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Xiaomis Q3 earnings report shows slowing growth



Xiaomi, the world’s fourth largest smartphone vendor, on Wednesday shared its earnings figures for the quarter that ended in September. While the results fell largely in line with analysts’ expectations, a drastic drop in the company’s growth underscores some of the struggles that handset makers are facing as they shift to services to make up for dwindling smartphone purchases globally.

The Chinese electronics firm posted Q3 revenue of 53.7 billion yuan, or $7.65 billion, up 3.3% from 51.95 billion yuan ($7.39 billion) revenue it reported in Q2 and 5.5% rise since Q3 2018.

This is largely in line with analysts’ estimated revenue of 53.74 billion yuan, per Refinitiv figures, but growth is slowing. As a point of comparison, in Q2, Xiaomi reported QoQ growth of 18.7% and YoY of 14.8%.

Xiaomi said its adjusted profit in the aforementioned quarter was 3.5 billion yuan ($500 million), up from about 2.5 billion yuan a year ago. Gross profit during the period was 8.2 billion yuan ($1.17 billion), up 25.2% year-over-year.

The company said its smartphone business revenue during Q3 stood at 32.3 billion yuan ($4.6 billion), down 7.8% year-over-year. The company, which shipped 32.1 million smartphone units during the period, blamed “downturn” in China’s smartphone market for the decline.

Marketing research firm Canalys reported this month that China’s smartphone market shrank by 3% during Q3. Despite the slowdown, Xiaomi said its gross profit margin of smartphones segment had reached 9% — up from 8.1% and 3.3% in the previous quarters.

Other than Huawei, which leads the handsets market in China, every other smartphone vendor has suffered a drop in their shipment volumes in the country, according to research firm Counterpoint.

But for Xiaomi, this should technically not be a problem. Long before the company listed publicly last year, it has been boasting about its business model: how it makes little money from hardware and more and more from delivering ads and selling internet services.

That internet services business is not growing fast enough, however, to be an engine for the overall company. It grew by 12.3% year-on-year to 5.3 billion yuan ($750 million) and 15% since last quarter. Either way, it accounts for only a fraction of smartphone business’ contribution to the bottomline.

Furthermore, parts of that business are facing some other challenges: Advertisement revenue has been falling for more than two consecutive quarters, the company says.

Xiaomi said two years ago that it will only ever make 5% profit from its hardware, something its executives told TechCrunch has been engraved in the company’s “constitution.” But the slow shift to making money off of internet services, while making less money from selling hardware, is one of the chief reasons why the company had an underwhelming IPO.

Meanwhile, the user base of Xiaomi’s Android -based MIUI software is growing. It had 292 million monthly active users as of September this year, up from 278.7 in June.

In more promising signs, Xiaomi said its smart TV and Mi Box platforms had more than 3.2 million paid subscribers and revenue from its fintech business, a territory it entered only in recent quarters, had already reached 1 billion yuan ($140 million).

But it’s hardware that continues to make up the biggest proportion of its revenues. The company, which is increasingly moving its gadgets and services beyond Chinese shores, said revenue from its international business grew 17.2 year-over-year to 26.1 billion yuan ($3.7 billion) in the third quarter — accounting for 48.7% of total revenue.

Much of Xiaomi’s international success could be attributed to its dominance in India, the world’s second largest smartphone market. For last nine consecutive quarters, Xiaomi has been the top smartphone vendor in India, one of the rare markets where the appetite for handsets continues to grow. Of the 32 million smartphone units the company shipped in Q3, more than 12 million of those arrived in India, according to Counterpoint.

In a statement, Xiaomi founder and chairman Lei Jun said the company is hopeful that it will be able to further grow its revenues when 5G devices start to get traction. The company has plans to launch at least 10 5G-enabled smartphone models next year, he said. No word from him on what the company intends to do about its services ecosystem.

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Startups Weekly: U.S. VCs eye European startups




Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about Chinese investor activity in Africa. Before that, I noted Airbnb’s issues.

Remember, you can send me tips, suggestions and feedback to or on Twitter @KateClarkTweets. If you’re new, you can subscribe to Startups Weekly here.

Europe’s appeal

This week I want to talk about Europe and not just because I’m in Europe prepping for TechCrunch’s annual conference, TechCrunch Disrupt Berlin. But because of a new trend we’re seeing in which U.S. venture capital funds strike deals overseasmore than ever.

Forbes wrote a piece on this trend this week alongside the release of their annual European Midas List, which ranks the top VCs on the continent. More and more, top funds, including the likes of Sequoia and Benchmark, are writing checks to companies in London, Dublin, Amsterdam, Stockholm and more. 

Sequoia, for example, funded a teenager in Dublin, Ireland this year. Evervault is building a data protection solution aimed at developers, by way of an API, which aims to bake data protection into the app from the start. We hear a number of other top firms are sending partners over seas, too, or considering making such moves. Why? To search for companies to add to their global portfolios (in a region where they may also see a nice discount). As we prep for a new year, this is one of several trends in VC I’ll be keeping an eye on.

