Viomi Technology Co (VIOT) Q4 2019 Earnings Call Transcript

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Viomi Technology Co (NASDAQ: VIOT)
Q4 2019 Earnings Call
Mar 26, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Company Limited’s Earnings conference Call for the Fourth Quarter and Full Year 2019. [Operator Instructions]

I will now turn the call over to your host, Ms. Cecilia Li for the PSNC Group, the company’s Investor Relations partner. Please go ahead, Cecilia.

Cecilia LiInvestor Relations Representative

Thank you, Andrew. Hello everyone, and welcome to may Viomi Technology Co. Limited earnings conference call for the fourth quarter and full year 2019. As a reminder, this conference is being recorded. The company’s financial and operating results were issued in a press release earlier today and posted online. You can download the earnings press release and sign up for the company’s email distribution list by visiting the IR section of the company’s website at ir.viomi.com.

Participating in today’s call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer and Mr. Shun Jiang, the Chief Financial Officer. The company’s management will begin with prepared remarks and the call will conclude with a Q&A session.

Before we continue, please note today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company’s registration statements on Form F-1 and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law.

Please also note that Viomi’s earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Viomi’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

I will now turn the call over to Viomi’s Founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead.

Xiaoping ChenFounder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Shun JiangChief Financial Officer

Thank you, Xiaoping. This is Shun, Viomi’s CFO. I will quickly translate Mr. Chen’s remarks before providing an operational update and discuss our financial performance for the fourth quarter of 2019 and our outlook.

Hello, everyone. Thank you for joining our fourth quarter and full year 2019 earnings conference call. 2019 was another extraordinary year for Viomi. Our business went through strength-to-strength with robust growth across all product segments, successful innovation, new product development, increasing brand recognition, larger market share and deeper channel penetration.

Business momentum continue to be strong with fourth quarter and full year 2019 revenues increasing by 82.2% and 81.5% year-over-year respectively, exceeding the high-end of our previous guidance. Non-GAAP net income in the fourth quarter and full year 2019 increased by 54.6% and 85.2% year-over-year respectively. We recorded our best ever Double-Eleven sales performance in 2019 with our online channels more than doubling respected GMV in the fourth quarter on a year-over-year basis.

Performance was strong across our core online channels, including Youpin, JD, TMall and Suning, as well as our own e-commerce platform, Youmi Shengsheng. Our Xiaomi-branded products business also performed extremely well, with water purifiers seeing strong volume growth and new products such as sweeper robots, range hoods stores and blended all contributing meaningfully to the year-over-year growth.

The Viomi IoT @ Home, [Indecipherable] brand has come a long way since inception only a few short years ago. From our recent successes, we have well and truly established ourselves as a credible name and a leader in the IoT industry in China and are continuing to reap the benefits of our increased brand visibility, scale and channel penetration. We are also making efforts toward streamlining and optimizing SKUs within each of our existing product categories, while further deepening and broadening our sales channels across both online and offline networks.

Investment in research and development and innovation has always been fundamental to our success. As a testament to our leading R&D capabilities, Viomi was named as one of the keys of IoT in 36Kr’s list of cutting-edge technology and high growth enterprises in November. In addition, we were listed as one of the national intellectual property demonstration enterprises in 2019. As of the end of 2019, we had registered over 300 patents domestically with many of our products obtaining Chinese high-tech product certifications.

As part of our 5G plus IoT strategy, we continue to introduce to the market many new innovative and cutting-edge product lines, as well as new product categories throughout 2019 and into 2020 including product premium coKiing brand that was launched in late 2019. In terms of 5G capabilities, we’ve rolled out our state-of-the-art hybrid networking 5G CPE product in October, equipped with Qualcomm SDX [Phonetic] 5G microchip, featuring one-touch connectivity and the ability to connect over 256 IoT products, providing groundbreaking seamless full home wireless coverage technology to consumers.

