Xiaomi Corp

HKEX:1810

Earnings Call Transcript 2020-Q3

[Steve Lin, executive]

Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 2020 third quarter results. I'm Steve Lin, Director of Corporate Finance and Company Secretary.

Before we start the call, we would like to remind you that this call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various events. Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, company's financials prepared in accordance with IFRS.

Joining us on the call today are Mr. Wang Xiang, Founder and President of Xiaomi Corporation; Mr. Alain Lam, Chief Financial Officer and Vice President of Xiaomi Corporation.

To start with, Mr. Wang will provide an overview of company performance and share strategic initiatives of the company. Mr. Lam will then review the detailed business and financial updates that they could address in terms of the third quarter. Following that, we'll move on to the Q&A session.

I will now turn the call over to Mr. Wang.

[Xiang Wang, executive]

Yes. Thank you. Thank you, Steve. Hello, everyone. Thank you for joining our third quarter 2020 earnings call. Before my presentation, actually, I want to take this opportunity to introduce our new member, Alain Lam, who is joining us about 1.5 months ago. So I'm very happy to introduce him as a new friend or an old friend to you all. I think many of you may know him well, but, yes, say a few words.

[Alain Lam, executive]

Hey, everyone. Good to meet you all over the phone. I joined Xiaomi on October 9. It's been a very interesting 7 weeks since I joined. And I look forward to sharing more with you guys, both online and offline. Thank you.

[Xiang Wang, executive]

Yes. Thank you. Thank you, Alain. So actually, this quarter, we delivered another very solid result across all our business segments as we relentlessly focus on the execution of our core strategies. In this quarter, we posted historical highs in both revenue of RMB 72.2 billion and adjusted net profit of RMB 4.1 billion, up 34.5% and 18.9% year-over-year, respectively.

Our commitment to our core strategy of Smartphone x AIoT continued to underpin our robust performance. I'm very pleased to share that our global smartphone shipments rose to #3 in the third quarter of 2020, the first time since 2014. Actually, it's a record high market share. It's about 13.5%. That's a record high in Xiaomi history.

We continue to execute our dual-brand strategy, driving our success in the premium smartphone market, supported by our well-received premium smartphone models, including Mi 10 Series. We sold more than 8 million premium smartphones as of October 31, 2020. Driven by a higher percentage of sales from our premium smartphone models, our smartphone ASP maintained an upward trend year-over-year, especially in Mainland China.

Our relentless effort to pursue technological innovation boosters our remarkable achievements in the smartphone market. For example, one of our primary R&D achievements is the camera performance. We achieved the #1 position in DxOMark 2 times this year. These achievements were made possible as a result of our dedicated team of close to 1,000 (sic) [ 10,000 ] talented camera focus engineers in 9 global R&D centers across the world from Beijing to Paris to Tokyo to San Diego.

Another example of our efforts in technological innovation is Xiaomi's smart factory, which demonstrates major progress in our smart manufacturing. Xiaomi's smart factory is equivalent with an annual production capacity of 1 million premium smartphones, not only serving as a mega lab that engages in the R&D of new materials, cutting-edge technologies but also as an experimental base for next-generation manufacturing equipment and automated production lines.

This marks another step towards the elevating China's smart manufacturing capabilities as well as increasing manufacturing efficiency for all Xiaomi partners. Looking forward, we will continue to invest in R&D in -- at the more front of the rapid changing technologies in smartphones on 5G era and key technological features that will advance the smartphone industry as a whole.

Lastly, we have significantly strengthened our management team this year. Today, I'm very proud to introduce Mr. Alain Lam. And also -- we also have other executive members joining us, including Adam Zheng, including other members, and also Peng Zhibin joined us as our Chief HR Officer in the company.

Actually, I may spend a few words to introduce Alain. Alain actually is a seasoned capital markets professional with an in-depth understanding of the industry. With Alain joining the team, I'm sure, he will bring his experience and expertise to his work with Xiaomi.

Now I think it's time for Alain to discuss more details of our third quarter earnings results and the business update. Alain, please?

[Alain Lam, executive]

Yes. Thank you, Wang Xiang. Hello, everyone. As I said before, I'm very honored to join this big family of Xiaomi and to share with you our latest business update. As you may have read from our press release, in the third quarter of 2020, we achieved a record revenue of RMB 72.2 billion, which is up 34.5% year-over-year.

Our adjusted net profit for the period also hit a record high of RMB 4.1 billion, which was up 18.9% year-over-year. All of our business segments achieved robust growth, which demonstrates the strength and the resilience of our business.