Workplace toxicity

If you didn’t log on to Twitter this week, you may have missed The Verge’s investigation into workplace toxicity at Away, a ‘unicorn’ travel company known for its lightweight, compact suitcases (full disclosure: I have an Away bag). Read that story first, then check out Winnie co-founder and chief executive officer Sara Mauskopf’s piece from this week, “The inevitable takedown of the female CEO,” in which she questions why we celebrate female-founded companies, until they rise too far. Here’s a passage:

AggressiveBlunt. Furious. These are words that have been used to criticize the behavior of female CEOs of prominent companies like Thinx, Cleo, Rent the Runway and ThirdLove, to name a few. Away is the latest female-led company to come under fire, in an article in The Verge on Thursday.

First, let me be clear: A toxic work culture is never acceptable. Regardless of who started a company or what kind of stress the company is under, it’s never okay to mistreat employees. Some of the things that came to light in these pieces are particularly abhorrent: sexual harassment, lying about one’s credentials, creating an unsafe space for underrepresented groups, overworking employees. These are dynamics that need to be called out and eliminated at all companies, whether female or male-led. The Away example is no exception.

The top VC deals of the week:

Plus, read my profile of VSCO, the photo-sharing and editing app you may have never heard of. That is, until the “VSCO girl” meme craze of 2019.

Disrupt Berlin

It’s hard to believe it’s already that time of the year again, but Disrupt Berlin is this week! I’m in Berlin this week to meet with Europe’s top VCs and some of the most promising founders in the region. If you’re here too, make sure to say hi. Here are a few things you can expect to hear about at the event:


If you like this newsletter, you will definitely enjoy Equity, which brings the content of this newsletter to life — in podcast form! Join myself and Equity co-host Alex Wilhelm every Friday for a quick breakdown of the week’s biggest news in venture capital and startups.

This week, we discussed Harlem Capital’s debut fund, a $40 million effort that will back minority entrepreneurs. On top of that, we shared thoughts on Figure’s latest funding, European venture capital activity and more.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

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To measure sales efficiency, SaaS startups should use the 42




Once you’ve found product/market fit, scaling a SaaS business is all about honing go-to-market efficiency.

Many extremely helpful metrics and analytics have been developed to provide instrumentation for this journey: LTV (lifetime value of a customer), CAC (customer acquisition cost), Magic Number and SaaS Quick Ratio are all very valuable tools. But the challenge in using derived metrics such as these is that there are often many assumptions, simplifications and sampling choices that need to go into these calculations, thus leaving the door open to skewed results.

For example, when your company has only been selling for a year or two, it is extremely hard to know your true lifetime customer value. For starters, how do you know the right length of a “lifetime?”

Taking one divided by your annual dollar churn rate is quite imperfect, especially if all or most of your customers have not yet reached their first renewal decision. How much account expansion is reasonable to assume if you only have limited evidence?

LTV is most helpful if based on gross margin, not revenue, but gross margins are often skewed initially. When there are only a few customers to service, cost of goods sold (COGS) can appear artificially low because the true costs to serve have not yet been tracked as distinct cost centers as most of your team members wear multiple hats and pitch in ad hoc.

Likewise, metrics derived from sales and marketing costs, such as CAC and Magic Number, can also require many subjective assumptions. When it’s just founders selling, how much of their time and overhead do you put into sales costs? Did you include all sales-related travel, event marketing and PR costs? I can’t tell you the number of times entrepreneurs have touted having a near-zero CAC when they are just starting out and have only handfuls of customers — which were mostly sold by the founder or are “friendly” relationships.

Even if you think you have nearly zero CAC today, you should expect dramatically rising sales costs once professional sellers, marketers, managers, and programs are put in place as you scale.

One alternative to using derived metrics is to examine raw data, which is less prone to assumptions and subjectivity. The problem is how to do this efficiently and without losing the forest for the trees. The best tool I have encountered for measuring sales efficiency is called the 4×2 (that’s “four by two”) which I credit to Steve Walske, one of the master strategists of software sales, and the former CEO of PTC, a company renowned for its sales effectiveness and sales culture. [Here’s a podcast I did with Steve on How to Build a Sales Team.]

The 4×2 is a color-coded chart where each row is an individual seller on your team and the columns are their quarterly performance shown as dollars sold. [See a 4×2 chart example below].

Sales are usually measured as net new ARR, which includes new accounts and existing account expansions net of contraction, but you can also use new TCV (total contract value), depending on which number your team most focuses. In addition to sales dollars, the percentage of quarterly quota attainment is shown. The name 4×2 comes from the time frame shown: trailing four quarters, the current quarter, and the next quarter.

Color-coding the cells turns this tool from a dense table of numbers into a powerful data visualization. Thresholds for the heatmap can be determined according to your own needs and culture. For example, green can be 80% of quota attainment or above, yellow can be 60% to 79% of quota, and red can be anything below 60%.