We have also been dedicated to developing next generation Wi-Fi 6-enabled products and technologies, integrating Wi-Fi, Bluetooth, ZigBee and other protocols to deliver truly holistic connectivity and user experiences across IoT products in the home environment. We’re excited and look forward to sharing these products with the market in the coming months as they are introduced.

In February, we announced that company had entered into a Memorandum of Understanding with the local government in Shunde, Guangdong Province, for the development of Viomi IoT Technology Park, a comprehensive high-tech industrial campus, expected to be completed in two phases over an up to 10-year period. The first phase is expected to include the company’s multi-functional headquarters, including a product experience center, R&D center, smart manufacturing center and centralized hub with sales and customer service functions. The second is expected to focus on and accommodate additional facilities for the company’s IoT products serving as a focal point for Viomi’s extended supply chain capabilities, while attracting more upstream and downstream corporate and business opportunities.

This initiative demonstrates our commitment to strengthening our IoT supply chain resources and provides necessary foundation to support the manufacturing and R&D capabilities we will need in order to thrive in the upcoming 5G and IoT era. This technology park will equip us with the necessary resources to capture the increasing number of opportunities before us going forward.

As you can see, our company had significant positive momentum heading into 2020. However, the recent COVID-19 outbreak has created unique, global and industrywide challenges, impacting supply chain, logistics sales channels, as well as overall consumer sentiment and purchasing behavior. Based on the overall industry data at domestic retail sales of many home appliances products have seen a significant double-digit declines in the first two months of the year with offline channels being particularly hard hit.

Having said that, we, together with our suppliers and customers, have gradually resumed normal operations in mid-February and have seen noticeable improvements going into March, both from a supply and demand perspective. It is also worth noting that we currently have minimal exposure to international export markets and have Internet — and have minimal exposure to international suppliers. Accordingly, we do not see any meaningful direct impacts from the current COVID situation outside of China.

Nevertheless, we believe our industry, as well as the broader economy are still facing significant uncertainties of the near to medium term that will be difficult to quantify. Although the situation may currently be improving in China, the recent escalation globally is likely to continue to depress overall consumer confidence and spending patterns in the domestic market in the months to come. We are therefore utilizing this time to further enhance our operational efficiency and implement stringent cost control measures across all areas of our business in addition to our product development and sales and marketing efforts.

At the start of the year, we announced our Viomi 2030 3511 strategic objective with our mission to become a leading large-scale technology enterprise. We are shaping our corporate culture and mapping out our plans to achieve strong and sustainable growth over at least the next 10 years. We are fully confident that our strong business fundamentals, robust financial resources and strategic direction will enable us to power through this unprecedented period and achieve our long-term goals.

Finally, in light of prevailing market conditions, we announced today that our board of directors had approved a share repurchase program where the company is authorized to repurchase up to USD10 million worth of its Class A ordinary shares in the form of American Depositary Shares over the next 12 months period. The share repurchase program reflects our confidence in our business outlook and demonstrates our commitment to maximizing long-term shareholder value. Our healthy balance sheet and strong cash flow generating ability provides us with ample flexibility to effectively implement the share repurchase program, while continuing to execute our growth strategies.

So that concludes our Founder’s comments, I will now provide an operational update and discuss our financial performance for the fourth quarter and full year 2019 together with our outlook. In the interest of time, I will not go into too much detail on the historical operational updates and statistics, which you can see from our earnings release, and they continue — which continue to strengthen in the fourth quarter. So let me move on to provide a review of our fourth quarter results, as well as outlook.

So in the fourth quarter, our business momentum continued to be strong and we again delivered robust top-line growth, exceeding the high-end of our previous guidance. In addition, we continue to achieve healthy levels of bottom line growth with very strong cash flow and balance sheet positions. As Xiaoping discussed, net revenues increased by 82.2% to RMB1.7 billion from RMB955.7 million for the fourth quarter of 2018, primarily due to continued successful rollout and significant increase in sales of both Viomi-branded and Xiaomi-branded products.