I'd like to share with you some key updates, and then walk you through each of our segments' performance for the third quarter.

The first point that I would like to highlight is our record-breaking performance in global smartphone shipments. In the third quarter, we regained our top 3 position globally with an all-time high market share of 13.5% and year-over-year growth of 44.6%, which was the highest among the top 5 smartphone manufacturers.

In the quarter, we continued to execute our dual-brand strategy for our smartphone business, which propelled our successful entry into the premium smartphone segment. Inspired by our outstanding performance following the debut of Mi 10 Pro in August of this year, we launched Mi 10 Ultra, sporting our most cutting-edge technologies and the prices starting from RMB 5,299 each, which has become highly sought after upon its launch.

Just as an illustration of how popular our premier models are this year. In the first 10 months of this year, we have sold more than 10 million premium smartphones worldwide, which we define as retail price points at or above RMB 3,000 in Mainland China or EUR 300 in the overseas market.

The third point I would like to talk about is our relentless pursuit of innovation, which is one of Xiaomi's core values, and we believe it's becoming the most important success factor in our industry. One of the testaments of our advanced technologies lies in our camera development. We achieved the #1 position globally on DxOMark camera score with 3 of our flagship products: CC9 Pro, Mi 10 Pro and Mi 10 Ultra.

Another area of our technological leadership is our fast-charging technology. In October, we debuted our 80 watt Mi Wireless Charging Technology, which enables full wireless charging of a 4,000 mAh battery in 19 minutes. We also strive to make technological breakthroughs in advanced manufacturing.

As Mr. Wang mentioned earlier, we introduced our smart factory in Beijing in August of this year. The factory has 3 major roles: number one, a light out annual capacity of 1 million premium smartphones. The Transparent Edition of our flagship Mi 10 Ultra was actually manufactured in this factory. Number two, a lab -- a mega laboratory that engage in R&D of new materials and cutting-edge technologies. And number three, an experimental base for our next-generation manufacturing equipment and automated production lines.

Last but not least, we have strengthened our senior management team significantly by bringing in top talent with a wide breadth of seasoned experience this year. We brought in and Mr. Zeng Xuezhong and Mr. Chang Cheng this year for our smartphone business. And we brought in Mr. Peng Zhibin, who is acting as our Chief Human Resources Officer. I'm very pleased and honored to be among this group represented here and to work with -- together with them to drive the long-term value for all of our stakeholders.

Now let me further discuss our smartphone business segment. In the third quarter, our smartphone business grew significantly, reaching #3 position globally in terms of smartphone shipments, as I mentioned before. Our smartphone revenue reached a record high of RMB 47.6 billion, which is up 47.5% year-over-year, with global shipments of 46.6 million units.

In the third quarter of 2020, our smartphone market share in Mainland China climbed to 12.6% from 9% in the third quarter of 2019, which represents an 18.9% increase year-over-year in terms of shipment, becoming the only 1 of the top 5 smartphone companies to achieve positive growth in Mainland China, according to Canalys.

Our overseas smartphone business also continued to experience robust momentum this quarter. Driven by market share expansion across all the major markets, we ranked top 3 in the overseas smartphone market with a market share of 13.8%, up 54.1% year-over-year. Excluding India, where we have been the #1 smartphone brand for 13 consecutive quarters, our overseas smartphone shipment almost doubled on a year-over-year basis.

We further expanded our advantages in the online channels in Mainland China. Our online smartphone market share increased to 25.7% in the last quarter from 18.5% in the first quarter of this year. During the Singles' Day shopping festival in 2020, we ranked #1 in sales volume among all Android smartphone brands on Tmall.com, JD.com and Suning.com.

If you look at our ASP, our smartphone ASP for the quarter increased by 1.6% year-over-year, with Mainland China smartphone ASP increased 14.7% year-over-year, which was driven by the higher proportion of sales from our premium smartphones. ASPs in -- smartphone ASP in the overseas market decreased slightly due to a shift in our product mix. In particular, our entry-level Redmi 9 Series has been extremely popular. And we sold more than 14 million units worldwide as of the end of September.

We continue to expand our product portfolio at different price points. First, our Mi 10 Series, including Mi 10 Ultra and Mi 10 Pro are priced at RMB 4,000 and beyond, further strengthening our position in the premium smartphone market.

Second, our Redmi K30 Series and Redmi 10X 5G Series priced between RMB 1,000 to RMB 3,000, support our devotion to making 5G technology accessible to the mass market.

