INTERNET: Xiaomi Stays at Low-End, Tencent Reaches Adulthood

Bottom line: Xiaomi’s Singles Day sales show it’s still dependent on low-end models for its smartphone business, while Tencent shares could be set for a pause as it celebrates adulthood with its 18th birthday.

Tencent turns 18

After a couple weeks’ hiatus, I’m returning to the blogosphere with one item from last week’s Singles Day shopping extravaganza, and another from one of the few major Internet companies that was absent during that festival. In the Singles Day headlines is word from Xiaomi that it topped the list for most sales by a smartphone maker during the shopping fest. Meantime, media are noting that social networking giant Tencent (HKEx: 700) has just celebrated its 18th birthday by announcing it will give out 300 of its shares to each employee.

These two stories aren’t really related, even though each marks an interesting development for the respective company. Xiaomi is certainly in need of good news like the strong Singles Day sales, as it tries to regain its former buzz and show that it might be able to take its act global. The 18th birthday also looks highly symbolic for Tencent, since the number typically symbolizes an arrival at adulthood, even though Tencent is already one of the world’s most valuable Internet companies.

Let’s begin with Xiaomi, which is boasting on its microblog that it posted impressive sales of nearly 1.3 billion yuan ($190 million) last Friday on November 11, also known as Singles Day. (Chinese article) The company pointed out that it sold more than 1 million of the latest edition of its low-end Redmi model that day on Alibaba’s (NYSE: BABA) popular Tmall, and also said its tablet and notebook computer sales were strong for the day.

But what’s noticeably absent is any mention of the company’s Mi MIX, which generated quite a bit of buzz with its unveiling late last month due to an unusual design that has a screen that takes up nearly all of the front surface. (previous post) A quick search on Tmall today shows the Mi MIX is absent from the site, and I suspect it probably wasn’t being offered during the shopping fest last Friday due to limited supplies.

That’s too bad, as it would have been a great opportunity for Xiaomi to show it’s making a comeback, and to show off the model and boast of its new credentials in the higher-end of the market. Instead, it appears that a big majority of Xiaomi’s Singles Day sales were for the Redmi, a decidedly low-end product in a part of the market where margins are notoriously thin and competition is tough. For now at least, Xiaomi seems stuck in that part of the market until we get to see some early sales figures for the new Mi MIX.

Tencent Grows Up

Meanwhile, Tencent was largely absent from the Singles Day bash, though its strategic e-commerce partner JD.com was well represented. Instead, Tencent was holding it its own birthday party after turning 18, perhaps showing that it has formally reached adulthood and hinting that the best is yet to come. In fact, 18 is relatively advanced for Internet companies these days, and Tencent’s closest global peer, US titan Facebook (Nasdaq: FB), is only 22 years old itself.

Tencent celebrated the event by announcing the distribution of its Hong Kong-listed shares for all of its 27,310 employees, which equates to a cool HK$60,000 ($7,700) apiece, based on its latest stock price. Anyone with a calculator can quickly figure out that the total gift by founder Pony Ma equates to more than $200 million, which is quite generous though still only a tiny fraction of Tencent’s total market value of $240 billion.

Somewhat ominously, Tencent’s stock actually dropped nearly 4 percent on Friday, the day the gift was announced. Perhaps some might call that a growing pain, and more likely investors who have profited handsomely from the stock’s big gains this year were just looking for an excuse to lock in some of their profits. The stock does currently trade at a relatively rich price-to-earnings (PE) ratio of 55, so perhaps its time for the shares to take a pause as this high-growth company celebrates its entry to adulthood.

 

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