How Long Can Insta360's 'Strategic Loss' Last?

Insta360 (688775.SH) recently released its second interim report since going public. The headline figures diverge sharply: revenue for the first half reached 5.517 billion yuan, up 50.29% year on year; net profit attributable to shareholders of the parent company was 30.4073 million yuan, down 94.15%; and net profit excluding non-recurring items was -15.3392 million yuan, down 103.12%, swinging from profit to loss. Revenue kept growing at a brisk pace, while profit fell sharply.

Insta360's quarterly revenue and net profit attributable to shareholders diverge

Revenue of 5.517 billion yuan corresponded to net profit attributable to shareholders of 30.4073 million yuan, a net margin of about 0.55%. The company attributed the changes to "proactive strategic investment." Financially, operating cash flow swung from a net inflow of 241 million yuan a year earlier to a net outflow of 2.761 billion yuan, while inventory rose from 2.919 billion yuan at the start of the year to 6.212 billion yuan. These changes reflect both proactive stocking and investment plans and the industry's competitive environment.

01

Income statement: revenue expansion alongside profit decline

Break down this financial report and the problems look more serious than the headline drop in net profit.

Looking at the profit mix, non-recurring gains contributed 45.7465 million yuan of the 30.4073 million yuan in net profit attributable to shareholders — including 47.2441 million yuan from fair value changes and disposal gains on financial assets, and 7.2557 million yuan in government subsidies. In other words, selling cameras itself lost money in the first half (excluding non-recurring items, -15.3392 million yuan); the "positive profit" on the books was sustained by investment returns and government subsidies. Weighted average ROE plunged from 14.34% a year earlier to 0.53%, while ROE excluding non-recurring items was -0.27%.

By quarter, revenue growth was still 83.11% in Q1 but slipped to 31.08% in Q2, the weakest quarterly revenue growth since the company's listing. On the profit side, Q1 net profit of RMB 84.6202 million flipped directly to a Q2 loss of RMB 54.2129 million. Quarter on quarter, Q2 revenue was RMB 500 million higher than Q1, yet net profit excluding non-recurring items swung from +RMB 62.25 million to -RMB 77.59 million — the more it sold, the more it lost.

Gross margin also shifted sharply. The overall gross margin was 41.42% in the first half, down 9.8 percentage points year on year; the second quarter alone came in at 38.33%, down 11.9 percentage points. Over a longer horizon, the trajectory was: 52.93% in Q1 2025 → 45.74% for full-year 2025 → 45.20% in Q1 2026 → 38.33% in Q2 2026, a decline of more than 14 percentage points in just over a year. In absolute terms, a gross margin of 38%–41% remains relatively high for the consumer electronics hardware industry, but the steepness of the decline warrants attention.

The company mainly attributes the gross margin change to rising prices for memory chips such as DDR. The data show first-half operating costs of 3.231 billion yuan, up 80.46% year on year — higher than revenue growth of 50.29%, so costs did indeed rise faster than revenue. It should be noted that the cost increases were not fully passed through to end-user prices, likely for several reasons: product pricing typically follows a cycle and adjustments lag; room for price increases is limited amid intensifying competition; and lower-priced segments have gained share in the product mix.

Expenses expanded in step. Total period expenses reached 2.35 billion yuan in the first half, with the expense ratio climbing to 42.60%, up 6.5 percentage points year on year. Selling expenses were 1.017 billion yuan (+61.96%), R&D expenses 1.007 billion yuan (+79.26%), administrative expenses 249 million yuan (+86.74%), and financial expenses 77 million yuan. All four expense categories expanded, and each grew faster than revenue. R&D and selling expenses combined totaled 2.024 billion yuan, absorbing 36.7% of revenue.

02

Cash flow and inventory: RMB 6.2 billion in inventory and RMB 2.76 billion in cash burn

Compared with the income statement, the cash flow statement offers a different perspective.

Net cash flow from operating activities in the first half was -RMB 2.761 billion, versus +RMB 241 million a year earlier. The company said the main use of funds was strategic procurement of memory chips, with purchases totaling nearly RMB 2 billion in the first half.