And third, to fulfill the need of global consumers amid the macroeconomic uncertainties, we also introduced highly competitive entry-level smartphones, including the Redmi 9A Series with pricing starting from RMB 499, setting a new standard for entry-level smartphones worldwide. We will continue to execute our dual-brand strategy to strengthen our position in the premium smartphone market, while also making 5G technology accessible to the mass market.

Now let's move on to the IoT and lifestyle products. Built on our Smartphone x AIoT strategy, our large user base and our leading position in the IoT markets, our IoT and lifestyle product revenue reached RMB 18.1 billion in the third quarter of 2020, up 16.1% year-over-year, showing significant recovery from the pandemic.

As the global leading consumer AIoT platform, we continued to expand our global IoT user base this quarter. The number of connected IoT devices as of the end of September reached 289.5 million, up 38 point -- sorry, up 35.8% year-over-year. Moreover, the number of users who have 5 or more devices connected to Xiaomi's IoT platform reached 5.6 million this quarter, up 59% year-over-year.

Our AI assistant had 48.4 million (sic) [ 78.4 million ] MAUs in September, an increase of 35.5% year-over-year. Finally, our Mi Home App MAU reached 40 point -- 43.1 million, increasing 34.2% year-over-year.

We also continued to lead in the smartphone -- sorry, in the smart TV industry. And our global shipment of our smart TV reached 3.1 million units in the third quarter of this year. This quarter also marked the seventh consecutive quarter that Xiaomi TV shipments ranked #1 in Mainland China, according to AVC.

As the market leader in smart TVs, we continue to innovate and make leading technologies accessible to the market. In the third quarter, we introduced a number of premium TVs within the Mi TV Master Series, further solidifying our position in the premium TV market.

These products includes the August debut of the Mi TV LUX Transparent Edition, which was the world's first mass-produced Transparent TV. In September of 2020, we launched the Mi TV LUX 82-inch and the Mi TV LUX 82-inch Pro. The Mi TV LUX 82-inch Pro was priced at CNY 49,999 and introduced a cutting-edge mini LED backlights technology that enriches images with incredible details.

The Mi TV LUX 82-inch has a great price to performance ratio among all 4K TVs, with prices starting from RMB 9,999. One of the major drivers of our IoT business this quarter is the overseas market. In the third quarter of 2020, revenue from overseas IoT and lifestyle products increased by 52 -- 56.2% year-over-year, driven by our leading position across major overseas IoT products.

Notably, overseas revenue from certain key IoT categories already surpassed that in Mainland China in this quarter, such as wearable band, electric scooters and robot vacuum cleaners. Given these products' huge growth potential, we intend to leverage our highly efficient new retail channels and large user base to introduce more popular IoT products in the overseas markets.

Let's move on to the internet services segment. In the third quarter, our internet services revenue reached RMB 5.8 billion, up 8.7% year-over-year. Revenue from advertising hit a quarterly record high of RMB 3.3 billion, which was up 13.7% year-over-year, due to the enhancement of our monetization efficiency and the strong growth in overseas advertising revenue. Our overseas internet services revenue also reached a historical high, which was another driver for our internet services' revenue growth.

Our user base also grew significantly in the third quarter. Our global MIUI MAU increased 26.3% year-over-year to a record high of 368.2 million, with 109.4 million MIUI MAU in Mainland China. Meanwhile, the MAU of our smart TV and Mi Box increased by 49.9% year-over-year to 38 point -- 35.8 million, with paid subscribers reaching 4.2 million.

I'd like to add a bit more color on our rapid growth in overseas internet services. In the third quarter, overseas internet revenue increased by 75.6% year-over-year and accounted for 12% of the total internet services revenue. This growth was boosted by increasing overseas smartphone sales volume and the expansion of our overseas user base, especially in Europe and in other developed markets. We also continue to enrich our overseas service offerings. For example, our Mi Music App ranked #1 on Xiaomi smartphones by DAU, among all music apps in India, in Indonesia and in Russia.

Next, let's talk about our overseas business. In the third quarter, revenue from the overseas market reached RMB 39.8 billion, up 52.1% year-over-year, again, marking a quarterly record high in overseas revenue. We continue to hold our solid market position in major markets worldwide. According to Canalys, in the third quarter, our market share ranked #1 in 10 markets globally, top 3 in 36 markets and top 5 in 54 markets.

