Specifically, its 11.4 mln ADS IPO priced at $9, the low end of the $9-$11 expected price range, to generate $102.6 mln in total gross proceeds. Underscoring the tepid demand for Chinese IPOs is the fact that VIOT is now the fourth straight IPO from China to price at or near the low end of the projected price range. Prior to VIOT, the deals of each of NIO (NIO), Qutoutiao (QTT), and X Financial (XYF) were greeted with lackluster enthusiasm.
Furthermore, it's worth pointing out that those names haven't fared much better in the public markets since their debuts either, with QTT up only about 3% from its IPO price and XYF down more than 5%. After rocketing higher on its second day of trading, NIO has given back most of those gains, although it is still up almost 25% versus its IPO price.
As for VIOT, its poor pricing is perhaps a little more surprising as its financials are more solid than other recent launches, as we discuss below. Its IPO was also backed by tier one firm Morgan Stanley. But timing and sentiment are always critical in the IPO market, and neither of those factors are working in VIOT's favor at the moment.
VIOT is the developer of an IoT @ Home platform, consisting of an ecosystem of IoT-enabled smart home products together with a suite of complementary consumable products and value-added businesses. At the core of VIOT’s IoT @ Home platform are a portfolio of AI-powered, IoT connected products – from water purifiers to speakers and mirrors to refrigerators to curtains – that are equipped with cloud-based Internet connectivity, enabling them to complete a variety of smart tasks, including remote operations via mobile device input. This platform provides an attractive entry point into the consumer home. It enables consumers to interact with IoT products in a manner that makes their daily lives more convenient and efficient. Simultaneously, it allows Viomi to grow its household user base, giving it a foothold to capture various additional scenario-driven consumption events in the home environment by introducing complementary products. As of June 30, 2018, its IoT @ Home platform had over 1.2 mln household users.
Technology company Xiaomi is its strategic partner, shareholder, and most important customer. Specifically, its strategic partnership with Xiaomi gives it access to Xiaomi's ecosystem users, market and data resources, and related support. Viomi sells products to Xiaomi and lists products on Xiaomi’s e-commerce platform. Also, Viomi’s research and development capabilities and products and services enrich Xiaomi's suite of offerings, resulting in a mutually beneficial relationship between Xiaomi and it. On that note, VIOT has historically derived a majority of its revenues from sales to Xiaomi. Specifically, for the years ended December 31, 2016 and 2017, revenues generated from sales to Xiaomi represented 95.9% and 84.7% of net revenues, respectively. For the six months ended June 30, 2017 and 2018, revenues generated from sales to Xiaomi represented 89.9% and 62.6% of our net revenues, respectively. While the company expects the proportion of revenues generated from sales to Xiaomi to gradually decrease, it continues to view the maintenance of a mutually beneficial relationship with Xiaomi as highly important to its operations and its potential future growth.
Powered by advanced artificial intelligence, proprietary software and data analytics systems, Viomi’s IoT @ Home platform generates extensive and deep consumer behavior data and insights, enabling it to continue to enhance its products and offer additional bespoke value-added businesses over time.
VIOT operates a highly scalable business model based on three key pillars: 1) its IoT products; 2) complementary consumable products and value-added businesses ecosystem; and 3) a factory-to-consumer new retail sales strategy. Its generates a significant portion of its revenues through the sales of IoT products, and it is continuing to introduce new products to the market. For the years ended December 31, 2016 and 2017 and the six months ended June 30, 2018, sales of its IoT products accounted for 87.4%, 81.6% and 79.6% of its net revenues, respectively.
Its addressable market consists of China's broader home appliances industry, which is large and relatively mature, though still growing at a steady pace. According to an iResearch Report, China's home appliances market reached approximately RMB800.5 bln ($121.0 bln) in terms of retail sales in 2017, having grown at a CAGR of 6.2% from 2013 to 2017, and is estimated to grow at a CAGR of 7.8% from 2017 to 2022 to reach RMB1,167.9 bln ($176.5 bln) by 2022.
Taking a look at the financials, net revenue for the six months ended June 30, 2018 surged by 284% to RMB1.04 bln. This was driven by significant increases in demand across all its product categories, in particular IoT products. The company continued to experience robust growth in smart water purification systems and saw rapid growth in its smart kitchen products category, which was successfully introduced in 2017 and for which it has since continued to roll out new product lines.
On the downside, gross margin decreased from 29.6% to 27.8% for the same periods, primarily due to the shifts in its business and product mix. VIOT says it has made concerted efforts to diversify its revenue streams and product mix. Different product categories may have different gross margins due to various factors, including its pricing strategy, target customer demographics, and raw material and production costs, among others.
Operating expenses also surged by 248% year/year to RMB289.5 mln, with the largest increase coming from Sales & Marketing expense, which soared by 352% to RMB146.6 mln.
Still, the company generated net income of RMB70.3 mln, up sharply from RMB18.9 mln in the same period a year ago.
The stock opened for trading at $9.50 on the Nasdaq earlier today.