Sales at the $65 billion company increased at a blistering 68 percent, to 45 billion yuan ($6.6 billion) in the second quarter. Smartphones powered most of that growth: Xiaomi sold an impressive 32 million units in the three months through June, up from 22 million a year earlier. A push abroad, particularly in emerging markets such as India, is also yielding results. International sales more than doubled and now account for over a third of Xiaomi’s total.
That provides some redemption for boss Lei Jun. After valuation prospects kept tumbling ahead of its IPO, Xiaomi made a lacklustre Hong Kong market debut in July. Since then, its shares have fallen by almost a fifth from their peak after mainland regulators banned investors in Shanghai and Shenzhen from buying them. And at a punchy valuation of 29 times expected earnings over the next year, pressure built for Xiaomi to deliver strong growth.
Not everything made the grade, though. Gross profit margins for smartphones tumbled to 6.7 percent in the quarter, from 8.7 percent last year. Lavish employee awards, including 9.9 billion yuan worth of stock given to Lei, resulted in an operating loss of 7.6 billion yuan. And despite Lei’s promotion of his company being a “new species” that integrates hardware and software services, the latter’s share of total sales shrank in the second quarter, to below 9 percent.
Even so, after a string of disappointing results from tech peers including gaming titan Tencent and smartphone and beauty app maker Meitu, Xiaomi’s stand out. So long as the company can maintain its momentum selling affordable handsets, investors may give Lei more time to make his broader, bolder strategy work.