We are very proud to report for the first time, our smartphone shipment ranked top 3 in Western Europe, with a 13.3% market share and year-over-year growth of 107.3%. The surge in Western Europe was driven by continued robust performance in several key countries. In particular, we ranked #1 in Spain for the third consecutive quarter with a 33.9% market share in that market. We ranked #2 in Italy, #3 in France and #4 in Germany, with year-over-year growth of over 100% in each of these markets. We continue to expand our overseas online sales channels, first, through our own Mi.com, which is now available in 32 countries and regions; and second, through various e-commerce platforms, such as Amazon, Lazada and Shopee.

In the first 9 months of this year alone, we shipped over 10 million smartphones via online channels in overseas markets, excluding India. We are also making solid headway on expanding our overseas carrier channels. We partnered with 50 carriers, covering over 100 of networks in 50 countries. As a result, in the first 9 months of 2020, our smartphone shipments via carrier channels grew by more than 200% year-over-year. Our carrier channel market share in Western Europe doubled to 4.6% in the third quarter of 2020. We obtained leading market share in multiple major areas in Europe. We believe we are very well positioned to capture the huge growth potential in the overseas market with this rapidly growing carrier channel market share.

Next, I would like to go through our financials. As I mentioned before, in the third quarter, our total revenue reached a record high of RMB 72.2 billion, up 34.5% year-over-year and 34.8% quarter-over-quarter. The robust top line growth was mainly driven by our strong momentum in the smartphone business as well as very encouraging performance in the IoT and internet services segment.

Despite a stagnant global smartphone market, largely due to the impact of COVID-19, in the third quarter, our revenue from smartphones was 46 point -- RMB 47.6 billion, up 47.5% year-over-year and 50.5% quarter-over-quarter. Revenue from IoT and lifestyle products grew to RMB 18.1 billion, up 16.1% year-over-year and 18.8% quarter-over-quarter. While revenue from internet services reached RMB 5.8 billion, up 8.7% year-over-year and slightly decreased by 2.3% quarter-over-quarter.

Our overall gross margin was 14.1% in the third quarter, slightly lower than the previous quarter due to the stronger growth in our smartphone business. Looking at the breakdown by segment. Gross margin for our smartphone segment remained steady at 8.4% this quarter. The gross margin of our IoT and lifestyle products segment increased to 14.2%, mainly due to the strong growth in our IoT products with high gross margin and improvement in our smart TV gross margin. The gross margin of our internet services segment was 60.4% in the third quarter, largely stable compared to the last quarter.

While we continue to step up investments in brand building and R&D, our stronger sales performance gave us significant operating leverage. As a result, you can see that our operating expense ratio decreased to 9.4% in the third quarter compared to 11.2% in the second quarter of this year and 10.1% in the third quarter of 2019.

As a result of all of this, we have seen a steady growth in adjusted net profit. In the third quarter of 2020, our adjusted net profit reached a record high of RMB 4.1 billion, which was up 18.9% year-over-year. Our adjusted net profit margin was 5.4 -- sorry, 5.7% in the quarter. At the same time, we continue to manage our working capital in a very efficient way.

Our inventory turnover days decreased to 54 days this quarter from 72 days in the second quarter. Our cash conversion cycle was very healthy at negative 22 days. We have strong cash flow in the third quarter, and our cash resources reached RMB 75.5 billion as of September 30, 2020. The net cash generated from operating activities reached RMB 12.3 billion this quarter.

Finally, we continue to see strong growth in our investment performance, with an increasing number of our investee companies going public in both the Mainland China and overseas, most recently, with Ninebot successful listing on the Science and Technology Innovation Board of the Shanghai Stock Exchange.

As of the end of last quarter, we invested in over 300 companies. In the third quarter, we generated an after-tax net gain of RMB 713.5 million from the disposals of investments. In fact, you have probably seen that we have been generating realized investment gains consistently in the past few quarters.

As of the end of last quarter, the total amount of our investments reflecting mark-to-market for the listed companies reached RMB 50.6 billion, which equals to HKD 2.4 per share. We will continue to leverage our group resources and advantages to empower our ecosystem companies and transform more manufacturing industries globally.

With that, this concluded our prepared remarks. We shall now open the line for questions.

[Steve Lin, executive]

Thank you, Mr. Alain. We'll now proceed to the Q&A session. [Operator Instructions] Thank you.

[Operator]

[Operator Instructions] And our first question is come from Kyna Wong with Crédit Suisse.

[Kyna Wong, analyst]

My first question is about the -- in response to the Honor's announcement that it was sold off and it will run independently going forward. With Xiaomi strategy to compete with these separated brands, do you see it's an opportunity to beat your peers?