Revenues from IoT-enabled smart home products increased by 75.1% to RMB1.349 billion from RMB770.6 million for the fourth quarter of 2018. Within this category, revenues from smart water purification systems increased by 35.1% to RMB385.9 million to RMB285.7 million for the fourth quarter of 2018. This was primarily driven by the introduction and rollout of new series of larger capacity water purifier products together with an overall increase in sales volumes.

Revenues from smart kitchen products increased by 64.5% to RMB432.8 million from RMB263.1 million for the fourth quarter of 2018. The growth was primarily driven by increases in sales volumes of the company’s Viomi-branded refrigerator products together with the rollout of new Xiaomi-branded products such as range hoods and gas stoves.

Revenues from other smart products increased by 139.4% to RMB530.9 million from RMB221.8 million for the fourth quarter of 2018. The rapid growth was primarily driven by the rollout of new Xiaomi-branded sweeper robot products, as well as growth in sales volumes of Viomi-branded water heaters and smart devices.

So please note that from the fourth quarter of 2020 onwards, the company will present revenues from smart kitchen products and other smart categories together in one combined category. As these categories have broadly similar margin profiles and given the company places strategic emphasis on our IoT @ Home product portfolio as a whole, we believe the category should be viewed holistically to provide a more upward understanding of our overall performance.

So revenues from consumable products increased by 125.6% to RMB94.6 million from RMB41.9 million for the fourth quarter of 2018, primarily due to increased sales volumes of the company’s water purifier filter products. Revenues from value-added businesses increased by 170.7% to RMB297.4 million from RMB143.2 million for the fourth quarter of 2018, primarily due to new product introductions, together with increased demand for the company’s small appliances products.

Cost of revenues increased by 100% to RMB1.395 billion from RMB697.4 million for the fourth quarter of 2018. The increase was relatively in line with the rapid growth of net revenues. Gross profit increased by 34.1% to RMB346.6 million from RMB258.4 million for the fourth quarter of 2018. Gross margin was approximately 20% compared to 27% for the fourth quarter of 2018. The decrease in gross margin was primarily due to shifts in the company’s business and product mix, together with additional promotional activities conducted during online shopping festival that occurred during the fourth quarter.

Total operating expenses increased by 37.7% from RMB273.6 million from RMB198.6 million for the fourth quarter of 2018, primarily due to the rapid growth of the company’s business. R&D expenses increased by 57% to RMB65.6 million from RMB41.8 million for the fourth quarter of 2018, primarily due to an increase in personnel expenses and patent-related expenses.

Selling and marketing expenses increased by 36.7% to RMB185.3 million from RMB135.5 million for the fourth quarter of 2018, primarily due to an increase in logistics expenses, as well as a result of the company’s business quarter. G&A expenses were RMB22.6 million compared to RMB21.3 million for the fourth quarter of 218. So total operating expenses as a percentage of sales decreased to 15.7% for the fourth quarter of 2019 as compared to 20.8% for the fourth quarter of 2018 as we continue to enjoy economies of scale and greater operating efficiencies.

On a non-GAAP basis, which includes the impact of share-based compensation — excludes the impact of share-based compensation expenses, total operating expenses as a percentage of sales decreased to 15.1% in the fourth quarter of 2019 compared to 19.7% in the fourth quarter of 2018. Net income was RMB90.2 million, an increase of 64.4% from RMB54.9 million for the fourth quarter of 2018. Non-GAAP net income, which includes the impact of share-based compensation expenses was RMB100.7 million, an increase of 54.6% from RMB65.1 million for the fourth quarter of 2018.

Additionally, our balance sheet remained extremely strong. As of December 31, 2019, we had cash and cash equivalents of RMB972.4 million, restricted cash of RMB30.6 million, short-term deposits of RMB60 million and short-term investments of RMB316.2 million. Collectively, such liquid assets amounted to over RMB1.3 billion and we had minimal debt. For the fourth quarter of 2019, net cash provided by operating activities was RMB300.2 million, a reflection of our strong cash flow generating capabilities over the course of the year. And I won’t go into the detail of our full year 2019 results as they can be reviewed in detail in our earnings release.

