Smartwatch Momentum Continues with New Launches and Tariff Mitigation Strategies

⭐️ FRC's Top Pick ⭐️

• Q1 shipments of self-branded products rose 25% YoY, and revenue grew 10% — both in line with our estimates. However, EPS fell from -$0.06 to -$0.08, 9% below our forecast, primarily driven by higher marketing spend.
• In Q1, Zepp maintained its position as the seventh-largest global smartwatch maker by unit sales, trailing Apple (NASDAQ: AAPL), Samsung (KOSE: A005930), Garmin (NYSE: GRMN), Fitbit (Google/NASDAQ: GOOGL), Xiaomi (SEHK: 1810), and Huawei. For comparison, Apple sells ∼25M units annually, while Zepp sells ∼2-3M units.
• Global smartwatch shipments remained relatively flat YoY in Q1 2025. While Apple’s shipments declined 2%, other key players posted modest gains, with Zepp’s 10% growth standing out as one of the strongest. Consensus estimates forecast 2% growth in 2025,   following a slight decline in 2024, fueled by more upgrades, rising health awareness, AI integration, and increased wearables popularity.  
• Zepp’s Q1 revenue growth was primarily driven by the launch of the Amazfit Active 2, targeting fashion-conscious, health-oriented consumers. In March 2025, Zepp launched the Bip 6, a lightweight smartwatch with enhanced health monitoring features. We note that both products have garnered positive reviews as affordable alternatives to premium brands like Apple, Samsung, and Garmin. The company plans to release multiple product upgrades this year, which should drive organic growth. Management anticipates a 20–35% YoY increase in revenue in Q2.

• The tariffs introduced by Trump had little impact on Zepp’s Q1 results. North America represents 15% of Zepp’s shipments, with most U.S. exports manufactured in Vietnam.  In April, Trump announced a universal 10% baseline tariff on all imports to the U.S., along with a planned 46% tariff on Vietnamese imports effective July 2025. However, we believe the recent trade deal with the U.K., and the temporary agreement with China, indicate that Trump is likely to reverse or soften most of these new measures, given their potential negative impact on U.S. consumers and businesses.  
• To mitigate the impact of higher tariffs,  Zepp is planning to front-run shipments to the U.S. in the coming weeks ahead of the potential tariff hike in July. 
• Smartwatch makers have yet to announce any tariff-related price increases, but we believe they are likely to pass on incremental costs to consumers. Zepp estimates a $2–$3M increase in costs this year due to the universal 10% tariff on all imports to the U.S. We believe this is a reasonable estimate.
• At the end of Q1, working capital, and investments, net of long-term debt, totalled $179M vs Zepp’s MCAP of $38M, implying that the shares are trading well below liquid assets.

 

Key Financial Data (US$, 000s; except EPS)	2024	2025E	2026E
YE: Dec 31st
Cash	110,735	59,971	43,895
Working Capital	$56,197	$100,141	$85,670
Total Assets	$528,593.00	$488,456.00	$483,065.00
LT-Debt	$75,241.00	$153,372.00	$153,372.00
Revenue	$182,603.00	$211,804.00	$239,832.00
Gross Profit	$70,234	$82,603	$98,331
Net Income	-$75,733	-$36,681	-$17,212
EPS	-0.29	-0.14	-0.07

 

Price Performance (1-year)

 

	YTD	12M
ZEPP	-4%	-26%
NYSE	5%	9%

 

Unit Sales & Other Key Metrics

Q1 shipments of self-branded products were up 25% YoY, aligning with our estimate

Source: FRC / Company

In line with industry standards, Zepp retains 70% of the retail price of its products as revenue, while retailers and distributors keep the remaining 30%.

Zepp does not disclose segmented results:

 

• Smart wristbands, and watches, constitute 90%+ of revenue. 
• Self-Branded Products - Europe & the Middle East account for 50% of sales, followed by North America (25%), China (10%), and the rest of the world (15%) 
• Xiaomi (SEHK: 1810) Products – In addition to self-branded products, Zepp manufactures wearables for Xiaomi. Zepp's dependence on Xiaomi has been waning, as evidenced by the declining share of total revenue contributed by Xiaomi. Xiaomi owns 20% of Zepp’s outstanding shares. China accounts for 70% of sales in this segment.

 

Revenue from these products increased 10% YoY, also consistent with our estimate. The company did not manufacture any products for Xiaomi in the quarter; as a result, overall revenue declined 4% YoY, missing our estimate by 2%

 

 

Gross margins held steady at 37%, missing our estimate by 1 pp,  but remain well above the Consumer Electronics sector average of 25%. Zepp spent 17% of revenue on sales/marketing, while Apple and other majors typically spend <5%

Operating expenses were up 7% YoY, and were 5% higher than our estimate, primarily due to increased marketing expenses. As a result of lower revenue, EPS declined from   -$0.06 to -$0.08,  9% below our estimate

Working capital, and investments, net of long-term debt was $179M vs the current MCAP of just $38M, implying that ZEPP is trading well below liquid assets 

 

FRC Projections and Valuation 

According to Research and Markets, the global smart wearables market should grow from $109B in 2023, to $304B by 2029, reflecting a CAGR of 19%.

Zepp’s products accounted for 2.8% of global smartwatch shipments in 2024. It is estimated that global smartwatch shipments will increase 2% in 2025 

Historically, Zepp's revenue growth rate has averaged 1.4x the global growth rate. As Q1 operating expenses were higher than expected, we are lowering our 2025 and 2026 EPS estimates

As a result, our DCF valuation decreased from $11.50 to $10.11/share

 

Comparables Valuation

ZEPP remains the most undervalued stock on our list of comparables, trading at 0.04x forward revenue vs the sector average of 2.12x (previously 2.27x) 

Applying 2.12x to our 2025 revenue forecast for Zepp, we arrived at a comparables valuation of $14.52/share (previously $16.22/share

 

We are reiterating our BUY rating, and adjusting our fair value estimate from $13.87 to $12.32/share (the average of our DCF and comparables valuations). Despite a modest EPS miss due to higher marketing spend, Zepp delivered solid revenue growth and maintained its position among the top global smartwatch makers. Tariff-related risks remain, but upcoming product launches and a diversified manufacturing footprint should help Zepp sustain organic growth, and limit downside exposure.

 

Risks

We are maintaining our risk rating of 3 (Average)

We believe the company is exposed to the following key risks (not exhaustive):

• Competition and innovation
• Supply chain 
• Reliance on third-party manufacturers
• Tariffs
• Officers, directors, and principal shareholders hold 95% of total voting power
• Operates in a marketing intensive industry

 

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