Summary of Key Points
MiniMax experienced rapid revenue growth in the first half of the year (a year-on-year increase of 283%), with half-year revenue exceeding the total revenue of last year. However, its profitability was poor: the gross margin dropped from 25.4% last year to 17.9%, and the net loss expanded to $293 million. The biggest change was in the revenue structure, shifting from individual users purchasing AI products (C-side) to businesses purchasing model capabilities (B-side), which now accounts for 63% of total revenue. However, the “value” of B-side revenue (whether it can actually generate money and the quality of customers) and the profitability efficiency (whether it can become more profitable over time) have not yet been proven. The current market valuation is high, and three key indicators need to be observed to determine whether MiniMax can transform from a “rapidly growing” company into a “sustainable money-making” business.
Detailed Analysis
1. Rapid Revenue Growth, but is it Real?
The core of MiniMax’s revenue growth in the first half of the year came from its B-side business: revenue from enterprise services and the open platform increased by more than 7 times, accounting for 63% of total revenue, surpassing the C-side as the main source of income. However, the “quality” of this revenue is questionable:
- Lack of transparency in data: The interim report only states that B-side revenue amounted to $73.92 million, without disclosing key figures such as the number of enterprise customers, the payment rate, or the usage by existing customers. It is unclear whether the 7-fold increase is due to a surge in new customers or increased usage by existing customers.
- Unrealized revenue: Accounts receivable (money not received from sales) increased by $28 million, accounting for 24% of total revenue. While it is normal for accounts receivable to increase during a company’s expansion period, if revenue grows rapidly but the money is not collected, the growth is merely nominal.
In short, while it is clear that the B-side business is doing well, it is not known whether the customers are repeat customers or one-off transactions, and it is uncertain whether the profits will be secured.
2. Why is Revenue Growing, but Profitability is Declining?
The decline in gross margin is largely due to the cost structure of the B-side business:
- Cost differences between C-side and B-side: C-side products (such as AI chat apps) are standardized, meaning the average cost per sale decreases with higher sales volumes (scale effects). In contrast, B-side API services are charged per usage, meaning MiniMax incurs computing costs with each request from a business. The larger the number of requests, the higher the cost.
- Impact of the revenue structure shift: The increase in B-side revenue from 30% to over 60% has directly lowered the overall gross margin.
There is hope, however: training costs may decrease as the number of requests increases, and self-developed technologies (such as sparse attention architectures) and self-built computing centers could reduce the cost per request over time. This is a temporary challenge that requires verification.
3. What Signals Are Needed to reassure the Market?
The market’s high valuation of MiniMax is based on the expectation of future profitability. To fulfill this expectation, three key indicators need to be met:
- Signal 1: Solid B-side revenue: A continuous increase in the number of enterprise customers and API requests, along with a similar growth rate in accounts receivable and revenue, indicating that the B-side business is generating real cash flow and forming a healthy business cycle.
- Signal 2: Rebound in gross margin: The gross margin should return to above 20% in the coming quarters, preferably closer to last year’s 25.4%. Additionally, the growth rate of gross margin should exceed that of revenue, indicating effective cost control and the ability to reduce costs.
- Signal 3: Profitability of new models: Models M3 and H3 are currently performing well and have many users, but their potential needs to be realized in actual revenue, such as through paid business usage and increased orders.
4. Is It Worth Buying MiniMax’s Stock Now?
MiniMax’s current valuation is high, with a PS-TTM (market value/annual revenue) of 81 times. This means that investing $81 would only result in an annual revenue of $1, reflecting the market’s high expectations for its future profitability.
- Optimal scenario: If all three signals are met, the valuation could rise to the $900 million predicted by Morgan Stanley (currently, the stock price is $303).
- Pessimistic scenario: If the signals do not materialize, market expectations will be disappointed, and the stock price may continue to decline.
In summary, buying MiniMax’s stock now involves betting on its future profitability, but there are significant risks. It is essential to closely monitor these three indicators.
(Note: The above analysis is for reference only and does not constitute investment advice.)