Now let’s turn to our outlook. Viomi had extremely strong momentum heading into 2020. COVID-19 has indeed had an adverse impact on the overall industry and sector, as well as our business in the first quarter of 2020. Not only has there been an impact on the supply in terms of manufacturing capacity and logistics, but also on the demand side in terms of retail channel operations, consumer sentiment and customer purchasing behavior.

As Xiaoping mentioned, we believe our industry, as well as the broader economy in China, as well as globally are still facing significant challenges and uncertainties over the near to medium term that will be difficult to quantify. In light of these factors, for the first quarter of 2020, the company expects net revenues to be approximately flat as compared to the first quarter of 2019 with the introduction and ramp-up of new products offsetting the negative impact of adverse macro and industry conditions in the quarter.

In terms of profitability, while we expect to remain profitable in the first quarter, we do expect to see a decline in net profit in the corporate margin as compared to the first quarter of 2019, mainly as a result of a higher fixed cost base due to the overall growth of our business, as well as shift in margin profiles of certain of our products.

In more detail, as a result of more aggressive promotional campaigns to mitigate the impact of adverse industry conditions together with channel destocking initiatives during the period given the lower than expected consumer demand both at least in part — in large part due to the COVID-19 situation, we expect to experience a decline in the ASP. gross profit margins and revenue contribution from water purifier products in the first quarter of 2020 as compared to the first quarter, as well as the fourth quarter of 2019.

Nevertheless, we expect our overall company gross margin in the first quarter of 2020 to be relatively similar to that of the fourth quarter of 2019 with positive sequential shifts in product mix and other product margin profiles, largely offsetting the impact of the decline in water purifier margins. We also have a number of initiatives under way with regards to our water purifier business including various cost control measures, together with the launch of new higher capacity products, as well as next generation products with higher ASP and margins are to mitigate the above mentioned impact.

This outlook — the outlook above factors the current market conditions and reflects the company’s current and preliminary estimates of market and operating conditions and cost of demand, which are all subject to change.

So that concludes our prepared remarks. We will now open the call for Q&A. Operator, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Lillian Lou of Morgan Stanley. Please go ahead.

Lillian LouMorgan Stanley — Analyst

[Foreign Speech]

I have two questions. First is about the COVID-19’s impact. Any run rate update in terms of how things improve from February, January and now March, how it progressed and the impact by channel, by product categories? And the second question is about the gross — the margin trend in fourth quarter. What exactly caused the decline from the promotion from product mix? Can you give a bit more details? Thank you.

Shun JiangChief Financial Officer

Yeah. Thanks, Lillian. Let me address your questions. So in terms of the COVID-19 impact, as we discussed, right, you would have seen in a lot of the industry data, the home appliances industry has been quite materially affected by the current situation with offline channels being particularly hard hit. So especially in February, many products in the offline channel were seeing 70%, 80% even 90% declines in offline channels with smaller declines, but still challenging conditions in offline channels — in online channels. I think that the trend has definitely been improving heading into March, especially in the last week or so. We’ve actually seen a good uptick, particularly in the online channels, both from an industry perspective, as well as from our own perspective.

So I think in summary, in terms of the channel performance, in early January, performance was actually quite strong as you would have seen in our fourth quarter results. The momentum was very strong. And then the effects of both the early Chinese New Year, as well as obviously the COVID-19 situation toward the latter half of January resulted in quite steep declines for around a month or so. As we mentioned on the call, in terms of the supply chain, this started gradually ramping up toward the second half of February and is essentially close to full capacity now. Similarly with logistics, quite a lot of challenges in February, but is essentially back, nearly back to normal now.

On the demand side, as mentioned in terms of sales channels, offline is still continuing to be challenged as compared to last year with shifts in consumer purchasing behaviors, as well as the obvious restrictions on movement over the past couple of months. But similarly, as the stores begin to open and consumers are going back into shopping malls and retail stores, we have seen a good uptrend as compared to February, but still challenging offline conditions heading into March, over the past several weeks in March for offline.