My second question is about internet business. In the second quarter, we noted that the gross margin decline was more due to -- by strong, like, gaming, which has a lower gross margin. But this quarter, we see like fintech and also gaming mix likely to decrease. What's the driver behind to see this gross margin staying relatively stable sequentially? What should we expect when, like, the mix to improve going forward? And the fintech, what's the strategy for the fintech going forward because of the -- some kind of regulatory change? And also, we see that you're rebranding the business. So what's the strategy going forward in that?

[Xiang Wang, executive]

Okay. Thank you. Thank you for the questions. So actually, we heard the news from the media. So actually, Xiaomi was born from the very competitive environment back to 10 years ago. So we are -- we have a strategy to expand our business not only in China but to many, many different countries and the markets.

I believe we have the right strategy. The strategy -- we will focus on the strategy we are having now, which is, number one, from the product side is, we've got the Smartphone x AIoT strategy. We'll focus on 2 major areas: smartphone as a cornerstone but also the AIoT -- millions of consumer IoT products in our system so that we can have a multiplier effect. We'll do that.

Also, we will continue to invest into technologies like camera, like chargers, continue to invest into the technology area so that we can have the ability to keep inventing new things to offer -- continue to offer good products, not only for China domestic market but for the overseas market as well. I think we will focus on those strategies. We will focus on the growth potential, not only in China but also in many different markets like Europe. As Alain just mentioned, we have achieved significant growth in the last quarter. Actually, since early this year, actually, you see the continued growth of our business in many, many markets.

European market is one good example, and also Latin America and also Southeast Asian countries, while we are keeping our position in India market. So we are very confident we will grow our market share in those markets, and also we will definitely monitor any market dynamics. To us, it's a very, very normal environment for us. I don't see any change in our strategy. We should focus on the product, focus on the customers and focus on the channels, online channel and offline channels. So this is our position.

[Alain Lam, executive]

And then regarding your question regarding the gross margin, right? So I think you asked about like with fintech and gaming growing slower this quarter, how did then our gross margin improve because, traditionally, fintech and gaming would lower gross margin. I think this was the question.

So in the past few quarters, I think we explained that fintech did have a negative impact to our gross margin because of the regulatory environment together with COVID-19. We had additional credit allowance in the past quarters. We have been actively controlling the risk since then. And we have been closely following all the compliance -- complying all the regulations on them.

On sort of the credit perspective, it's on the upper trend. But I think this quarter, we also talked about -- for gaming, because of the change in the customer mix, we recorded gaming gross margin was lower this quarter. So I think with all these factors together, the gross margin was flat compared to last quarter. We think the current gross margin reflects the current state of the business situation across each business segment in the internet service. Going forward, it will be depending on the product mix on how to assess. So I think that's the answer to your gross margin question.

Overall, fintech, we believe having a stronger regulation is beneficial for the development in the entire industry. And since the beginning of our business, we have been closely following all the regulations. We have all the necessary licenses and related finance. We have been strictly following all the, no matter, interest rate or on the different types of regulations.

So we believe internet finance constantly to be a very good business for us long term. And in the additional to -- and we talked about in the announcement, the current focus in addition to retail finance, consumer finance, we're also actively supporting supply chain finance which, we believe, leveraging our large supply chain relationship and our technology capability should offer good growth prospects going forward. Thank you.

[Operator]

And our next question is come from Leping Huang with CICC.

[Leping Huang, analyst]

Okay. So I may -- I have 2 questions. One is about the -- your future room of growth in the smartphone business. So you outperformed the market quite a lot in -- both in China and overseas. So -- and achieved a very good market share in a few European countries. So looking forward, where do you think your major room of growth? And what is the reasonable market share you plan to achieve, probably in Europe and in South America? And this is the first question.

And the second question is that we see that the internet of Business is roughly Q-on-Q flat for at least since the beginning of this year. So how we should look at the internet business going forward? And what's the correlation between your growth of your MAU and growth of your smartphone user base versus the internet? So how -- the other way, how many quarters we need to wait before we can see a strong growth on internet?

[Xiang Wang, executive]

Yes, thank you. Thank you for the question. The first question is regarding to the future growth, the trend. So actually, I see a very big room for us to grow, although we have achieved a very high growth rate in the quarter 3 of 2020. Given Europe, as an example, right now, although we reached the top 3 position in European market, actually, if you look at the market share, we are still in the 12%, 13% range. So that means we have a big room to grow even in Europe, right?

