Executive Summary / Key Takeaways

• Strategic Purification Complete: Viomi's August 2024 divestiture of underperforming IoT businesses for RMB65 million transformed the company into a pure-play water solutions provider, driving a 39% surge in core Home Water Systems revenue and restoring profitability after two years of losses.

• Consumables Model Under Pressure: While the "Equipment + Consumables" strategy promises recurring revenue, filter sales to Xiaomi (XIACY) declined 14.5% in 2024, highlighting the risk of partner dependency even as Viomi-branded filters show growth.

• AI Differentiation vs. Scale Deficit: With nearly 1,800 global patent applications and proprietary mineralization technology, Viomi leads in water purification innovation, but remains a fraction the size of competitors like Midea and Haier , limiting pricing power and supplier leverage.

• International Expansion Gaining Traction: The Vortex series' Kickstarter success (1,200% overfunded) and Amazon U.S. launch demonstrate early market validation, though revenue contribution remains immaterial to the RMB2.1 billion total.

• Valuation Disconnect: Trading at 5.95x earnings and 0.26x EV/EBITDA with a net cash position, VIOT trades at a steep discount to appliance peers (13-27x P/E), reflecting skepticism about execution sustainability and VIE structural risks.

Setting the Scene: What Viomi Actually Does

Founded in May 2014 through Foshan Yunmi Electric Appliances Technology Co., Ltd. and headquartered in the Cayman Islands, Viomi Technology began as a Xiaomi ecosystem player focused on smart home IoT devices. The company went public on NASDAQ in September 2018, leveraging contractual arrangements with Variable Interest Entities (VIEs) to operate in China. For years, Viomi pursued a broad IoT@Home strategy, selling everything from robotic vacuums to air conditioners, but this diversification proved destructive. By 2023, the company reported a net loss of RMB84.7 million as underperforming segments dragged down overall efficiency.

The August 2024 strategic reorganization marked a decisive pivot. Viomi divested its non-core IoT portfolio (excluding range hoods, gas stoves, and water heaters) for RMB65 million in cash, terminating VIE arrangements with Foshan Viomi and consolidating control over Guangzhou Interconnect. This wasn't a gradual shift—it was a surgical removal of loss-making businesses that had been "dragging down our overall operating efficiency," as CEO Xiaoping Chen candidly admitted. The move concentrated resources on water purification, where Viomi possesses genuine competitive advantages.

Today, Viomi operates three segments: Home Water Systems (71% of 2024 revenue), Consumables (13%), and Kitchen Appliances (16%). The business model relies on an "Equipment + Consumables" flywheel: sell AI-enabled water purifiers, then capture recurring revenue from replacement filters. This structure positions Viomi in a Chinese water purification market with low household penetration—Chen estimates most consumers avoid filters due to confusion about replacement timing and costs, creating an addressable market of millions of households.

Technology, Products, and Strategic Differentiation

Viomi's moat centers on its Water Purifier Gigafactory in Guangdong, a 5-million-unit annual capacity facility that integrates R&D, manufacturing, and quality control. This vertical integration is significant as it enables rapid iteration of proprietary technologies like tankless large-flux systems (up to 2,000 gallons), ERO electrodialysis , and AI-powered mineralization filters. The Kunlun Mineral AI Water Purifier, launched in March 2024, exemplifies this edge: its algorithm optimizes purification while sustaining mineral release, producing water that "almost identical to natural mineral water," according to management.

Why does this technical differentiation matter? It transforms a commoditized appliance into a premium health product. During the 2024 Double 11 Shopping Festival , Viomi's AI water purifiers ranked fourth on Douyin, fifth on Pinduoduo (PDD), and ninth on Tmall—demonstrating brand recognition in a crowded field. More importantly, the technology enables filter lifespans of 4-6 years, reducing annual maintenance costs to approximately RMB230 for typical families. This directly addresses the primary consumer objection to water purifiers, potentially expanding the installed base that drives future consumables revenue.

The North American Vortex series reveals another strategic dimension. Designed for self-installation in under 20 minutes with a tankless design and 4-year filter life, the product exceeded its Kickstarter funding goal by 1,200% on its first day. This validates Viomi's ability to adapt its technology to Western consumers who value DIY convenience over integrated ecosystems. The subsequent Amazon (AMZN) launch in December 2024 and CES 2025 appearance position Viomi as an innovation leader, though U.S. sales remain nascent.

R&D investment supports this trajectory. With 162 R&D staff (31% of total employees) and nearly 1,800 global patent applications, Viomi's innovation pace outstrips its scale. The company operates two major laboratory systems for advanced research and compliance testing, enabling rapid adaptation to diverse market requirements. This investment is defensive as much as offensive: Midea, Haier, and Gree collectively hold tens of thousands of patents and can outspend Viomi on development, making continuous innovation essential for survival.