Now in terms of our outlook, I think it’s still too early to see when we would expect a complete rebound. As Mr. Chen mentioned, consumer sentiment is likely still to continue to be challenged. What happens in the overseas market still remains to be seen and how that impacts the domestic economy, as well as the consumer wallet, right? But I think the trend is positive. We’re all hopeful and on a good recovery in the second quarter, especially heading into the mid-year, 618 shopping season, online shopping festivals. But I would say cautiously optimistic in terms of the magnitude of the rebound.

Now in terms of the question on margin, year-on-year margin from the fourth quarter compared to the — as compared to the previous year. I think the main reason, the main cause of the year-on-year decline in gross margins was mainly as a result of the growth of our business together with results in shift in business mix side. I think this has been a prevalent trend across quarters in 2019 where in 2018 the higher margin water purifier product represented an outsized proportion of our overall business. And through the growth of our overall business, including the various Viomi-branded products business over the course of 2019, the water purifier business, while still growing, has represented a lower proportion of overall sales, which has resulted in a lower gross margin. I think that is the main driver of the margin trend in the fourth quarter of 2019.

Lillian LouMorgan Stanley — Analyst

Thank you.

Operator

The next question comes from Xudong Chen of CICC. Please go ahead.

Xudong ChenCICC — Analyst

[Foreign Speech]

Thank you for taking my question. I have two questions. The first one is, since the impact of coronavirus, did you see the slowdown for IoT penetration since this year the coronavirus suppressed that demand for the new technology innovations and every company they just pay attention to their cash flows and to their business not instead of the new technology innovations? That’s the first one. And second one is, as you mentioned, the water purifier ASP and the gross margin may have some pressure in Q1 2020. Could you give me some outlook for the water purifier for Q2 to Q4? And what’s the strategy for the company for this year and for 2021? Thank you.

Shun JiangChief Financial Officer

Okay. Thanks, Xudong. Let me take your questions as well. So in terms of IoT penetration, so as you saw in our fourth quarter results, we had very strong momentum heading into 2020, right, both in terms of financial, as well as operating statistics. The concentration has obviously resulted in a slowdown or declining retail sales of various consumer goods including home appliances, but we do see an uptrend toward penetration for IoT products to continue to increase going forward, perhaps even more rapidly as consumers place quite emphasis on their home environment, right? We have a significant demand for content-rich online offerings.

We do feel that these trends will present significant opportunities for us to define Viomi as a leading brand in the IoT @ Home space as we continue to rollout our installed base and enrich our product and content offerings to consumers, and particularly going into this next generation of 5G and Wi-Fi 6 connectivity. We see a lot of opportunities, not just for us, but the overall kind of IoT industry as a whole. I’d say a short-term slowdown, but the overall trend we see as still being very attractive for IoT.

On your second question with regards to the water purifier and outlook for this year. So I think I’ll say this, as you can appreciate, there is a lot of uncertainty in the industry about economic outlook both domestically in China in light of recent events. So there is currently very low visibility in terms of full year financial projections. Assuming continued stabilization and recovery in the current coming months, we do expect to achieve or reachieve healthy levels of top-line growth for the full year above industry levels. As we continue to monitor and gather additional clarity on the situation, we’ll of course provide further quantitative updates to the market and overall guidance.

In terms of the water purifier, so as mentioned, as a result of the quite aggressive promotional campaigns, as well as channel destocking initiatives during the first quarter similarly in large part due to the COVID-19 situation, we do expect the decline in ASP and margins from water purifiers for the first quarter as compared to last year. So it’s probably not appropriate to comment on the current margins of water purifiers in the first quarter due to competitive reasons. But I think you can gather some guidance from special — from this special promotional activities that you may have seen over the past several months, right? Just from public information where popular SKUs across the industry were discounted by as much as say 20% to 30% or even more in terms of retail price as compared — even as compared to the 11.11 promotional period.

