Revenue Soars, Institutional Support Fuels Rally

• Zepp’s Q2 revenue blew past expectations, rising 60% YoY to $59M, well above management’s $50–55M guidance, and 17% ahead of our estimate. Net losses narrowed 29%, beating our estimate by 13%.
• ZEPP is up 1,544% in the past two months, hitting a four-year high. The rally comes as no surprise. In our prior reports, we had flagged that Zepp was trading below its liquid asset value, with the market largely ignoring its underlying potential. We attribute the stock spike to four main factors:

a) Strong Amazon Prime Day Performance (NASDAQ: AMZN): Zepp recorded its best-ever Prime Day in July 2025. In the U.S., Amazfit was ranked the second most improved wearables brand YoY, while sales in EMEA rose 60% YoY.

b) Institutional Support Boosts Confidence: Point72 Asset Management, led by billionaire Steve Cohen, disclosed a 6% stake last month. Together with Allspring Global (formerly Wells Fargo Asset Management) and FIL Ltd. (Fidelity), these three institutions now own over 24% of ZEPP, significantly increasing investor confidence.

c) Viomi Technology’s Rally Sparks Interest: Viomi Technology (NASDAQ: VIOT) announced a special dividend and surged 177% in the past two months. Both Viomi and Zepp are Chinese tech companies with strategic partnerships with Xiaomi (SEHK: 1810; up 169% YoY). Viomi’s strong performance likely renewed investor interest in Xiaomi-affiliated stocks like Zepp.

d) Positive Sector-Wide Momentum: A broader uptrend in Chinese tech stocks supports Zepp’s rally. The S&P China Select ADR Index is up 24% YTD, outperforming the S&P 500’s 9% gain.

• Industry sources report that global smartwatch shipments rose over 10% YoY in Q2, with most major players delivering solid gains. Consensus forecasts project 6% growth in 2025, and 8% in 2026, driven by product upgrades, increased health awareness, AI integration, and growing wearables adoption.
• Revenue growth was fueled by strong demand for Amazfit’s Bip 6, Active 2, and T-Rex 3—all launched in Q1—alongside the June 2025 debut of the Helio Strap fitness band, a lightweight tracker, and the Balance 2 smartwatch, noted for its sleek design. 
• Additionally, Zepp launched an AI-powered operating system that supports voice-controlled workouts, enhanced performance tracking, and integration with leading fitness platforms. We believe these innovations strengthen Zepp’s ecosystem, enhance user experience, and keep the brand competitive as AI becomes standard in wearables.
• U.S. tariffs have minimally affected Zepp. North America accounts for 15% of shipments, mostly produced in Vietnam with zero tariffs, and the rest in China subject to a 25% tariff.
• H1-2025 saw multiple product launches, with management expecting similar activity in H2,  prompting them to issue strong Q3 guidance of $72-$76M, up 75% YoY, and 25% QoQ.  
• At the end of Q2, working capital and investments, net of long-term debt, totaled $173M, or $12/share.

 

	YTD	12M
ZEPP	1292%	1232%
NYSE	9%	10%

 

Unit Sales & Other Key Metrics

 

Zepp is 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

• 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 – Starting Q1-2025, the company ceased manufacturing any products for Xiaomi. Xiaomi owns 20% of Zepp’s outstanding shares

Zepp’s Q2 shipments of self-branded products were up 11% YoY, aligning with our estimate

Revenue from these products increased 60% YoY, beating our estimate by 17%, driven by a higher average selling price per unit, which rose 44% YoY

 

Gross margins fell 4 pp YoY, and 1 pp QoQ, due to a higher mix of lower-margin/entry-level products like the Amazfit Bip 6 and Active 2, missing our estimate by 2 pp, and trailing the 43% average for leading wearable brands; management anticipates improvement in Q3 given recent product launches

Zepp spent 20% of revenue on sales/marketing, while other majors typically spend 5-10%. Operating expenses were up 6% YoY, and 3% higher than our estimate, primarily due to higher marketing expenses

As a result of higher revenue, partially offset by lower gross margins, EPS improved from   -$0.04 to -$0.03, beating our estimate by 13%. Working capital, and investments, net of long-term debt was $173M, or $12/share

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%.

Wearable Devices by Shipment Volume (Millions)

Given recent developments, including rising institutional interest and the transition from micro- to small-cap status, we are making two key changes to our models:

a) Lowering our discount rate from 15% to 10% (for context, large-cap tech stocks typically have a cost of capital of 6–8%).

b) Zepp retains equity in several key suppliers and partners, including a 30% stake in Jiangsu Yitong High-Tech (SZSE: 300211, MCAP: $394M). We had previously applied a 50% discount for conservatism; this is now reduced to 25%.

As a result of the above changes, our DCF valuation increased from $10.11 to $46.59/share

Comparables Valuation

Despite the share price spike, ZEPP remains undervalued, trading at 2.11x forward revenue (up from 0.04x), well below the sector average of 4.18x (previously 3.71x)

Applying 4.18x to our 2025 revenue forecast for Zepp, we arrived at a comparables valuation of $73.87/share (previously $14.52/share)

We are reiterating our BUY rating, and adjusting our fair value estimate from $12.32 to $60.23/share (the average of our DCF and comparables valuations). Zepp’s Q2 beat, strong Q3 guidance, and accelerating product momentum highlight a clear turnaround story. Despite the recent rally, we believe the stock remains undervalued relative to peers, supported by a solid balance sheet, and rising institutional ownership. We believe continued execution, AI integration, and sector tailwinds position Zepp for further upside.

Risks

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

 

APPENDIX