TL;DR:
- iFlytek’s Q3 profit fell by 82% due to substantial investments in AI and large language models.
- The stock price dropped 5.1%, despite a 56% YTD increase.
- Operating revenue increased by 2.9% to CNY4.8 billion.
- Gross profit rose by 3.6% to CNY1.9 billion.
- Net operating cash flow reached CNY357 million.
- iFlytek prioritizes long-term growth and first-mover advantage.
- Significant R&D spending, up 10% YoY to CNY981 million.
- Sales expenses surged by 9.9% to CNY834 million.
- Plans to release Spark Cognitive Model and enter medical AI and counseling sectors.
- Operating income slightly decreased by 0.3% in the first nine months.
- Net profit shrank by 76% to CNY99.4 million.
- Concerns over a substantial increase in credit impairment losses.
Main AI News:
iFlytek [SHE: 002230] experienced a significant setback in the third quarter as its profit nosedived by a staggering 82 percent compared to the previous year. This sharp decline was primarily attributed to the substantial investments made in artificial intelligence (AI) and large language models (LLMs).
As the market closed today, iFlytek’s stock price plummeted by 5.1 percent, settling at CNY51.08 (USD7.08) per share in Shenzhen. This decline came as a surprise to many, especially considering the company’s remarkable year-to-date performance, with a 56 percent increase in its stock value. Notably, iFlytek achieved a record high of CNY81.88 on June 20, showcasing its potential in the AI industry.
In its recent earnings report, iFlytek disclosed that its net profit for the third quarter amounted to CNY25.8 million (USD3.5 million), covering the period ending on September 30. While this may seem modest, it’s essential to recognize that the company’s operating revenue increased by 2.9 percent, reaching CNY4.8 billion (USD655.9 million). Furthermore, gross profit showed a positive trajectory, rising by 3.6 percent to CNY1.9 billion, and net operating cash flow was reported at CNY357 million (USD48.8 million).
iFlytek’s management emphasized that, despite the adverse impact of substantial investments in AI and large language models on short-term profits, these strategic moves have laid a strong technical foundation and positioned the company with a first-mover advantage for long-term growth and competitiveness. This forward-thinking approach aligns with iFlytek’s commitment to remain a leading developer of AI technology in China.
Established in 1999, iFlytek has garnered acclaim for its cutting-edge speech recognition technology. To maintain its status as a frontrunner in the Chinese AI landscape, the company consistently allocates a substantial portion of its revenue to research and development efforts. In the third quarter of this year, iFlytek devoted CNY981 million (USD134 million) to R&D, representing a 10 percent increase from the previous year and a notable 23 percent surge from the second quarter. Additionally, sales expenses recorded a 9.9 percent increase, reaching CNY834 million year-over-year.
Looking ahead, iFlytek has ambitious plans, including the release of the third version of its Spark Cognitive Model, a versatile AI tool benchmarked against OpenAI’s ChatGPT. The company also intends to venture into medical LLMs, AI learning machine applications, and AI psychological counseling. Furthermore, iFlytek will collaborate with 12 industry leaders to jointly release LLMs tailored to their respective sectors, signaling its commitment to diversifying its offerings and expanding its influence.
Despite these strategic moves, iFlytek faced challenges in the first nine months of the year, with operating income dipping slightly by 0.3 percent to CNY12.6 billion (USD1.7 billion) compared to the previous year. Net profit experienced a more substantial decline of 76 percent, amounting to CNY99.4 million.
One notable concern for the company is the significant increase in credit impairment losses, which totaled CNY282 million as of September 30, a stark contrast to the CNY15.7 million (USD2.2 million) recorded in the same period last year. The company did not provide a detailed explanation for this more than 17-fold surge in credit impairment losses.
Conclusion:
iFlytek’s recent financial performance reflects the challenges and opportunities inherent in the dynamic AI industry. While short-term profits may have been impacted by increased investments, the company remains focused on its long-term growth and innovation strategies, positioning itself for a promising future in the world of artificial intelligence.
