross margin of large appliances, coupled with the good gross margin of Xiaomi TVs, which saw a surge in shipments under national subsidies However, for IoT in the first quarter, it is better to be cautious in predictions; on one hand, the first quarter is not a peak sales season for home appliances, and the current retail sales data shows that the growth rate of home appliance sales in the industry has become mediocre; on the other hand, Xiaomi's IoT revenue growth in the same period last year has already started to ramp up, and the IoT business is facing a relatively high base.

Considering these two aspects, Dolphin Research believes that the IoT in the first quarter should no longer be projected to grow linearly.

V. Internet Services: Operating on Two Legs - Overseas + Advertising

In the fourth quarter of 2024, Xiaomi's internet services business achieved revenue of 9.3 billion yuan, a year-on-year increase of 18.5%, and is also in a state of accelerated growth, exceeding market expectations by 300 million. The main growth driver is still in advertising:

1) Advertising Services: Revenue of 7 billion yuan in a single quarter, with a year-on-year growth of 25%, which should be attributed to good growth in overseas internet advertising; at the same time, there has been a significant improvement in domestic internet advertising this quarter.

Essentially, the core advertising scenarios occupied by Xiaomi's advertising—application distribution and APP pre-installation—are almost a distribution tax that major APP manufacturers must pay, especially APP pre-installation, which is actually strongly correlated with smartphone shipments, making advertising almost a guaranteed profit.

Value-added: This part mainly includes game distribution, Xiaomi e-commerce—Youpin, and Xiaomi Finance, etc. This part of the revenue is 2.3 billion, with zero growth both quarter-on-quarter and year-on-year. Finance is dormant under macro headwinds, the influence of game distribution channels has declined, and Youpin e-commerce has not made much of a splash, so there are basically no expectations for this value-added business.

Overall, this business still relies on the revenue logic of hardware shipments in the long term. In the reclassification of revenue that Xiaomi is processing, it is generally categorized as Legacy business, and the gross margin after the integration of software and hardware is basically consistent with the gross margin of automotive hardware, which basically indicates that it is not so easy for smartphone manufacturers to have a separate internet monetization logic.

In the fourth quarter of 2024, Xiaomi's internet services business gross profit was 7.14 billion yuan, a year-on-year increase of 20%, with a gross margin of 76.5%, an increase of nearly 1 percentage point year-on-year.

It is clear that advertising has a higher gross margin than value-added services, and the high growth of advertising will inevitably drive the year-on-year increase in gross margin.

VI. Overseas Market: Both Hardware and Service Revenue Show Double-Digit Growth

In the fourth quarter of 2024, Xiaomi's overseas revenue was 37.2 billion yuan, a year-on-year increase of 15%. Due to the surge in domestic automotive business, the proportion of international business has temporarily continued to decline. **

However, this issue does not require excessive concern. Xiaomi's entry into overseas markets is almost certain, considering that it already has a mature methodology for mobile phone exports. With Xiaomi's execution capability, product exports are basically second nature.

Due to a 35% growth in Xiaomi's overseas internet business this quarter, reaching a growth of 3.1 billion, the company's overseas hardware revenue this quarter is 14%, showing a slight slowdown.

Combined with the slight slowdown in Xiaomi's smartphone shipments in overseas markets (excluding China) this quarter, it is estimated that the overseas market mainly relies on IoT to drive growth.

Seven, high operating expenses? Once the cars are made, it's not a problem.

In the fourth quarter of 2024, Xiaomi's three expenses totaled 16.7 billion yuan. Despite high revenue growth, the expense ratio increased by 0.5 percentage points quarter-on-quarter.

From the classification, part of this should be due to the automotive business, which incurred operating expenses of 4.4 billion, with an adjusted net loss of 700 million for the automotive business.

From the classification of the three expenses, marketing expenses were 400 million higher than expected, likely related to promotional activities for smartphones and IoT in the fourth quarter.

Administrative expenses remained very stable, with no signs of increased executive incentives due to good business performance. From a management execution perspective, it is still very reliable.

R&D expenses significantly increased in the fourth quarter, jumping from 6 billion in the third quarter to 7.4 billion in the fourth quarter, exceeding the market's already raised expectation of 7 billion.

Thus, the actual operating profit of the core business in the fourth quarter was 5.8 billion, with an operating profit margin of 5.3%, which was actually lower compared to the fourth quarter, not particularly impressive given the strong revenue.

The adjusted net profit for the fourth quarter of 2024 was 8.3 billion, far exceeding the core operating profit of 5.8 billion, and showing a year-on-year growth of 69%, significantly higher than market expectations.

However, Dolphin Research has never agreed with Xiaomi's method of adjusting net profit—financial income is not adjusted out, and the dividend income from its invested companies is also not adjusted out. But even if these are sustainable, they do not reflect the company's main business and cannot demonstrate the long-term sustainability of profitability.

Overall, Dolphin Research is more focused on the core operating profit (revenue - cost - three expenses), as it is a better indicator of the company's ability to sustain profitability in its main business.

Dolphin Research's historical articles on Xiaomi Group:

Financial Report

November 18, 2024 conference call [“Xiaomi: By 2025, there will be 20,000 Xiaomi stores”](https://longportapp.cn/topics/25574565? app_id=longbridge&utm_source=longbridge_app_share&channel=t25574565&invite-code=032064&locale=en-US&community_badge=1&profile_following_followers_activities=1)

November 18, 2024 Financial Report Review “With Pride, the ‘Super Xiaomi’ Arrives”

August 21, 2024 Conference Call “Xiaomi: Enhancing Automotive Competitiveness, Not Participating in Price Wars (24Q2 Conference Call Minutes)”

August 21, 2024 Financial Report Review “Automotive Fuel, Mobile Warmth, Is Xiaomi Returning to Glory?”

May 23, 2024 Conference Call “Xiaomi: New Retail for Automobiles, Targeting 20,000 Xiaomi Stores in Three Years (24Q1 Conference Call)”

May 23, 2024 Financial Report Review “Xiaomi: Mobile Recovery, Automotive Boom, Can It Truly Avenge Past Mistakes?”

March 19, 2024 Conference Call “Xiaomi: Aiming to Become One of the Top Five Automotive Brands Globally (4Q23 Conference Call Minutes)”

March 19, 2024 Financial Report Review “‘Mediocre’ Xiaomi: Can Only Rely on Automobiles to Tell New Stories”

November 20, 2023 Conference Call “Xiaomi Management Discusses Sources of Gross Margin Improvement (3Q23 Conference Call Minutes)”

November 20, 2023 Financial Report Review “Xiaomi is ‘Back’” August 29, 2023 Conference Call: Inventory Depletion Has Come to an End, Impairment Reversal Increases Profit (Xiaomi 2Q23 Conference Call)

August 29, 2023 Financial Report Commentary: India's Plunder, Huawei's Struggles, Can Xiaomi Rise Again?

May 25, 2023 Conference Call: Investing in Chips is a Long-term Strategy Xiaomi Must Pursue (Xiaomi 23Q1 Conference Call Minutes)

May 24, 2023 Financial Report Commentary: Reduced Inventory, Lost Market Share, Where Does Xiaomi Go From Here?