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According to a preliminary assessment of the unaudited consolidated management accounts of the Group for the ten months ending October 31, the Group is expected to record a net loss of about RMB 950 million to RMB 1.2 billion in the year ending December 31, according to a notice issued by Metro on the evening of Nov. 19. The net loss for the year ended December 31, 2017 was about 197 million yuan.
According to the information available at present, the main factors leading to net loss growth are:
(i) The revenue of the Group's Intelligent Hardware Division has decreased due to: (a) Smartphone sales and shipments have decreased due to the introduction of fewer models in 2018 than in 2017. In order to cope with the more intense competition in the second half of 2018, we lowered the price of M series (low-price series launched in 2017), which led to the decrease of the average price of smartphones in the second half of 2018.
(II) because of the decline in ASP, the gross profit generated by smartphone sales dropped rapidly in the second half of 2018. Although our gross profit in the Internet business continued to grow in the second half of 2018, we expect that this growth will not offset the decline in gross profit in the smartphone business, resulting in a decline in the overall gross profit of the group. Given the intensification of competition in the smartphone market in the second half of 2018, our smartphone business may no longer be profitable. We anticipate that the majority of the group's net loss growth in the second half of 2018 will come from our smartphone business. However, we do not expect these losses to occur again after the sales of cooperative smartphones under the authorization arrangement with millet reach the designated number.
(iii) Since we are launching a new smartphone business model under the strategic cooperation agreement, we expect to incur a number of non-recurrent expenditures related to restructuring the existing smartphone business. In addition, due to the Group's recent decision to close its e-commerce platform, Metro Beauty, on November 30, 2018, in order to concentrate resources on the implementation of its new strategy around Metro and Social, we expect to incur some non-recurrent expenditures related to this.
(iv) Increase in marketing and sales costs, especially one-off titling fees and related marketing expenses for some variety shows of about 200 million yuan. These costs relate to the brand promotion of our social networking platform and smart phone business. Please note that our company has not yet determined the annual performance of the Group as of December 31, 2018.
The information contained in this bulletin is based only on the information currently available to the Group and the preliminary assessment of the management accounts by the Board of Directors, which have not yet been reviewed by the auditors of the Company. Therefore, the Group's actual annual performance as at 31 December 2018 may be different from that disclosed here.
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