From 2021 to 2023, iFlytek's total net profit attributable to its parent company will be 1.515 billion yuan. In the past three years, iFlytek received 1.315 billion yuan in government subsidies. Comparing the two, excluding government subsidies, iFlytek's net profit in three years was less than 200 million yuan.
At the end of 2022, after ChatGPT was born, the world was excited about it. As a new technological revolution, companies in the Chinese AI industry are also actively following the layout. Soon, iFlytek, which started as a national team, launched Spark's "1+N Cognitive Intelligence Large Model Special Research" at the end of 2022.
On May 6, 2023, iFlytek held a press conference on the results of the iFlytek Spark cognitive large model in Hefei, version 1.0 of the Spark large model. However, some netizens found that the iFlytek Spark model appeared in some questions and answers with content such as "I was developed by OpenAI", and was questioned by the outside world as a cover-up of ChatGPT.
Although iFlytek responded, "If ChatGPT is used, it will be impossible for the iFlytek Spark model to respond faster than ChatGPT," but it failed to convince the public.
Immediately afterwards, on June 9, 2023, iFlytek released the iFlytek Spark model 1.5 and launched the iOS version of the app. In August, the V2.0 version was launched. On October 24, version V3.0 was launched. On January 30, 2024, version V3.5 will be launched. On June 27, V4.0 was launched. At this 1024 Technology Festival, iFlytek launched the 4.0 Turbo version of the iFlytek Spark model. At the scene, iFlytek Chairman Liu Qingfeng even used 20 words to predict the key to the future development of the AI industry: "uprightness, independence and controllability, integration of general and professional, end-cloud linkage, integration of software and hardware."
With the version change, iFlytek has also launched AI applications starting from version 1.0, including software and hardware. The hardware includes iFlytek smart office notebooks, iFlytek AI learning machines, etc., and the software includes iFlytek Hearing, iFlytek open platform, etc.
"Digital Intelligence Research Society" learned that it took more than a year for iFlytek to update and improve the large model version, which was also more than a year for the vigorous development of domestic large models. Today, the “Battle of Hundreds of Models” is taking place in China.
Although iFlytek is still on the poker table, "Digital Intelligence Research Institute" found that its operating situation is not so optimistic. Recently, iFlytek released its third quarter report for 2024. Data showed that revenue in the first three quarters increased by 17.73% year-on-year to 14.85 billion yuan, but the net loss attributable to the parent company expanded by 445.91% year-on-year to 344 million yuan. If we look at non-net losses, they also expanded by 44.38% year-on-year to 468 million yuan.
Behind the continued expansion of net losses, "Digital Intelligence Research Institute" also found that iFlytek's operations rely heavily on government subsidies, and there are also many problems such as high accounts receivable and increased bad debt risks.
Heavy reliance on government subsidies
As an AI national team, iFlytek has received a lot of government subsidies.
In its annual report, iFlytek divides government subsidies into non-operating revenue and expenses and other income based on different accounting treatments.
"Digital Intelligence Research Institute" found that iFlytek's other income in 2023 exceeded 1.087 billion yuan, of which government subsidies directly included in the current profit and loss amounted to 667 million yuan. Government subsidy projects in non-operating income also amounted to 18.9247 million yuan.
The essence of government subsidies is that companies directly use the money as profits. There is no doubt that this has had a great impact on iFlytek's financial reports.
Generally speaking, the deduction of non-net profit actually refers to the deduction of one-time or incidental income or expenses that are not related to the company's daily business. To reflect the performance of the company's basic business, non-recurring gains and losses are generally deducted from net profits.
Looking at the first three quarters of 2024, iFlytek's net loss attributable to its parent company was 344 million yuan. If non-recurring gains and losses of 124 million yuan were deducted, the non-recurring net loss would be 468 million yuan. After deducting non-recurring profits and losses, iFlytek's losses further expanded. .
Among the non-recurring profits and losses, the government subsidies included in the current profits and losses amounted to 154 million yuan. Looking back a few years in the financial report, we found that in 2021, iFlytek received 439 million yuan in government subsidies included in current profits and losses, and 473 million yuan and 404 million yuan in 2022 and 2023, totaling up to 1.316 billion yuan.
For comparison, from 2021 to 2023, iFlytek's net profits attributable to the parent company were 967.9 million yuan, 418 million yuan and 118 million yuan respectively, totaling 1.515 billion yuan in the three years. On the one hand, there is a three-year subsidy of 1.316 billion yuan, and on the other hand, there is a three-year net profit of 1.515 billion yuan. Comparing the two, without these government subsidies, iFlytek's net profit in the past three years was only less than 200 million yuan.