So our water purifier ASP and the large portion of this is of course to be business is around, say 10% to 15% lower as compared to the fourth quarter of 2019 and the first quarter of 2020. So as mentioned as well, we do expect our overall company gross margin for the first quarter of 2020 to be relatively similar to that of the fourth quarter of 2019 with sequential shifts in product mix and other products margin profiles, as well as an overall premiumization trend largely offsetting the impact of the decline in water purifier margins.

So we do have a number of other initiatives under way with regards to our water purifier business to mitigate the ASP decline and margin impact; including one, renegotiating supply prices with many of our OEM partners, which is already under way and has yielded meaningful results already. Introducing larger capacity, higher ASP margin, Xiaomi-branded products to the market, which there has been a general industry trend toward in any event. So we will have several new SKUs to be launched over the course of this year as well of larger capacity water purifiers. And the introduction of next generation high-tech water purifiers with our Viomi brand to the market over the course of the year in the specifications, we look forward to announcing over the coming months as well. And we also expect price competition to ease in the coming months as the industry — or if the industry and economic impacts COVID-19 continue to offer — to continue to moderate.

Xudong ChenCICC — Analyst

Okay. Very clear. Thanks.

Operator

The next question comes from Robert Cowell of 86Research. Please go ahead.

Robert Cowell86Research — Analyst

Hi, management. Thanks for taking my questions. I actually have a couple here. The first one is about your product launch schedule this year. I remember last year the Appliance World Expo event in 1Q was a pretty major launch event for you guys. So I’m wondering with that event canceled this year, what does that — what impact does that have on the product launch schedule? And then I’ll have a follow-up as well.

Shun JiangChief Financial Officer

Okay. Thanks, Robert. So that one — I would say our launch schedule has not be materially affected by the current situation. Obviously we have to a adapt in terms of tailoring our launch events, as you mentioned the AWE expo in Shanghai, as well as the Guangdong Trade Expo both being canceled or postponed this year. But we will — but we still plan to conduct our own product launch events at a suitable time and have respective ceremonies over the course of the year, perhaps through online and/or offline measures to launch our products.

Robert Cowell86Research — Analyst

Okay. Thank you. The next one is about the — I guess framework agreement with Shunde in Guangdong Province. I’m wondering previously we had mostly outsourced production model, I’m wondering if this is signaling a shift toward more in-house production? And then also, what type of capex requirement should we be looking at for this facility in 2020 and then out years as well?

Shun JiangChief Financial Officer

Yeah, thanks. So the Shunde IoT Technology Park is very much part of our long-term view as to being able to supply — secure our supply chain resources, right? So while we have been very successful today to running an asset-light business model which has allowed us to scale up very quickly. I think as we get to a certain scale being able to have a meaningful control over the supply chain in terms of sourcing, as well as quality control, as well as cost control is going to be very important to us, right? And apart from manufacturing or production, the headquarter is expected to be multi-functional.

So as we mentioned, it’s going to be a two phase buildup with the first phase mainly expected to comprise our headquarters, our product experience same time R&D center, smart manufacturing center, as well as the centralized sales and services functions, right? So we’re much acting as a centralized point to continue to grow our operations. But I think the long-term view is that at least in some critical components or some core — in terms of core products, we would like to have a degree of control over the supply chain for such products.

Now in terms of — in terms of capex, I think over the next say three years, we should expect say, RMB300 million to RMB500 million of capex, mainly in relation to the first phase. And most of this will be PP&E, so quite a long depreciation schedules.

Robert Cowell86Research — Analyst

All right. Thank you very much.

Operator

The next question comes from Vincent Yu of Needham & Company. Please go ahead.

Vincent YuNeedham & Company — Analyst

Hi, management. Congrats on good quarter. So I have two questions. One question is about the vacuum cleaner, I do see we have launched a few vacuum cleaners regardless it’s branded as Xiaomi or as Viomi. So what do you see — expect to see on this category in 2020? And my second question is on the promotion sites. Are we going to see major promotions in second quarter or later this year just to catch the like a rebounding demand? Thanks.