Correspondingly, inventory rose from RMB 2.919 billion at the beginning of the year to RMB 6.212 billion, up 112.82%, lifting its share of total assets from about 26% to 43.72%. Within that, raw materials and materials for contract processing increased from 46.46% at the end of 2025 to 66.25%. On the financing side, short-term borrowings climbed from RMB 123 million to RMB 1.061 billion; net assets attributable to shareholders of the parent stood at RMB 5.264 billion over the same period, down 9.27% from the start of the year.

From a business logic standpoint, the arrangement is understandable: amid rising memory chip prices, the company is locking in raw materials early to stabilize costs. The outcome hinges on future price trends. If chip prices keep rising or stay high, the early stockpiling will help ease cost pressure; if prices fall sharply, the higher-cost inventory could face write-down provisions. The company also stated explicitly in its risk disclosures: "If prices of key raw materials fall sharply while the company holds large reserves, inventory write-down risks may arise." Both scenarios are possible; this is a classic cyclical judgment whose outcome will take time to verify.

In terms of scale matching, RMB 6.212 billion in inventory is high relative to full-year revenue, and inventory turnover has fallen from 0.84 times last year to 0.37 times. The cost of this strategy is cash tied up and reduced operating flexibility: if downstream demand falls short of expectations, or the industry enters a new round of price competition, the higher-cost inventory could turn into impairment losses.

03

Competitive Landscape: From One-Player Dominance to Head-to-Head Combat

Insta360 previously held a high share of the global 360-degree camera market, with public data showing more than 65%. That picture changed after July 2025.

DJI entered with the Osmo 360 at a price of RMB 2,999 and, according to public data, captured about 43% of the global market within three months. Since then, the two sides have moved into mutual encroachment: DJI entered the 360-degree camera segment, while Insta360 pushed into drones and gimbal cameras with the Yingling A1 and Luna series.

One direct manifestation of the competition is the pricing battle between the two companies across multiple price tiers. On August 12, Insta360 launched the X6 at RMB 3,999; the next day DJI launched the Osmo 360 II at RMB 3,299, a price gap of RMB 700, with fairly similar hardware specifications. In gimbal cameras, the DJI Pocket 4 is priced at RMB 2,999 (RMB 500 lower than the previous generation), while the Insta360 Luna Ultra is RMB 3,999; DJI later priced the Pocket 4P at RMB 3,799 and the Insta360 Luna Pro at RMB 3,399. Judging from publicly listed prices, Insta360 products cost RMB 200 to RMB 400 more across several tiers. With hardware specifications closely matched, price differences can influence consumer choice, making this a variable worth continued monitoring.

Third-party data offers some reference points. According to UBS data, year-on-year growth in global downloads of Insta360's app slowed from 73% in the first quarter to 51% in the second quarter, while DJI-related apps rose from 13% to 82% over the same period. According to Runto Technology data, the DJI Osmo 360 accounted for 56% of online 360-degree camera sales during the summer travel season (July 13 to August 9).

04

Drone's Second Growth Curve: 230 Million Yuan in Revenue, 290 Million Yuan in Loss

Panoramic drones are a new business direction the company has high hopes for, and the segment is still in the investment phase.

The interim report shows that Shenzhen Yingling Technology, the subsidiary responsible for the drone business (58.2% owned), posted revenue of 230 million yuan and a net loss of 290 million yuan in the first half. Kunshan Yingling Electronics also lost 9.8644 million yuan, Yingling Singapore lost 25.8389 million yuan, and Yingling US lost 41.2244 million yuan. The four subsidiaries tied to the Yingling Antigravity series lost more than 360 million yuan in total. On the Shenzhen Yingling basis, the ratio of revenue to loss is about 1:1.26. Losses during the introduction phase of a new business are common, especially for hardware categories that require simultaneous investment in R&D, channels and brand awareness. The key is the composition of the loss — how much is one-off R&D and marketing spending, and how much is structural loss at the unit gross margin level. The two have very different implications.