Financial Performance: Evidence of Strategic Viability

The 2024 financial results provide the first concrete evidence that the water-focused strategy works. Net revenues reached RMB2.119 billion, up 29.3% year-over-year, while operating income hit RMB156.3 million—both exceeding management's guidance of RMB1.7-1.9 billion revenue and RMB110-130 million operating income. Net income attributable to ordinary shareholders was RMB63.4 million, reversing the RMB84.7 million loss from 2023.

The growth in this segment demonstrates both market demand and Viomi's ability to capture it. The company served nearly 5.9 million household users by mid-2024, up from a smaller base in prior years, indicating successful customer acquisition. However, the segment's gross margin remains under pressure, with overall company gross margin falling to 25.9% in 2024 from 31.9% in 2023. Management attributes this to product mix shifts during the transition, but it also reflects competitive pricing pressure from larger rivals.

Consumables revenue declined 14.5% to RMB277.7 million, primarily due to decreased filter sales to Xiaomi. This exposes the fragility of the recurring revenue model when dependent on a single partner. While Viomi-branded filters showed increased demand, the Xiaomi decline overwhelmed these gains. Management claims consumables should contribute about 30% of revenue long-term, but 2024's 13% contribution shows the gap between aspiration and reality. The risk is that if Xiaomi further reduces orders or develops its own filter supply chain, Viomi's high-margin consumables stream could deteriorate further.

Kitchen Appliances and Others grew 45.2% to RMB342.9 million, driven by increased sales to Xiaomi. This segment's volatility highlights the partnership's double-edged nature: it provides revenue scale but offers little strategic differentiation, as Xiaomi can shift orders to other OEMs. The segment's 16% revenue contribution is material enough to impact overall results but lacks the margin profile or moat of water systems.

Operating expense control validated the restructuring. R&D expenses fell 4% to RMB142.9 million, not from reduced innovation but from streamlined operations. Selling and marketing expenses declined 1.6% to RMB211.2 million, reflecting improved e-commerce efficiency. General and administrative expenses rose 23.5% to RMB70.8 million due to higher management personnel costs, a necessary investment in post-reorganization leadership. The net result: operating margin improved to 7.4% from negative territory in 2023.

Balance sheet strength provides strategic optionality. With RMB1.026 billion in cash and cash equivalents, RMB141.3 million in restricted cash, and only modest debt (debt-to-equity ratio of 0.09), Viomi can fund expansion without diluting shareholders. Net cash from operating activities reached RMB581 million in 2024, with RMB410 million from working capital improvements. This liquidity enables the company to invest in international marketing, R&D, and potential acquisitions without relying on external financing—a critical advantage given the VIE structure's inherent financing constraints.

Outlook, Guidance, and Execution Risk

Management's guidance for 2025 is both confident and cautious. The company expects the divestiture to "materially affect" financial condition, rendering historical results "not indicative of future performance." This disclaimer signals that 2024's strong growth may not be immediately repeatable. The strategic reorganization created a "slight reduction in business scale" but "enhanced profitability," suggesting management prioritizes margin over growth.

The four strategic initiatives for 2025 reveal priorities: strengthen domestic market penetration through trade-in policies and AI innovation; expand internationally in North America and Southeast Asia with localized products (e.g., ice-making, instant cooling); fortify the water purification portfolio through R&D; and deepen partnerships to leverage the Gigafactory's scale. The Malaysia partnership with a leading home appliance retailer, forged in March 2025, exemplifies the Southeast Asia push. The renewed three-year Xiaomi agreement provides channel stability, though it also perpetuates dependency.

Gross margin improvement is a key variable. Management expects better product mix from the Kunlun series to drive margins toward industry averages. During the Q4 2024 call, Chen stated, "we have obtained the average gross margin for the industry, the water purifier and we believe this gross margin will become better this year." Margin expansion is essential to justify the valuation premium over traditional appliance makers. If Viomi can achieve 30%+ gross margins while growing 20-30% annually, the investment case strengthens dramatically.

International execution risk remains high. The Vortex series' Kickstarter success is encouraging, but translating crowdfunding momentum into sustainable Amazon sales requires marketing investment, customer support infrastructure, and brand building—areas where Viomi lacks experience. The U.S. water purifier market is mature and dominated by established brands with deep retail relationships. Viomi's self-install value proposition may resonate with tech-savvy consumers but could struggle with mainstream adoption.

