Strong Q3: New Models Taking on Apple & Samsung

• Zepp’s Q3 revenue surged 78% YoY to $76M, at the top end of management’s $72–76M guidance, and 9% above our estimate. EPS improved 88% YoY, from ($0.05) to ($0.01), beating our estimate by 7%. The company nearly achieved positive EBITDA in Q3, and we expect Q4 EBITDA to turn positive.
• Global smartwatch shipments are projected to grow 6% in 2025 (consensus), supported by product upgrades, rising health awareness, AI integration, and broader wearables adoption.
• While Apple (NASDAQ: AAPL), Garmin (NYSE: GRMN), and Fitbit/Google (NASDAQ: GOOGL) have faced modest declines this year due to longer replacement cycles and market saturation in developed markets, Samsung (KOSE: 005930), Xiaomi (SEHK: 1810), Huawei, and Zepp are seeing strong growth, driven by affordable models, emerging market expansion, and robust feature adoption.

• Zepp’s revenue growth was driven by strong demand for its T-Rex 3 Pro (launched in Q3), Amazfit Balance 2 and Helio Strap (both Q2), and Bip 6, Active 2, and T-Rex 3 (all Q1).
• The T-Rex 3 Pro, a rugged smartwatch for endurance athletes, is priced at US$399 with offline mapping, 180+ sport modes, and up to 25 days battery life, offering a lower-cost alternative to Garmin’s Fenix line. We note that reviews praise its durability and functionality. The launch marks Zepp’s entry into the premium segment, targeting market share from Apple, Samsung, Garmin, and Google/Fitbit.
• Zepp continues to spend heavily on marketing (16% of Q3 revenue vs. 5–10% for larger players). While this pressures near-term profits, we believe it is prudent for smaller players to invest in marketing to boost exposure, particularly through initiatives like celebrity partnerships, as Zepp is doing. In Q3, Zepp expanded its brand ambassador program, adding several elite trail runners and marathoners.
• At the end of Q3, working capital and investments, net of long-term debt, totaled $177M, or $12/share. Management’s Q4 revenue guidance is $82–86M, up 40% YoY. Turning EBITDA positive, which we anticipate in Q4, will be a key milestone. ZEPP remains undervalued, trading at 1.71x forward revenue, well below the sector average of 4.31x.

Price and Volume (1-year)

* Zepp Health has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions. All figures in US$ unless otherwise specified.

Unit Sales & Other Key Metrics

Zepp ranks seventh in global smartwatch sales, behind Apple, Samsung, Garmin, Fitbit/Google, Xiaomi, and Huawei. For perspective, Apple ships ~25M units annually; Zepp ships ~2–3M

Q3 self-branded product shipments rose 60% YoY, exceeding our estimate by 7%

Revenue jumped 78% YoY, surpassing our estimate by 9%, driven by stronger sales, and a 56% YoY increase in average selling price

• 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 (15-20%), China (10%), and the rest of the world (15-30%) 

•Xiaomi (SEHK: 1810) Products – Starting Q1-2025, the company ceased manufacturing products for Xiaomi. Xiaomi owns 20% of Zepp’s outstanding shares

Gross margins fell 2 pp YoY, weighed down by lower-margin entry-level products like the Amazfit Bip 6 and Active 2, missing our estimate by 0.7 pp, and below the 44% average for leading wearables

With the higher-priced T-Rex Pro launch, we believe margins should improve in Q4

Zepp spent 16% of revenue on sales/marketing, while other majors typically spend 5-10%

Operating expenses were flat YoY, yet 3% above our estimate

Working capital, and investments, net of long-term debt was $177M, or $12/share

Source: Company / FRC

FRC Projections and Valuation 

According to Grandview Research, the global smart wearables market should grow from $84B in 2024, to $186B by 2030, reflecting a CAGR of 13%.

Wearable Devices by Shipment Volume (Millions)

Zepp’s products accounted for 2.3% of global smartwatch shipments in 2024

It is estimated that global smartwatch shipments will increase 6% in 2025 

Source: FRC / IDC / Statista

Strong Q3 and upbeat Q4 guidance led us to raise our revenue and EPS forecasts

Source: FRC

As a result, our DCF valuation increased from $46.59 to $47.04/share

Comparables Valuation

Source: FRC / S&P Capital IQ

ZEPP remains undervalued, trading at 1.71x forward revenue (previously 2.11x), well below the sector average of 4.31x (previously 4.18x)

Applying 4.31x to our 2025 revenue forecast for Zepp, we arrived at a comparables valuation of $81.71/share (previously $73.87/share)

We are reiterating our BUY rating, and adjusting our fair value estimate from $60.23 to $64.37/share (the average of our DCF and comparables valuations). Zepp delivered a strong Q3, driven by new product launches, with EPS and revenue surpassing estimates. The company is strategically investing in marketing and premium product launches, positioning itself to capture market share from Apple, Samsung, Garmin, and Google/Fitbit, while we expect Q4 EBITDA to turn positive.

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

We are maintaining our risk rating of 3 (Average)

APPENDIX