Right now, we are -- another example is, right now, we are #1 in Spain, right? Our market share in Spanish smartphone market in Q3 was about 34%. It's a very high percentage. But compared to other regions -- other countries, we are still below 20% or in the 10%, 10-plus percent. So that's a huge growth areas, that's in Europe.

So -- and in talking about the Latin American market, it's a huge market, even bigger market space for us to grow. Right now, we are only in the -- maybe -- in some countries, we are 10%, some countries may be below 10%. We see a huge potential. We are in Latin American market only a year -- only 1 year. So we just established our partnership in the offline channels, the online channels, the carrier channels as well. So we'll keep investing in those markets. So we see -- also see a very big potential to grow.

In the India market, we are -- right now, we have -- we are #1,for, I think, 13 quarters already. So we will -- we see -- in Indian market, actually, there is about, I think, 130 million to 150 million smartphones every year, but the potential growth areas at the same time, actually, we have -- in India market, you can also see another 150 million featured phones. So that means, we have a lot of work to do, right?

We should continue to innovate to make a very cost-effective, high-performance smartphones to serve the Indian consumers. We should go build the channels down to the countryside, the villages, to serve the people there so that they can equip with some mobile internet so that we can -- we hope we can change their lives and help them to have a better life with the access to the internet. This is our plan. So overall, I think we have -- we are very, very optimistic about the future growth for the next maybe 5 years.

[Alain Lam, executive]

Yes. The second question regarding the flat Q-on-Q internet service revenue, right? So we talked about the reason for the slower revenue growth this quarter was mainly, one, because of we are actively controlling the risk for the fintechs. And second is because of the gaming business. And third is, as Xiang Wang mentioned, we see a very, very good momentum and a strong potential for user again. So I think we will focus more on user acquisition than exhausting on the monetization. We'll focus more on user experience to gain more users. But going forward, we do see a lot of growth prospects for internet business. And I think, first, as you grow your shipments, you will start to accumulate more users.

So with that, we see a very strong potential for that. And second, we talked about this quarter, our overseas internet service revenue grew rapidly. Our overseas internet revenue grew over 75% year-on-year this year and accounted for about 12% of our internet service revenue already. And third, as we increase our shipments in the higher-end premium smartphone market, based on our data, we do see smartphone advertising -- smartphone internet service revenue on higher-end phone is much higher than normal. So that would naturally also drive up the ARPU.

And fourth, we didn't talk much, but this quarter, the TV internet service revenue was also very strong. As we continue to be #1 in China in terms of smartphone shipments, we are accumulating more and more users. On the same time, we are improving our monetizing capability. So together, we do see a very strong potential for TV internet service. So we believe all of these will give us a very large growth potential for internet service business. But I think at the moment, as Xiang Wang mentioned, I think the focus for us is really on the user acquisition.

[Xiang Wang, executive]

Yes. User acquisition is the most important thing. We don't even started the monetization in the overseas market yet. But you can see from our report, actually, the internet revenue from overseas market grew very, very fast. But we definitely will focus on the user acquisition in the coming years.

[Operator]

And our next question is come from Piyush Mubayi with Goldman Sachs.

[Piyush Mubayi, analyst]

My first question is about the China MAU progression, which has dropped slightly on a quarter-by-quarter basis, even though your market share has gained quite significantly. And that has also not made progress when we look at it on the year-on-year basis. So how do we correlate -- or how do we draw the correlation between your customer improvement that we're seeing and the fact that this line has not improved over the same period of time, despite the significant market share gains we've seen with your smartphone volumes? That's my first question.

The second question concerns, how you think of market share on a worldwide basis as well as back at home? If you could just take us through, so you've got a peak market share in Spain, in the 30s. You've got very high market share in India. And overall, you've done very, very well in many countries. How do we go from there to looking at your market share in the countries where you don't have that market share? And going back to China, overall market share as well as 5G market share? So if you could just give us a qualitative assessment of how you think through those points, that would be fantastic.

[Alain Lam, executive]

Thank you. Regarding to your first question, so it's about the MAU, right? So actually, the -- this is stabilized. The MAU -- our MAU is stabilized. It's around 110 million, 100 million, 108 million, 109 million, right? So the little difference was because of the time of when you do the calculation of statistics. It's a time difference caused, but not the number difference. It's stabilized. We will continue to drive the local domestic China market share.

So actually, China is a very unique market. So we're growing our market share online. But China has a huge off-line market, and we need to build our stores, not only the Tier 1 cities but we have to get into the Tier 3, Tier 4, Tier 5, Tier 6 cities. It takes time for us to build our Xiaomi stores, our asset-light stores and also other stores to cover those rural areas. It takes a little time, but we will continue to drive the market share growth in the online channel. But at the same time, we have a plan to improve our off-line coverage starting from this year. So it takes a little time.