The Yingling A1 launched in December 2025 as a 6,799 yuan launch bundle, with first-month global sales of 30,000 units, according to company data. In March 2026, DJI introduced the Avata 360, priced at 2,788 yuan for the aircraft alone and 5,488 yuan for the bundle with flight goggles — more than 1,000 yuan below the Yingling A1 launch bundle. The Yingling A1 standard bundle was subsequently repriced to 5,499 yuan.

Against a backdrop of low overall net margins, price adjustments have an amplified impact on profit. In addition, the company has yet to disclose specific sales volumes and the unit economics model for the Yingling series, making it difficult for outsiders to estimate the break-even point for this business line and the scale threshold required to reach profitability.

05

Share Overhang: 40 Billion Yuan Unlock and Incentive Inversion

Beyond the cracks in the fundamentals, the pressure from the share unlock is equally real.

On June 11, 2026, 226.56 million restricted shares of the company were released for trading, accounting for 56.50% of total share capital and representing a market value of nearly 40 billion yuan, compared with a pre-unlock free-float market value of about 5.6 billion yuan. The unlocked volume was roughly seven times the original free float. The holders were mainly financial investors, including IDG-affiliated EARN ACE, Qiming Venture Partners-affiliated QM101, and Xunlei Network. These investors entered in 2015-2016 at relatively low holding costs, so even after the share price fell substantially from its peak, their positions still showed sizeable paper gains. Low holding costs mean that selling decisions are relatively less sensitive to the share price, which is the direct reason the unlock pressure has materialized.

Post-unlock, block trades have totaled more than 1.2 billion yuan, and Xiamen Fukai, among the top ten shareholders, has sold down 666,600 shares. The stock closed at 163.16 yuan on the June 11 unlock date and has since fallen more than 25% over the following two-plus months.

There have also been new developments on equity incentives. On September 24, 2025, the company launched its first restricted share incentive plan since listing, with a grant price of 148.92 yuan per share, covering 676 core employees and representing a 50.41% discount to the market price at the time. By June this year, the share price had fallen below the grant price, and the first tranche cannot vest before October 20, 2026 at the earliest. The interim report disclosed that 106,700 restricted shares were forfeited and lapsed during the reporting period, corresponding to 14.3419 million yuan. The actual incentive effect of restricted shares is tied to share price performance. When the share price is below the grant price, the tool's ability to retain core employees may weaken, and whether the company needs to adjust the incentive plan is one governance issue worth watching.

06

Conclusion

As of intraday trading on September 7, Arashi Vision was quoted at 106.2 yuan, with a market capitalization of about 42.6 billion yuan, down nearly 72% from its September 3, 2025 peak of 377.54 yuan and nearly 55% year to date.

A year ago, the market priced in high growth expectations for the company — a leader in its niche with AI hardware attributes, an IPO price-to-earnings ratio of 20.04, a market capitalization of about 71 billion yuan on its first day of trading, and a share price of 377.54 yuan three months later. The current correction reflects a rebalancing of expectations and reality: competition in the 360-degree camera market is fiercer than before, the drone second growth curve has yet to make a positive financial contribution, and near-term data do not support the previous valuation.

Overall, the company's current operating profile can be summarized as "trading profit for scale, retaining talent through equity incentives, and trading time for room to grow." This is a common path for companies in an expansion phase, and its effectiveness hinges on three conditions: whether the new business can achieve scale and positive gross profit within a reasonable time; whether expenses can be diluted as revenue grows; and whether the industry's competitive landscape stabilizes. Judging from the latest results, revenue growth slowed from 83.11% in the first quarter to 31.08% in the second quarter, while gross margin and non-recurring-item-adjusted profit came under pressure at the same time. The effects of the drone business and the inventory stocking strategy have yet to show up in the financial statements, meaning all three conditions remain to be validated. Key items to watch going forward are whether quarterly gross margin stabilizes, changes in inventory turnover, revenue and loss trends in the drone business, and the price trend of memory chips.

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       Original title : Revenue up 50% but net profit down 94%: How much longer can Insta360's "strategic loss" last?