Key takeawayECOVACS’ robotics and overseas businesses drove revenue growth, but rising costs and competition eroded gross margin. Goldman Sachs accordingly lowered its earnings forecasts for the next three years and maintained its Sell rating.
How large was the third-quarter shortfall?
- ECOVACS’ third-quarter 2026 revenue was 4.647 billion yuan, up 11% year over year and 1% above Goldman Sachs’ forecast; net profit was 121 million yuan, down 72% year over year and 61% below the bank’s forecast.
- Goldman Sachs had already expected ECOVACS’ revenue growth and margins to be weaker than those of Roborock; the third-quarter results showed that ECOVACS faced greater near-term pressure than the bank had anticipated.
What supported revenue growth?
- Growth came primarily from products such as ECOVACS-branded robot vacuum cleaners and from overseas markets. Management said the brand achieved double-digit year-over-year revenue growth in both domestic and overseas markets in the third quarter; total overseas revenue has surpassed domestic revenue, with Europe the largest single market.
- The performance of its other brand, Tineco, was a drag: third-quarter domestic revenue fell by double digits year over year, while overseas revenue grew by double digits. The two offset each other, leaving overall brand revenue roughly flat.
- Goldman Sachs believes ECOVACS benefits from domestic market share concentrating among the top two companies and from gains in overseas market share, but to a lesser extent than Roborock.
When could gross margin pressure ease?
- Management said higher memory chip prices accounted for about half of the third-quarter gross margin pressure; renminbi appreciation and competitive pricing pressure also had an effect. Chip costs primarily affect robot vacuum cleaners and robotic lawn mowers, so the ECOVACS brand was more heavily affected.
- The company plans to continue stockpiling memory chips. Management expects the cost of chips in inventory to remain broadly stable through the second quarter of 2027, with limited additional cost pressure by then, although gross margin will still face year-over-year pressure.
- Management observed early signs of easing competition in domestic and European markets. The selling expense ratio fell in the third quarter, partly offsetting pressure on overall margins; management believes easing competition also supports further optimization of selling expenses.
Why did Goldman Sachs cut its earnings forecasts and price target?
- Taking into account the latest results and lower margin assumptions, Goldman Sachs cut its earnings per share forecasts for 2026 through 2028 by approximately 12% to 14%. The bank expects an overall gross margin of 43.8% in 2026, down 5 percentage points from 48.8% in 2025.
- Goldman Sachs cut its 12-month price target to 45 yuan from 51 yuan and maintained its Sell rating. The bank is positive on the long-term potential of cleaning appliances and ECOVACS’ opportunity to gain overseas share, but remains cautious about domestic competition, especially in floor washers, and the company’s ability to protect margins while defending its share.