[Foreign Speech]

Xiaoping ChenFounder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Shun JiangChief Financial Officer

Sure. Thanks, Vincent. So in terms of your first question on vacuum cleaners or in terms of the sweeper robot, as well as the portable vacuum. So we have two categories here. One is the Xiaomi-branded robotic sweeper robot. So as you may have seen, this product has been very appealing to consumers in China, which we see very large potential in this business and actually the performance of this particular product have exceeded our expectations and contributed meaningfully to our revenue contribution in the fourth quarter of 2019, as well as going into 2020. So this has been a very successful product launch by us or the Xiaomi and we look forward to further cooperation on this side.

On the Viomi side of the business, obviously the portable vacuum that we recently launched, as well as our own-branded robotic vacuum cleaners, we do see a lot of upside in terms of market upside potential in terms of household penetration for this product, right? We see a lot of — we see really the market really just getting started. And we really see this as a very important part of our kind of IoT product portfolio both in terms of being able to connect to other devices, as well as being able to engage with the consumers across the entire household as an important part of our IoT @ Home infrastructure. So I think to answer the vacuum, how it fits into our overall strategy, we do see it as an essential part of our IoT @ Home platform, even as much so as, say, some of our larger appliances going forward.

On your second question about strategies or and promotional activities for the rest of 2020. So I think we will continue to invest in the development of our products and improve our competitive advantage. I think that that’s very important. And I think another important is in terms of consumer preference and our target market, right? So we have seen consumers, especially in their 20s and 30s are more likely to try new products, in particular high-tech products with modern design. So I think it’s very important to develop our products and we have designed and developed our products with smart IoT functions to cater to these young people’s needs, which have effectively helped us to attract more younger customers.

I think the other part is through diversification and creativity at our marketing channels. So in terms of marketing, we continue to showcase our products to cooperation online including with number of KOLs on online platforms like Xiaohongshu, Little Red Book, etc, inviting these KOLs to test and demonstrate our products, as well as interact with its fans and users on the platforms, as well as other social media campaigns, as well as online advertising content on Amazon, on WeChat, as well as these online shopping platforms, right?

Xiaoping ChenFounder, Chairman of the Board of Directors and Chief Executive Officer

So I think in addition, we also utilize a lot of offline marketing tools as well including offline advertising, as well as our offline experience store network. Again, for a new brand, especially for the IoT products is very important to get it in front of consumers, be visible to consumers to be able to create some level of awareness, as well as our confidence in your brand, right, something that they can touch and feel, as well as test out is very important, especially in the nascent or beginning phases of IoT penetration in the country. So I think a mix of both online as well as offline marketing channels has been quite essential to the growth of our business.

I think in addition to the relative speed of our successful growth, including our quite consistent and numerous new product launches and together with a differentiated nature of our brand and value proposition, we think has also provided us with additional traditional, as well as social media coverage, which has got an additional interest from both sales platforms as well as channels, which is quite important in getting your products to consumers, right, as well as of course to be and to see our customer base.

Vincent YuNeedham & Company — Analyst

Got it. Okay. Thank you.

Shun JiangChief Financial Officer

Thank you.

Operator

[Operator Instructions] As there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Cecilia LiInvestor Relations Representative

Thank you once again for joining us today. If you have further questions, please feel free to contact Viomi’s Investor Relations department through the contact information provided on our website or The Piacente Group, the company’s Investor Relations consultant. Thank you, all. Have a good one.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Cecilia LiInvestor Relations Representative

Xiaoping ChenFounder, Chairman of the Board of Directors and Chief Executive Officer

Shun JiangChief Financial Officer

Lillian LouMorgan Stanley — Analyst

Xudong ChenCICC — Analyst

Robert Cowell86Research — Analyst

Vincent YuNeedham & Company — Analyst

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