But in the overseas market, it's more complicated. Every market is different. So for example, in the European market, the European market is mainly -- this is the off-line market. Online only represents, I think, less than 10%. So -- but we're still working very closely with the online channels, amazon, in many countries; Cdiscount in France, for example; and also other online channels in Europe, use those channels to do a lot of marketing, a lot of communications with our clients and the customers. But at the same time, actually, we invest a lot in building the partnership with the traditional off-line channels, which are the major channels for the smartphone sales. For example, MediaMarkt. MediaMarkt is the largest -- maybe the largest smartphone retail channel. So we have built a very, very strong partnership with the MediaMarkt in many, many European countries, from Germany to Spain to Italy to many other countries. There are several others like the MediaMarkt. So we also built our Xiaomi authorized stores.

In overseas market, we have, I think, over 700 stores across the different regions. Europe, as I mentioned, Europe is an off-line-driven market. But if you talk about the Indonesia market, it's -- you've got thousands of mom-and-pop stores. It's an IR market. You have to cover those hundreds of thousands of very small stores across the nation. So we use another strategy to cover those markets. We see very good growth from the Indian -- Indonesia market in Q3. That's the result of building a model to cover the IR channel in Indonesia.

Indian market is similar, but Indian market has a very strong online channels and off-line channels. Online channel, close to 50%. So you need to have a more balanced approach if you want to be successful in India. So it's very different from country to country. I think we know through, I think, our 3 years effort, we understand, we learned a lot from the different models. So I think we'll continue to invest into different types of markets.

Right now, we have established a system to cover the major markets, including Europe, Latin America, Middle East and Southeast Asian countries and India. So yes, we are very optimistic or confident for the future growth, especially for the next 2 to 3 years.

[Operator]

And our next question is come from Gokul Hariharan with JPMorgan.

[Gokul Hariharan, analyst]

Congrats for the good results. First of all, if you could give a little bit more color on the fintech business? Now that you are kind of reconfiguring the business, how should we think about the extent of some of the credit pressures, et cetera? I think, Alain, you mentioned that some of the credit pressures are starting to kind of bottom out. As you look at the next year or so on the fintech side, how do we think about the thrust of growth? Is it going to be still mostly consumer lending related? Or do we see more areas on the digital bank, on the other areas like supply chain, finance, et cetera, start to become more prominent? That's my first question.

Second question, I know that it is early days, but since you called out the overseas revenues for internet for the first time, and it's not a small number either, 12% of your overall number. Could we talk a little bit more in terms of the avenues of monetization that we are using in these overseas markets, given that we don't really have an app store presence in many of these markets, given the prevalence of Google Play Store?

[Alain Lam, executive]

Yes. Why don't -- Gokul, why don't I take the first question on the fintech business? As we announced about a month ago with our new fintech strategy, we are focusing on 3 areas. Consumer finance being one of them. We are increasingly going into the supply chain financing as we see a lot more kind of positive regulatory headwinds in that market. But more importantly, we do believe we have very unique advantages in that area. And the third area is technology transfer, obviously, to use our technology to enable more financial institutions to get into the supply chain financing side.

So on the consumer finance, as you have seen in our results and in the past few quarters, we have been shrinking the loan balance, which we are seeing the light at the end of the tunnel. I think we are seeing improvement in that business in the past few months.

Supply chain financing is obviously an area that we are going to focus on, again, given the fact that we have pretty unique advantages in that area, given that a lot of them are either our suppliers or the suppliers of our 12 suppliers. So we have seen good data of their production in that area, and also that a lot of them rely on working capital to -- for their businesses, which we think we can help the process become a lot more efficient using data and using our technological advantage -- technology advantages.

So that's an area that I think you'll hear more from us in the future about the progress in that area. I think that's something that we are quite focusing on. And then the third stage is obviously as the technology becomes more advanced, as the system becomes more advanced, we also want to export that technology to enable more financial institutions to join the game there. So that's the fintech business.

On the overseas internet businesses, yes, of course, we don't have the advantage of some of the bigger players in terms of app stores and whatnot. But we do have significant revenue coming from advertising as well as from pre-load in that area at this point in time and also...

[Xiang Wang, executive]

Yes, correct. Yes, actually, we haven't started the monetization business from the overseas market yet. But we have seen a very good result for some of our apps. So for example, the browser, in some of the regions, our browser has a higher MAU than Google's Chrome. So that's a good signal for us.

