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XIACY · Forward model · Internet services · Bear case

What has to happen in Internet services

Model as of

This page changes Internet services inside the complete XIACY model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

XIACY forward model
Horizon
Consolidated fair value $9.30 all other verticals held in this portfolio case
Final-quarter revenue $1.45B 8% of company revenue
Explicit segment contribution $9.92B EBITDA less segment capex, before corporate items

Memory stays expensive, the premium mix reverts when it does, and the Chinese electric-vehicle price war reaches Xiaomi's segment before its volume does. Terminal revenue lands about 20% below base. What this case does NOT say is that Xiaomi breaks: internet services at a 76.8% gross margin is untouched by both problems, and it is the line that keeps group EBITDA positive throughout. The bear case here is a company that stops compounding, not one that stops earning.

Internet services

Basis quarter$1.32B
Final quarter$1.45B
Implied CAGR+2%
Final revenue mix8%

The profit engine, and the reason the hardware margin can be as bad as it is. RMB9.0 billion of revenue in the June quarter at a 76.8% gross margin - 8.3% of revenue and, on gross profit, roughly 40% of everything the Smartphone x AIoT segment contributed. It scales with monthly active users, which reached a record 766.5 million, and it is monetised mostly through advertising, which grew 4.8%. This is the classic software-on-hardware conversion, and it is what funds the R&D that the other four verticals spend.

Last four quarters
2025 Q3 $1.31B Reported
2025 Q4 $1.40B Reported
2026 Q1 $1.37B Reported
2026 Q2 $1.32B Reported
AdvertisingGamingOther value-added servicesOverseas internet services
Subscribers 766.5M 38.3% of a 2.00B addressable base 766.5m global monthly active users at 30 June 2026, a record, up 4.8% YoY. Disclosed in the results announcement.
Addressable subscribers 2.00B the S-curve ceiling 2.0bn reachable devices - ours, not disclosed. Xiaomi reports 1.16bn connected IoT devices on top of the phone base.
Net adds 0/qtr ramping toward 0/qtr, throttled as the base approaches the TAM
Net-add ceiling 0/qtr what supply can deliver at full rate
ARPU $0.58/mo drifting +0.5% per quarter, floor $0.40 $0.575 a month is RMB3.91, from RMB9.0bn over 766.5m users over three months. Derived from two disclosed figures.
Non-subscriber revenue $0/qtr growing 0.0% per quarter Zero. Every dollar of this line is modelled through users and ARPU; nothing sits outside it.
Internet services

Latest: $1.45B (2031Q2E)

Period Value
2025Q2 $1.25B
2025Q3 $1.31B
2025Q4 $1.40B
2026Q1 $1.37B
2026Q2 $1.32B
2026Q3E $1.33B
2026Q4E $1.34B
2027Q1E $1.35B
2027Q2E $1.36B
2027Q3E $1.36B
2027Q4E $1.37B
2028Q1E $1.38B
2028Q2E $1.39B
2028Q3E $1.39B
2028Q4E $1.40B
2029Q1E $1.40B
2029Q2E $1.41B
2029Q3E $1.42B
2029Q4E $1.42B
2030Q1E $1.43B
2030Q2E $1.43B
2030Q3E $1.44B
2030Q4E $1.44B
2031Q1E $1.44B
2031Q2E $1.45B

Assumptions & reasoning

  • ARPU is derived, not disclosed. Xiaomi publishes internet services revenue and monthly active users separately and never divides them, so the $0.575 figure is our arithmetic on two reported numbers rather than a company metric.
  • The 76.8% gross margin is disclosed and is the highest in the company by a wide margin. The 50% EBITDA margin is ours - advertising carries real sales and platform cost that Xiaomi reports only at group level.
  • Terminal capex intensity rises rather than falls, which is deliberate: serving AI features into the OS costs compute that advertising in 2026 did not need.
  • Attach mode is used rather than net adds because the constraint is how much of an existing device base ever becomes active, not how fast Xiaomi can add users.
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