Goertek: With Apple Entering, Can VR/AR Emerge Successfully?
Goertek released its first-quarter financial report for 2024 after the A-share market closed on the evening of April 24, 2024 (as of March 2024), with the following key points:
1. Overall Performance: Revenue & Gross Margin, Disappointing.① Goertek's total revenue this quarter was 19.3 billion yuan, a year-on-year decrease of 19.9%, lower than market expectations (21.3 billion). The decline in revenue was mainly due to insufficient demand in the smart hardware segment. ② Goertek's gross margin this quarter was 9.2%, a year-on-year increase of 2.2 percentage points, slightly lower than market expectations (9.4%). The rise in gross margin was mainly driven by intelligent acoustic whole machines, but the current gross margin level is still low. ③ The company's net profit attributable to shareholders this quarter was 380 million yuan, showing some recovery in profit, but still lower than market expectations (520 million);
2. Expenses and Operating Conditions: Demand remains a major challenge. Due to insufficient downstream demand, the company's inventory rose again this quarter. Despite poor performance, the company also controlled expenses. For Goertek's operating performance, the focus remains on the demand side.
Dolphin's Viewpoint:
Overall, Goertek's financial report this time is still unsatisfactory. Both revenue and gross margin performance are disappointing, mainly due to the decline in the smart hardware business.
Looking at Goertek's business structure, the current smart hardware business is the company's largest source of revenue. With a 23.5% decline in global shipments of VR and other devices in the past year, the company's performance has also seen a significant decline. Therefore, the downstream performance of VR and other smart hardware will directly affect the company's operating performance.
According to IDC's latest expectations, driven by new products like Apple's Vision Pro, the shipment volume of VR/AR devices in 2024 will see a significant rebound. However, even with this, it does not mean that Goertek's performance will directly benefit. Apple's Vision Pro was launched in February, but Goertek's performance in the first quarter was still mediocre, and the company's major customers, meta and pico, did not perform well in the first quarter.
**Dolphin believes that looking at Goertek's main products, tws earphones have become a mature market. Demand for VR/AR products, which are the growth points themselves, is relatively weak. Even with the boost from Apple's Vision Pro this year, it is not Goertek's own product. Therefore, in terms of the company's performance, there are still no clear signs of improvement. To instill more confidence in investors, the company needs to provide more bright spots in its business performance **
Here is Dolphin's specific analysis of GoerTek's financial report:
1. Overall Performance: Revenue & Gross Margin, Both Disappointing
1.1 Revenue End
In the first quarter of 2024, GoerTek's total revenue was 19.312 billion yuan, a year-on-year decrease of 19.9%, lower than market expectations (21.3 billion yuan). The company's revenue continues to decline, mainly due to insufficient demand in the smart hardware sector.
In GoerTek's smart hardware business, it mainly covers customers such as meta, pico, and PS. The insufficient demand in the VR/AR market directly affected the company's performance. The global VR sales dropped by 24% in 2023, which was also a major reason for the company's revenue decline over the past year.
1.2 Gross Margin End
In the first quarter of 2024, GoerTek achieved a gross profit of 1.776 billion yuan, a year-on-year increase of 5.5%. Despite the revenue decline, the gross margin end is still growing, mainly due to the improvement in the company's gross margin.
The company's gross margin for this quarter was 9.2%, a year-on-year increase of 2.2 percentage points, slightly lower than market expectations (9.4%). The increase in gross margin was mainly driven by intelligent acoustic whole machines. Due to the impact of adjustments in large customer orders, the gross margin had a significant decline before, but it has been somewhat repaired in the production end now. In addition, the demand-side impact on the smart hardware end led to a slight decline in the gross margin, which also caused the company's overall gross margin to fall back to single digits.
2. Expenses and Operating Situation: Demand Remains a Major Challenge
2.1 Operating Indicators
① Accounts Receivable: In the first quarter of 2024, GoerTek's accounts receivable was 7.385 billion yuan, a year-on-year decrease of 35.3%. Looking at the accounts receivable/revenue ratio, GoerTek's ratio for this quarter was 0.38, showing a significant decrease. There are seasonal factors at play. After the end of the year, most accounts receivable have been settled.
② Inventory: In the first quarter of 2024, GoerTek's inventory was 11.734 billion yuan, a year-on-year decrease of 8.2%. Looking at the inventory/revenue ratio, GoerTek's ratio for this quarter rose to 0.61. Although the company had significant destocking before, due to insufficient downstream demand, the company's inventory rose again this quarter. Therefore, the downstream demand situation is the company's biggest concern. 2.2 Expense Ratio Situation
In the first quarter of 2024, GoerTek's total expenses amounted to 1.47 billion yuan, a decrease of 13.4% year-on-year. The expense ratio was 7.6%, with the decline mainly attributed to the reduction in administrative expenses and research and development expenses.
Sales Expenses: This quarter amounted to 151 million yuan, an increase of 4.1% year-on-year, with a sales expense ratio of 0.8%. The company's sales expenses remained relatively stable overall.
Administrative Expenses: This quarter amounted to 458 million yuan, a decrease of 17.2% year-on-year, with an administrative expense ratio of 2.4%. While administrative expenses decreased, they remained stable overall, staying within the 2-3% range.
Research and Development Expenses: This quarter amounted to 825 million yuan, a decrease of 14.2% year-on-year, with a research and development expense ratio of 4.3%. Research and development expenses accounted for the largest proportion of the four expenses, mainly directed towards the company's research and development work in smart hardware and components projects. Due to weak downstream demand, the company also reduced related research and development expenditures.
Financial Expenses: This quarter amounted to 36 million yuan, an increase of 5.3% year-on-year, with a financial expense ratio of 0.2%. The change in the company's financial expenses was mainly due to exchange rate effects.
2.3 Net Profit
In the first quarter of 2024, GoerTek's net profit attributable to shareholders was 380 million yuan. While profits showed some recovery, they still fell below market expectations (520 million yuan). The main reason for GoerTek's lower-than-expected profit in this quarter was the poor performance on the revenue side, with the smart hardware business being dragged down by insufficient market demand.
In the first quarter of 2024, the company's net profit margin fell to 1.9%, showing some recovery but remaining at a low level. The company's main revenue comes from smart acoustics and smart hardware, both of which have gross profit margins slipping to single digits. With single-digit gross profit margins, the company's net profit margin can only be maintained near the breakeven point.
Financial Report Review on April 18, 2023: "GoerTek: Cutting orders and collapsing performance, can Apple's little brother withstand it?"
Financial Report Review on August 30, 2022: "GoerTek: Why did the VR with doubled growth press the pause button?"
Financial Report Review on April 27, 2022: "VR sees high growth, GoerTek once again sets strong guidance against the market trend | Reading Financial Reports"
Financial Report Review on March 30, 2022: "GoerTek: "Pulling down" is just for now, the future is still VR"
Financial Report Review on August 27, 2021: "GoerTek: "The light of VR" overshadows the "loneliness" of TWS earphones"
In-depth Analysis
Company In-depth Analysis on October 11, 2022: "Goer's Redemption: Pico with the blessing of ByteDance"
Industry In-depth Analysis on June 17, 2022: "Consumer electronics are "ripe", Apple stands firm, Xiaomi struggles"
Company In-depth Analysis on August 20, 2021: "GoerTek (Part 2): The metaverse is too far away, VR game consoles are already very popular"
Company In-depth Analysis on July 23, 2021: "GoerTek (Part 1): What did the leading fruit chain experience after another sharp decline?"
Risk disclosure and statement of this article: Dolphin Investment Research Disclaimer and General Disclosure