So right now, we are -- our focus is still on the user acquisition, number one. Number two, we want to improve the user experience so that we can keep the customer in our ecosystem. So we'll continue to improve the user experience. So we'll continue -- to the user experience between smartphones and our IoT products. So that's why we launched several features. We call them Mi Share, right?

With the Mi Share, you can easily use your smartphone to control your IoT devices, for example, music, right? If you're getting closer to the smart speakers, AI speakers, your music will automatically transfer from your smartphone to the AI speaker and vice versa, right? The -- your music in the -- in your home can easily transfer into your smartphone when you go out. So this kind of feature.

And also, we are using another kind of technology called UWB. So with your smartphone, you can easily point your smartphone to your TV, and then you can easily turn your smartphone to a controller or you can transfer your content from your smartphone to the TV, the similar feature. So we will continue to improve the user experience so that we can keep the customer. And then, we will think about the monetization in the future. But although we have not started, but still, we see a very good trend for the internet -- overseas internet revenue growth.

[Operator]

And our next question is come from Fang He with HSBC.

[Fang He, analyst]

So my first question is about your long-term sales momentum, given we do see the second wave of COVID-19 across the globe, so do you see any sales impact in the past 2 months, especially in Western Europe? And also supply chain is indicating some order slowdown in Q4, in general, from Android account. So I just wondered if we do see some similar type of seasonality? This is first question.

Second question is about the -- your IoT GP margin because you reached a record high 14% GP margin in the segment. Do we see there should be a new norm to project your GP margin in IoT or there should be turned to low-teens in coming few quarters?

[Xiang Wang, executive]

Okay. The -- I can say -- for the first question, I can say like that, the COVID-19 definitely impacted our business in 2020, especially in the first quarter and the second quarter. We see -- we have seen the recovery from the third quarter, but it definitely impacts. But as I mentioned several times in the past, actually, smartphone business is kind of resilient, right?

People would need a smartphone, especially in the difficult time period. So demand is there. But we are facing several challenges despite the COVID-19. For example, the supplier shortage. Supplier shortage is the one. And the COVID-19 definitely is another one. So we are closely monitoring the status of the pandemic in Europe, in India.

We hope -- I personally hope actually it's a little optimistic because the vaccine is almost ready. But this winter is going to be -- I hope it's going to be the last winter for the pandemic. So we remain optimistic for the next year. So as Alain just mentioned, we see the light at the end of the tunnel, right? So we are working very hard.

We tried to help in the Q1, tried to help to solve the problem -- the pandemic issues in China in Wuhan. And also, we have done some things for India, even European countries, yes, with our technology and our effort. I think it will be over. It's a near-term thing. The second question is IoT.

[Alain Lam, executive]

That's for the IoT gross margin, right? So I think at Xiaomi, we are having a very strong position in IoT, the whole IoT industry. We are having a lot of leadership in China IoT market across a lot of different categories, but we're also expanding over the applied IoT markets that they test. So while we're doing this, right, you will see a lot of the products we are growing right now, for example, in the smart home appliance category, these naturally have higher gross margin than some of the products which traditionally are strong, for example, like notebook and TV, right? So I think on the product mix wise, this is pointing to benefiting on the gross margin.

And the other number we share on this quarter is our overseas IoT business also grew rapidly. Our overseas IoT tends to have a higher gross margins than in Mainland China. So with that, also a benefit for gross margin. But overall, I think from IoT, again, it's very similar to when we talk about smartphone.

I think for -- it's still relatively early in terms of the industry development. For us, the key is still getting used -- improving the experience and to gain more users as opposed to really optimizing the gross margin. But I think despite not actively doing so because of the shipping product mix and the geography, it did help us on the gross margin during the quarter.

Due to the time constraint, I will now take the question from the last investor.

[Operator]

So management, and we don't have questions at this point of time. So would you have like any closing remarks to our investor?

[Xiang Wang, executive]

Yes. I want to say thank you. So we are happy to achieve a good result, but we are -- actually, we are working very hard for -- to prepare for the Q3 and also, more importantly, the year 2021. There are challenges down the road. I think the supply shortage is one of the issue near term. We're working very hard on that. And also, we continue to hire more engineers to send more people to different market and region. So a lot of work to do. I want to take this opportunity to thank everyone in the call for your support, your understanding and your questions to help us to improve in many, many areas. Thank you.

[Steve Lin, executive]

This concludes the conference call today. Thank you, everyone, again for joining us. You may now disconnect. Thank you.