Risks and Asymmetries: What Could Break the Thesis

VIE Structural Risk: Viomi's reliance on contractual arrangements with VIEs rather than direct ownership creates legal uncertainty. If PRC authorities challenge these structures or if VIE shareholders breach agreements, Viomi could lose control of its operating entities. This represents a binary risk—low probability but catastrophic impact—that justifies a valuation discount relative to directly-owned competitors.

Xiaomi Dependency: Xiaomi is simultaneously Viomi's strategic partner, largest customer, and competitor. In 2024, increased sales of kitchen appliances to Xiaomi drove segment growth, but decreased filter sales hurt consumables. If Xiaomi develops in-house water purification capabilities or shifts to lower-cost OEMs, Viomi's revenue could collapse. This concentration risk is material: Xiaomi-branded products represent a significant portion of water systems revenue, and the contractual relationship is subject to renewal and pricing pressure.

Competitive Scale Disadvantage: Midea (MIDEA), Haier (HREOY), and Gree each generate hundreds of billions of RMB in annual revenue, with gross margins of 26-29% and ROE of 18-24%. Their scale enables supplier leverage, R&D budgets, and distribution reach that Viomi cannot match. If these giants prioritize water purification—Midea already holds a leading smart home position—Viomi's market share could erode quickly. The risk is particularly acute in price wars, where larger players can absorb losses to gain share.

Execution Risk in International Markets: The Vortex series' early success may not scale. Kickstarter backers are early adopters, not representative of mass-market consumers. If Amazon sales disappoint or if Viomi fails to build brand recognition in the U.S., the international growth narrative weakens. Domestic market saturation and Xiaomi dependency make international expansion critical for long-term growth.

Consumables Revenue Decline: The 14.5% drop in filter sales to Xiaomi, if not offset by Viomi-branded growth, undermines the recurring revenue model. If this trend continues, the company's valuation multiple should compress toward traditional appliance makers rather than subscription-based businesses. Management's commentary suggests this is temporary, but the data shows two consecutive years of decline.

Valuation Context: Pricing a Turnaround

At $2.31 per share, Viomi trades at a market capitalization of $158.5 million and an enterprise value of just $8.3 million (net of cash). The P/E ratio of 5.95x trailing earnings is a fraction of appliance peers: Midea trades at 13.63x, Haier at 11.75x, Gree at 7.12x, and Xiaomi at 26.70x. This discount suggests the market either doubts earnings sustainability or applies a structural discount for VIE risk.

The EV/EBITDA multiple of 0.26x is exceptionally low, reflecting both the cash-rich balance sheet and skepticism about core operations. For context, Midea's EV/EBITDA is 86.65x, Haier's 63.15x, and Gree's 44.64x. Viomi's multiple implies the market values the operating business at essentially zero, treating it as a cash shell. This creates potential upside if the water purification strategy proves durable.

Balance sheet strength supports the valuation. With a current ratio of 1.96x, quick ratio of 1.55x, and debt-to-equity of just 0.09x, Viomi has no liquidity concerns. The company generated RMB581 million in operating cash flow in 2024, with free cash flow of approximately RMB572 million after minimal capex of RMB8.9 million. This cash generation funds growth without dilution and provides a floor for the stock price.

However, the low valuation also reflects quality concerns. Gross margin of 24.66% trails Midea (26.11%), Haier (27.51%), and Gree (28.85%), while ROE of 13.08% lags behind peers' 18-24%. The 6.44% profit margin is respectable but not exceptional. Until Viomi demonstrates consistent margin expansion and reduced Xiaomi dependency, the valuation discount is likely to persist.

Conclusion: A Focused Bet on Water Purification

Viomi Technology has executed a remarkable strategic pivot, shedding a bloated IoT portfolio to focus on water purification where it holds genuine technological advantages. The 2024 results provide compelling evidence: 39% growth in core water systems, restored profitability, and a fortress balance sheet with over RMB1 billion in cash. The "Equipment + Consumables" model, if executed, offers recurring revenue potential that traditional appliance makers lack.

Yet the investment case remains fragile. The VIE structure creates legal overhang, Xiaomi dependency threatens revenue stability, and competitive giants loom with vastly superior scale. International expansion shows promise but is too small to offset domestic concentration risks. The consumables revenue decline, while partially offset by Viomi-branded growth, undermines the recurring revenue narrative.

The key variables that will decide this thesis are: (1) whether Viomi can diversify away from Xiaomi while maintaining growth, and (2) whether international expansion can scale from Kickstarter success to material revenue. If both succeed, the current valuation discount offers substantial upside. If either falters, Viomi risks becoming a permanent small-scale niche player—or worse, a takeover target at a depressed price. For now, the water purification focus has purified the business model; whether it can purify the stock price depends on execution in 2025.