This Tech Stock Looks Interesting
5G and the Internet of Things (IoT) are two of the hottest investment themes right now. Given their popularity, you might imagine that, if a 5G IoT consumer electronics company had amassed millions of users, we’d all know about it by now.
And yet, few people have heard of Viomi Technology Co Ltd (NASDAQ:VIOT).
Viomi is an IoT device maker that was spun off from Xiaomi Corp (HKG:1810, OTCMKTS:XIACF), one of the biggest smartphone makers in China.
Viomi has developed a platform that consists of an ecosystem of IoT-enabled smart home products, such as water purification systems, refrigerators, and washing machines.
Viomi Technology Co Ltd’s model is further boosted by complementary consumable products and value-added businesses, as well as a factory-to-consumer retail sales strategy.
Investor sentiment about Chinese companies can change very quickly depending on the political and regulatory environment. But it’s hard to deny that, when it comes to 5G technology, China is one of the earliest adopters. And that has created a bright outlook for Viomi’s platform.
Viomi Technology Co Ltd already has quite a few 5G-enabled products in its lineup, such as the “21Face” 5G refrigerator and the “21Face Interactive Smart Screen” TV (the flagship 75-inch version is actually the first 5G smart TV in the world).
In March, the company’s senior investor relations manager Cecilia Li said, “We believe that, with the rapid application of 5G and the continuous improvement of smart home ecology, IoT will be applied in more and more home scenarios.” (Source: “Viomi Technology Co., Ltd’s (VIOT) CEO Xiaoping Chen on Q4 2020 Results – Earnings Call Transcript,” Seeking Alpha, March 25, 2021.)
You may be wondering, since regular TVs and fridges already work well enough these days, why would people need smart ones, let alone 5G-enabled versions?
I’m no marketing expert, but as far as Viomi is concerned, the company’s strategy has worked quite well in the era of a booming middle class in China.
As of March 31, Viomi had approximately 5.6 million accumulative household users, up from 3.7 million at the end of March 2020 and 5.1 million at the end of 2020. (Source: “Q1 2021 Results Presentation,” Viomi Technology Co Ltd, last accessed May 31, 2021.)
Moreover, consumers have been buying more products in the company’s ecosystem. The percentage of Viomi’s household users with at least two of the company’s connected products reached 20.4% as of March, compared to 18.4% a year earlier.
Financially, Viomi looks solid. In 2020, the company generated $892.8 million of net revenue, representing a 25.3% increase year-over-year. Viomi also reported adjusted net income of $37.6 million for the year. (Source: “Viomi Technology Co., Ltd Reports Fourth Quarter and Full Year 2020 Unaudited Financial Results,” Viomi Technology Co Ltd, March 25, 2021.)
Fast-forward to this year and you’ll see that the momentum in Viomi’s business has continued. In the first quarter of 2021, the company’s net revenue surged by 64.0% year-over-year to $191.6 million, and its gross margin expanded by 230 basis points year-over-year to 21.1%. (Source: “Viomi Technology Co., Ltd Reports First Quarter 2021 Unaudited Financial Results,” Viomi Technology Co Ltd, May 27, 2021.)
Most impressively, the company earned adjusted net income of $10.0 million in the first quarter of 2021, which more than doubled the amount earned in the year-ago period.
Viomi Technology Co Ltd (NASDAQ:VIOT) Stock Chart
Chart courtesy of StockCharts.com
Keep in mind that, while shares of Xiaomi Corp—the smartphone-making strategic partner and shareholder of Viomi Technology Co Ltd—are listed in Hong Kong, Viomi stock is actually listed on the Nasdaq. Therefore, it’s very convenient for U.S. investors to get a piece of the action.
When it comes to share-price performance, VIOT stock spiked alongside several other Chinese tech stocks earlier this year, but it has since pared most of those gains.
As the leading player in the 5G IoT smart home industry in China, Viomi stock could be an opportunity.