Xiaomi's Q2 performance breaks through again; what will happen to its stock price?

As a leading player in the global smartphone market, ranked among the top three in market share, and also a rising star in the new energy vehicle sector, $XIAOMI-W(01810.HK)$ just released its Q2 performance report. Although the core indicators exceeded market expectations, the stock price performance has been rather subdued, failing to surge as anticipated by the mooers!

What highlights can be found in this performance? What negative signals are worth noting? This edition of the [Performance Highlights] provides a detailed analysis.

Overall, in Q2, $XIAOMI-W(01810.HK)$ revenue reached 115.1 billion yuan, with adjusted net profit at 10.831 billion yuan, both setting historical highs. However, the core business shows mixed results; the smartphone segment, which has always been a stable foundation, experienced a decline, while the automotive business saw substantial revenue growth, compensating for the weakness in the mobile segment.

This quarter's better-than-expected earnings primarily stem from the IoT and smart vehicle segments, resulting in a year-on-year revenue increase of 30.5% in Q2, achieving growth for eight consecutive quarters, with total revenue remaining above the 100 billion yuan mark for three consecutive quarters. This clearly illustrates the stability of Xiaomi's revenue.

Breaking down the analysis by business segments, $XIAOMI-W(01810.HK)$ there are currently four main business areas: smartphone business, IoT business, internet services business, and smart vehicle business.

The mobile business remains Xiaomi's foundational platform. In terms of revenue composition, the mobile business accounts for nearly 40% of total revenue; regarding the business ecosystem, Xiaomi's service operations fundamentally rely on traffic from Xiaomi smartphone users. The IoT business is also somewhat built around the Xiaomi smartphone ecosystem. As for the automotive business, on one hand, it leverages the brand and user base established by Xiaomi smartphones, and on the other hand, it is closely integrated with smart applications linked to Xiaomi smartphones.

Therefore, the revenue and gross margin situation of the mobile business to some extent determines the market's confidence in Xiaomi and is a key factor influencing the stock price.

What is the outlook for the mobile business? It mainly depends on three factors: shipment volume + market share + ASP (average selling price of smartphones).

Specifically, in Q2, the revenue from the mobile business was 45.5 billion yuan, a year-on-year decline of 2.2%, marking the fifth consecutive quarter of decline since Q1 2024.

In Q2, Xiaomi's smartphone shipments amounted to 424,000 units, reflecting a year-on-year increase of 0.2%. Although the growth rate is modest, it is a commendable performance given the overall decline in global smartphone shipments (data source: Canalys). Additionally, the market share of smartphones slightly increased to 14.7%, with both indicators showing positive results. The issue lies in Q2's ASP dropping to 1,073 yuan, a year-on-year decline of 2.6%, coupled with intensified competition leading to a decrease in gross margin, which directly impacted the revenue of the mobile business.

IoT revenue reached 38.7 billion yuan, representing a year-on-year increase of 44.7%, exceeding market expectations.

The growth in IoT primarily stems from increased revenue from major appliances, tablets, and wearable products. Among these, major appliances performed the best, with air conditioner shipments reaching 5.4 million units, refrigerators 790,000 units, and washing machines 600,000 units. To be candid, I have recently purchased Xiaomi's air conditioner, washing machine, and refrigerator, and the cost-performance ratio is indeed impressive. ?

It is noteworthy that the growth rate of IoT shows signs of decline this quarter, which requires continuous monitoring going forward.

Internet service revenue reached 9.1 billion yuan, representing a year-on-year growth of 10%. This segment of the business is relatively more stable compared to mobile phones and IoT, with smaller quarterly fluctuations, classifying it as a passive income-generating business. Although the gross margin in Q2 declined, it still stood at 75.4%, making it a core source of profit for Xiaomi.

Xiaomi's internet business fundamentally relies on the monetization of traffic from the MIUI system. Therefore, the growth in revenue from internet services primarily depends on the scale of MIUI system users. Currently, the monthly active users (MAU) of the MIUI system are consistently increasing, which is the main reason for the stable revenue growth of Xiaomi's internet services. In Q2, the number of MAU reached 731 million, an 8% year-on-year increase, laying a solid foundation for revenue growth in the internet business.

Smart cars are the biggest highlight and growth point for Xiaomi this quarter!

In Q2, automotive revenue reached 21.3 billion yuan, marking a year-on-year growth of 233.9%. The core reasons for this growth are the increase in vehicle deliveries and the average selling price (ASP), with 81,302 vehicles delivered in Q2 and the ASP rising by 10% to 253,662 yuan per vehicle, primarily driven by the higher price of the Xiaomi SU7 Ultra.

Additionally, driven by the decline in core component costs and reduced unit manufacturing costs, Xiaomi's automotive gross margin improved from 23.2% in Q1 to 26.4% in Q2, achieving a year-on-year growth rate of 11%. Although the automotive business still incurred a loss of 300 million yuan in Q2, with the launch of the YU7 and increased capacity from the second-phase factory, the gross margin for the automotive business is expected to continue improving, with potential profitability in the second half of the year.

Profitability is the most critical indicator for assessing a company. For Xiaomi, the market is most concerned about the capital burn in the automotive business leading to a decline in overall profitability.

Considering the actual profit performance, Xiaomi began investing in automotive manufacturing in Q3 2021, with its adjusted net profit margin dropping from 7.2% in Q2 2021 to 2.2% in Q4 2022, nearly falling into a loss. During this period, the stock price also experienced a downturn. Fortunately, the successful launch of new vehicles has gained market recognition, and both automotive production capacity and gross margin have improved, allowing the adjusted net profit margin to return to above 9%.

In the upcoming financial quarters, we should closely observe the turning point for Xiaomi's automotive business to achieve profitability, as this is likely to become a key factor in stimulating stock price increases.

So, after this performance, how should we view the short-term stock price trend? What actions should be taken in the market?

From a technical perspective, the stock price of Xiaomi has surged significantly following the launch of the new vehicle, rising from 15 yuan all the way to 61 yuan, setting a historic high.

From the perspective of weekly moving averages, the stock price remains in an upward trend; however, it is inevitable that there will be fluctuations along the way, which does not deter long-term investors.

For short-term trading opportunities, we can refer to the daily price trends. Currently, the stock price has been adjusting for nearly two months, and the MACD shows signs of a bullish crossover, releasing positive signals. Coupled with Fibonacci extension lines to determine target levels, the stock price faces resistance at the 38.2% level. If it completely breaks through 52.6 yuan and stabilizes above this level, Xiaomi is expected to continue moving upward; otherwise, caution should be exercised regarding the risk of a pullback. (PS: The above technical analysis is for reference only; any technical indicator has limitations and should not be taken as direct investment advice.)

Additionally, for investors with different risk profiles, trading strategies will vary. Besides trading the underlying stock, options also serve as a speculative tool during earnings season. If there is a clear bullish or bearish direction, one can leverage call or put options; if the direction is not clear but there is a high probability of significant price volatility post-earnings, one might consider capitalizing on the stock price volatility by employing a long straddle strategy, which involves buying both call and put options to seize potential opportunities.Long Straddle - Buy straddle combination strategy.。

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Risk Disclosure: This content does not constitute a research report and is for reference only. It should not be used as the basis for any investment decision. The information provided herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of the information are believed to be reliable, the accuracy or completeness of the content is not guaranteed. Additionally, no assurance is given as to the accuracy of any statements, views, or forecasts provided in this document.