In the field of robot vacuum cleaners, Ecovacs once earned many accolades, such as "the king of vacuum cleaning" and "the monk of vacuum cleaning". It not only dominated the major market share but also showed strong revenue growth, winning favor in the capital market with a peak market value of 150 billion yuan.

Today, Ecovacs' glory has faded, and it has fallen from its pedestal, mainly facing challenges such as sluggish revenue growth and soaring maintenance costs, compounded by various unfavorable factors in the capital market environment. In the first half of 2024, revenue was 6.976 billion yuan, down 2.35% year-on-year; net profit was 600 million yuan, up 4.26% slightly year-on-year. Meanwhile, the company suffered a severe setback in the capital market, with its current market value at 23.5 billion yuan, a staggering decrease of 100 billion yuan from its peak.

So, what caused this once-mighty player to fall from grace?

Firstly, product quality issues have led to soaring after-sales repair costs, exposing hidden quality problems at Ecovacs

The market has raised questions about Ecovacs, particularly regarding its heavy marketing focus and lack of research and development, as well as concerns about product quality and after-sales service. It is essential to note that competition in the market primarily stems from the quality of the products themselves. However, Ecovacs' significant after-sales and repair costs have sparked discussions and concerns about the quality of its products.

Excerpt from Ecovacs' 2023 annual report

According to Ecovacs' disclosed expenses, the repair cost was only 66.67 million yuan in 2019. By 2023, the after-sales and repair costs had surged to 518 million yuan, a sevenfold increase in just a few years. Compared to 216 million yuan in 2022, the after-sales and repair costs increased by 300 million yuan, up 140% year-on-year. In the first half of 2024, these costs remained high at 110 million yuan.

Although the maintenance expenditure is just a number, it reflects certain quality issues with Ecovacs' products, ultimately weakening its competitive advantage. Meanwhile, consumer complaints about quality issues with Ecovacs' vacuum cleaners on complaint platforms can damage the brand's image and deal a fatal blow to its performance. Furthermore, the rising after-sales and repair costs not only reduce product competitiveness but also eat into profits. Without superior product quality, it is difficult to succeed in a fiercely competitive market, and the future outlook remains highly uncertain.

Secondly, Ecovacs is a marketing-heavy company, with high advertising expenses that eat into profits to some extent

In the first half of 2024, Ecovacs' selling expenses amounted to 2.042 billion yuan, accounting for 29% of revenue. In contrast, research and development expenses were only 446 million yuan, representing 6% of revenue. This indicates a company that prioritizes marketing over research and development. Notably, Ecovacs' heavy marketing and light research and development strategy has long been criticized.

The allocation imbalance, with R&D expenses amounting to only one-fifth of selling expenses, limits its technological innovation capabilities. While the company has achieved certain success through heavy marketing in the past, the current revenue decline may be related to this strategy.

It is worth noting that while Ecovacs' advertising and platform service fees in the first half of this year decreased compared to the same period last year, selling expenses still accounted for a significant proportion of revenue. Advertising and platform service fees amounted to 1.39 billion yuan in the first half of the year, while the full-year 2023 figure was a staggering 3.8 billion yuan. By significantly increasing selling expenses, Ecovacs aimed to boost revenue, but this approach backfired, failing to lift revenue and instead eroding profits.

Lastly, industry competition is intensifying, with companies like Roborock, Dreame, Hikvision, Haier, and Midea launching robot vacuum cleaners, further intensifying competition

It is crucial to note that Roborock is a formidable competitor to Ecovacs. While Ecovacs' financial performance has been sluggish, Roborock has demonstrated robust growth momentum. In the first half of 2024, Roborock's revenue reached 4.4 billion yuan, up 30.9% year-on-year, with a net profit of 1.12 billion yuan. For the full year 2023, revenue was 8.65 billion yuan, up 30.55% year-on-year, and net profit was 2.05 billion yuan, up 73.32% year-on-year. Robot vacuum cleaners and accessories accounted for 93% of revenue, totaling 8.085 billion yuan, up 27% year-on-year. The company sold 2.595 million robot vacuum cleaners, up 15.54% year-on-year.

In contrast, Ecovacs' revenue in 2023 was 15.5 billion yuan, up 1.16% year-on-year, with a net profit of 612 million yuan, down 63.96% year-on-year. Ecovacs' branded service robot sales amounted to 7.681 billion yuan, down 1.49% year-on-year.

From a revenue perspective, Roborock has surpassed Ecovacs to become China's largest robot vacuum cleaner manufacturer. Meanwhile, Roborock's rapid expansion is evident from the significant increases in both revenue and profit. In contrast, Ecovacs' revenue growth has been sluggish. Overall, Roborock surpasses Ecovacs in both growth rate and profitability.

Conclusion

The smart home market undoubtedly remains a promising sector. According to Omida, the global smart home market is projected to exceed $279 billion by 2026. Robot vacuum cleaners are a crucial segment of the smart home market, with a continuously growing demand. IDC's Quarterly Smart Home Device Tracker, Q1 2024, reveals that global shipments of smart robot vacuum cleaners reached 4.554 million units in Q1 2024, up 11.1% year-on-year.

With market upgrades and penetration, global shipments of smart robot vacuum cleaners are expected to continue growing at a CAGR of 6% over the next five years, approaching 25 million units by 2028. The industry is poised for broader development and opportunities, emerging as a significant highlight in the smart home sector. For players in this field, it presents immense market potential.