In addition to its increasing reliance on government subsidies, iFlytek has a high level of accounts receivable, highlighting the risk of bad debts. Data shows that iFlytek's accounts receivable turnover days have increased sharply from 127.32 days in 2021 to 201.84 days in 2023. By the third quarter report of 2024, this indicator has increased to 237.91 days. In other words, this indicator has doubled in three years. The total accounts receivable in the first three quarters also reached 14.003 billion yuan, approaching the revenue scale of 14.85 billion yuan in the first three quarters.
Such low repayment efficiency exposes iFlytek's ever-present liquidity risk. "Digital Intelligence Research Institute" found that since 2020, the net cash flow generated by iFlytek's operating activities has been declining.
Low repayment efficiency also brings about a sharp expansion of bad debt risks. In the third quarter of 2024, iFlytek's bad debt provisions were 2.42 billion yuan, accounting for 16% of total accounts receivable. Investigating the reason, the "Digital Intelligence Research Institute" found that iFlytek made a lot of money from government customers in the early days. Nowadays, government customers are no longer what they used to be, and a large part of accounts receivable has become bad debts.
AII in the "power" of large models
As a major technological leap in the history of AI development, betting on large models has formed a global consensus. For iFlytek, Liu Qingfeng and his team chose "AII in" without hesitation.
At the end of 2022, iFlytek launched Spark's "1+N Cognitive Intelligence Large Model Special Research". In 2023, iFlytek invested a total of more than 2 billion yuan in the research and development of iFlytek's Spark cognitive large model, at the cost of Net profit has dropped sharply. In 2023, net profit dropped 71.74% year-on-year to 118 million yuan. In 2024, there was even a rare loss. In the first quarter, the net loss attributable to the parent company was 300 million yuan, a year-on-year increase of 418.99%. In the second quarter, a loss of 100 million yuan was recorded, a year-on-year increase of 176.21%.
Regarding the losses caused by the AII in large model, Liu Qingfeng made it clear at the performance meeting that "the company continues to increase investment in research and development, and also simultaneously increases investment in the market." "Digital Intelligence Research Institute" found that research and development expenses around large model bases increased by 420 million yuan, and marketing and promotion expenses increased by 120 million yuan. In the first half of the year, the total investment in large models exceeded 1.3 billion yuan.
In order to support the improvement of iFlytek's large-scale cognitive model of Spark, all the stocks of Cambrian, SenseTime and Sanxing held by iFlytek have been cleared.
iFlytek's intention is obvious, which is to eliminate unprofitable small businesses and make the strategic business "big model" bigger. Of course, the effect is also visible to the naked eye. In the first three quarters, the number of new developers of iFlytek Spark has reached a total of 1.777 million, and the number of downloads of iFlytek Spark App on the Android side has exceeded 190 million times. On a certain data platform, iFlytek Spark ranked first in the ranking of general large model apps.
"I dare to pull down the emperor even if I am willing to be killed." It is precisely because of the determination and courage of "AII in" that iFlytek has also made obvious achievements in commercialization. Nowadays, the entire large model development, technology and product track has become a red ocean. Scenarios have been implemented and commercialization has become the "vital gate" restricting the development of many enterprises.
Liu Qingfeng pointed out three clear paths for the commercialization of the iFlytek Spark model in 2024, namely C-side hardware; the implementation of scenarios such as education, medical care, automobiles and finance, and the iFlytek open platform to empower external developers , to obtain income.
In essence, the commercialization paths of many AI and large-scale model companies are relatively similar, but iFlytek has already achieved significant results. For example, in the third quarter of C-side hardware sales, the sales of learning machines increased by more than 100%. Anyone with a discerning eye knows that the base of sales is relatively low, and the number corresponding to 100% growth is actually not much.
On the big B side, iFlytek has established strategic partnerships with operators, finance, energy and other fields. Financial report data shows that among the 653 winning bids announced in my country's large model market this year, iFlytek won 38 bids, making it the market player with the most large model winning bids in the first half of the year. In the view of "Digital Intelligence Research Institute", it is good for Big B's business to be good. Don't let accounts receivable eventually turn into bad debts. If you can't get paid for the work, it will be a bad thing.
As of the close of trading on October 24, iFlytek closed at 44.81 yuan per share, with a total market value of 103.589 billion yuan.