• Profitability Lags Growth: EPS of ($0.08) was flat YoY, and in line with our estimate, as higher operating expenses offset strong revenue growth.
  • FX Impact: An 8% YoY decline in the US$ boosted revenue and expenses in Q1. With the dollar relatively flat YoY, we expect minimal FX impact in Q2.
  • Margins Holding Up: Gross margins expanded 0.4 pp YoY to 37%, above wearable tech (36%) and consumer electronics (25%) averages. However, AI-driven demand is tightening memory chip supply, and raising component costs, creating a potential industry-wide margin headwind.
  • Product Momentum: Nine products launched in 2025; management expects a similar number in 2026 (four launched YTD). Recent launches, including Active Max (fitness enthusiasts), Active 3 Premium (health-conscious consumers), and T-Rex Ultra 2 (outdoor adventurers), contributed to Q1 growth. The company subsequently introduced the Cheetah 2 lineup for marathon runners and trail athletes. Early reviews highlight long battery life, advanced fitness features, and strong value relative to higher-priced Garmin (NYSE: GRMN) and Apple products.
  • Initial Q2 Guidance: Management's initial Q2 revenue guidance of $63–68M (+10% YoY) came in below our expectations, prompting us to lower our FY2026 revenue growth forecast to 21% YoY (from 29%) and push our positive EPS forecast to 2027 (from 2026).
  • Liquid Assets Exceed Share Price: Working capital and investments, net of long-term debt, totaled $147M ($10.25/share) at quarter-end vs the current share price of $5.29, implying the stock trades below net liquid asset value, suggesting substantial undervaluation.
  • Valuation Disconnect: While the S&P 500 Consumer Electronics Index is up 6% YTD, ZEPP shares are down 81%, a disconnect we view as unjustified by the company's fundamentals. The stock trades at just 0.14x forward revenue versus the sector average of 3.74x, a 96% discount.

Price and Volume (1-year)

  YTD 12M
ZEPP -81% -59%
NYSE 6% 15%
Index* 21% 8%

* 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 & Key Metrics

Zepp ranks seventh in global smartwatch sales
For context, Apple ships ~35M units annually; Zepp ships ~3-4M

Zepp shipments jumped 20% in Q1, in line with our estimate, while global smartwatch shipments grew only 4% YoY

  • 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 owns 20% of Zepp’s outstanding shares

Source: FRC / Company

Revenue: +34% YoY, 4% above our forecast, driven by higher shipments and selling prices (+11% YoY)

Gross Margins: +0.4 pp YoY, in line with our estimate and above wearable tech (36%), and consumer electronics (25%) averages
We believe new higher-priced product launches should support margin growth in 2026

Operating Expenses: +14% YoY, 3% above forecast, driven by FX, prepaid marketing, and sales/distribution investments; otherwise broadly flat YoY and in line with estimates
EPS: ($0.08), flat YoY and in line with our estimate, as higher OPEX offset strong revenue growth

Source: Company, FRC

Net Cash & Investments: $147M ($10.25/share) vs. share price of $5.29, implying the stock trades below liquid asset value

FRC Projections and Valuation 

Per consensus forecasts, global smartwatch shipments are expected to grow 7% in 2026, driven by product upgrades, rising health awareness, AI integration, and broader wearables adoption.

Market Share and Growth

Source: FRC / Various

Zepp products accounted for 1.6% of global smartwatch shipments in 2025; we anticipate this increasing to 1.8% in 2026, driven by an expanding product lineup, and shipment growth outpacing most competitors
Zepp's Q2 Revenue Guidance: 6%–14% YoY growth, below our expectations

Despite robust Q1 revenue growth, softer-than-expected Q2 guidance has led us to lower our revenue forecasts
Given higher-than-expected operating expenses, we are lowering our EPS forecasts

Source: FRC

While EPS should improve significantly in 2026, we now expect profitability in 2027 vs. 2026 previously

As a result, our DCF valuation decreased from $50 to $40/share

Source: FRC/S&P Capital IQ

Sector EV/forward revenue is up 14% since our previous report in April 2026
ZEPP remains undervalued, trading at just 0.14x forward revenue (previously 0.45x), well below the sector average of 3.74x (previously 3.27x)
Applying 3.74x to our 2026 revenue forecast for Zepp, we arrived at a comparables valuation of $66/share (previously $62/share)

Despite lowering our FY2026 forecasts following softer Q2 guidance, we believe Zepp remains fundamentally well-positioned, supported by market-leading shipment growth, resilient margins, a strong balance sheet, and an exceptionally attractive valuation. We reiterate our BUY rating, and lower our fair value estimate from $56.28 to $53.01/share, reflecting a lower DCF valuation, partially offset by a higher comparables valuation. With the shares trading below net liquid asset value, and at a 96% discount to the sector's forward EV/Revenue multiple, we believe the current valuation significantly understates the company's long-term potential.

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
  • Operates in a marketing intensive industry
  • FOREX

We are maintaining our risk rating of 3 (Average)

APPENDIX