Report: NIU:_Attractive_Business_Model,_But_Share_Price_Is_Not_Attractive
Smart e-scooters’ manufacturer NIU (NIU) delivers double digit sales growth, and targets a massive market. The amount of employees is growing at a fast pace, which will most likely lead to additional sales. The share price is not extremely attractive, but I believe that both growth investors and value investors will be attracted by the company’s business model. In my view, they will follow the company’s next moves.
Market Opportunity And Sales Growth
Founded in 2014, NIU launched its smart e-scooters in June 2015. The company has noted in its annual report that it has manufactured a new market segment consisting of smart electric two-wheeled vehicles:
We have created a new market category. Before NIU, smart electric two-wheeled vehicles did not exist in China, and two-wheeled vehicles were perceived as low-end. We have changed that perception with our smart e-scooters. We currently design, manufacture and sell high-performance electric bicycles and motorcycles. Source: 20-F
NIU’s portfolio of scooters includes four e-scooter series. Among the different features offered by NIU, I would like to focus on the company’s app and cloud technologies. NIU drivers use the app to locate the scooter, obtain riding data, as well as real-time status of the battery. That’s not all. NIU offers online services through the app, including online repair request, insurance superscription, washing services, and theft reporting among others.
NIU appears to be targeting a massive market size. According to Grand View Research, the company’s target market will be equal to $41 billion by 2030, and will grow at a CAGR of 7.7%. The current market cap is below $4 billion, and sales are below $500 million. Hence, if NIU is about to gain market share in the future, the growth potential appears significant.
If you are a growth investor looking for growth stories, you will need to have a look at NIU. NIU has increased its headcount growth at a massive rate in 2020. According to Ycharts, from July 2018, the number of employees increased by 48%. I do believe that the employees growth will most likely lead to sales growth in 2020, 2021.
Brand Awareness Efforts, And Big Data
NIU appears to be making a lot of efforts to create a premium brand. For instance, in 2018, the company collaborated with McLaren to design NIU-McLaren smart e-scooters. These efforts are generating customer loyalty. Note that in 2017, NIU increased its retail price and still obtained massive sales volume:
“Although we increased the retail price across a majority of our e-scooter models in March 2017, with the volume-weighted average retail price increasing by 8.2%, we were still able to achieve a solid growth of 123.2% in sales volume in 2017, as compared to 2016.” Source: 20-F
There is something very valuable that other motorbike manufacturers don’t have. NIU has access to a significant amount of data collected from different sources. In December 2019, the company had connected more than 880,000 smart e-scooters to their servers. Undoubtedly, the data from the customers can be valuable for many purposes:
“We have accumulated massive amount of data from multiple sources. We currently collect 462 types of data points covering 72 dimensions such as humidity, lighting and temperature, from our Cloud ECU and up to 32 sensors installed on each smart e-scooter. We also collect data from our NIU app, company’s websites, e-commerce platforms, as well as through providing repair and maintenance services.” Source: 20-F
Feedback From Users
I reviewed the feedback given by the users of the app. Most commentaries were positive. With more than 1,200 comments, the company obtained 3.7 out of 5 stars. Notice that anybody can comment on Google play.
According to Google Play, NIU App obtained more than 10,000 installs. The last updated version was released in November 2020. NIU appears to be releasing a new app version when new bugs appear.
I cannot show all the comments. However, I will try to show the most interesting comments. Most users say that the app provides very valuable information and stats. Interestingly, some users offer some recommendations to NIU developers. I could find developers answering questions, and reading the comments. I believe that this communication will help the company in the following years.
To be fair, let’s mention bad comments also. In an old comment written in May 2020, a user noted that customers are not receiving updates from NIU. In addition, he pointed out that app users get logged out constantly. Have a look at the comment below, and also notice that NIU responded.
Company Expects Increases In Sales In 2021 And 2022
The number of e-scooters sold in China grew by 70.2% y/y. In the international markets, NIU reported only 6.3% increase. However, most investors will not really care about the international markets. Note that in Q3 2020, 82% of the total amount of sales were reported in China. I would like to mention one of the most relevant indicators of sales growth. In the last quarter, the number of stores in China grew by 14%. Besides, the company is also increasing the number of distributors. In my opinion, an increase in stores and sellers will most likely lead to an increase in sales in the future. That’s not all. The fact that more and more distributors want to work with NIU is very beneficial. They know their industry very well. If they like NIU, it is because they see a lot of business potential in its products.
NIU suffered a bit from the COVID19 crisis. Total sales in Q3 2020 increased to 36.7% y/y. In 2018 and 2017, the company delivered more than 92% sales increase y/y. I would expect NIU to reach more sales growth in 2021 than that in 2020. Even if COVID19 does not disappear completely, think about the following. Drivers may protect themselves by driving a scooter instead of a car.
NIU will be liked by value investors because it reports positive net income. In the nine months ended September 30, 2019, NIU had a net margin of 8%. In the same period in 2020, the net margin was 6%. As a growth investor, I would prefer that the company increase its R&D expenses. With that, profitability will not harm growth investors.
Balance Sheet
NIU reports a significant amount of cash, term deposits, and investments. In total, I counted $217 million in liquidity, close to 9% of the market capitalization. The current amount of liquidity is another great feature that value investors will most likely appreciate. Among the assets, NIU also discloses $25 million in property and equipment, which represent the new factories built very recently. Remember that the company commenced operations in 2015. The property is new.
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NIU:_Attractive_Business_Model,_But_Share_Price_Is_Not_Attractive
Disclosure: We don’t hold shares of NIU
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