Examining individual seller performance in every board meeting or deck is a terrific way to quickly answer many important questions, especially early on as you try to figure out your true position on the Sales Learning Curve. Publishing such leaderboards for your Board to see also tends to motivate your sales people, who are usually highly competitive and appreciate public recognition for a job well done, and likewise loathe to fall short of their targets in a public setting.


A sample 4×2 chart.

Some questions the 4×2 can answer:

Overall performance and quota targets

How are you doing against your sales plan? Lots of red is obviously bad, while lots of green is good. But all green may mean that quotas are being set too low. Raising quotas even by a small increment for each seller quickly compounds to yield big difference as you scale, so having evidence to help you adjust your targets can be powerful. A reasonable assumption would be annual quota for a given rep set at 4 to 5 times their on-target earnings potential.

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One of Latin America’s most valuable startups is changing the way Brazilians bank




When David Vlez walked into a Brazilian bank branch to open an account six years ago, he was appalled by the experience.

Vélez knew his experience was common throughout Latin America, where about half the population is “unbanked,” with no bank accounts and often no credit histories. In Brazil, five banks control almost all of the market and charge high fees — with annual interest rates on credit cards recently averaging nearly 300% on unpaid balances, according to the Wall Street Journal.
So Vélez decided to build something entirely new, aptly named Nubank: a financial institution that would offer no-fee accounts and credit cards, welcoming the largely ignored Brazilian unbanked population to their first-ever bank accounts after they answered a few simple questions via an app.
In Brazil, as elsewhere, unbanked status makes everyday life difficult: Customers must make purchases in cash, or shell out for preloaded debit cards or money orders. If they receive a check, they have to pay extra at a check-cashing facility. And with little to no chance of securing a traditional loan, they may be forced into high-fee services similar to the US payday loans if they need to borrow money.
Six years after its founding, Nubank is a bona fide tech unicorn reportedly raising money at a $10 billion valuation. One of the most valuable startups in all of Latin America, Nubank has already attracted marquee investors including Sequoia Capital and Goldman Sachs, and it has signed on nearly 20 million customers in Brazil alone. The company is also expanding to Mexico and Argentina.
    Clearly, Vélez’s bet has paid off so far. But Nubank’s simple premise belies complex competitive, regulatory and unbanked-customer challenges that early critics thought would be impossible for Vélez — or anyone — to overcome.
    “When I started talking to the experts in the industry everybody told me, ‘David, you’re a foreigner. You don’t understand Brazil — these are the most powerful companies in Brazil that you’re going after,” Vélez, who is originally from Colombia, told CNN Business in an interview. They said, “nobody competes with the five banks that own the market. They’re going to crush you. It is impossible to compete.”
    He knew the unbanked were a potentially risky customer base. He knew that as a foreigner he would need a presidential decree to get a permit to start Nubank in Brazil, a process that could—and later did — take years. And he knew Brazil’s banking oligarchy was powerful.
    The comments were “intimidating,” Vélez said, especially when attempts to fundraise locally in Brazil failed with people telling him: “You’re crazy. There’s no way I’m going to invest.”
    But Vélez also saw the massive opportunity in the Brazilian market, where 55 million people were unbanked, and in Latin America at large. And he felt a responsibility to them. He partnered with two other cofounders Edward Wible, an American, and Cristina Junqueira from Brazil to bring the vision to fruition.
    “There was a lot of conventional wisdom around banking…like [it] was almost sacred and that entrepreneurs could not go compete with them,” Vélez said. “But as I dig deeper and talk to consumers and felt firsthand the pain of being a banking consumer, I realized that people just really needed more alternatives. Technology was going to create a window of opportunity to build a fully digital bank.”

    How Nubank is upending traditional banks

    In Brazil, which is Latin America’s largest economy, the banking industry has historically been highly concentrated: Last year, the five largest banks controlled 81% of the country’s total financial system assets and 85% of all loans. With precious little consumer choice, the banks have been able to set the parameters most favorable to them: high fees and rates, confusing loan terms and sometimes blasé service. After all, customers didn’t really have anywhere else to go.
      “In emerging markets like Brazil, for years monopoly banks hadn’t had to stay competitive,” said Lindsay Davis, a senior intelligence analyst at CB Insights who focuses on the fintech industry. “They were able to charge their fees and serve only part of the population and do just fine that way.”
      But then, the cost of technology started to come down, and suddenly there was better access to Wi-Fi, Davis explained. Meanwhile, venture capital was starting to pour into Latin America, and consumer demand began to put pressure on governments to foster a more competitive banking market.
      Enter Nubank. The company launched its first product to Brazilians in 2014: a no-fee, low-interest international Mastercard credit card completely managed by a mobile app. In 2018, it launched a digital savings account called NuConta — after Nubank finally received its special banking permit from the Brazilian government — and earlier this year the company unveiled a personal loan product.
      For Nubank, the digital focus helps keep costs low. The company is able to strip out some fees because the company doesn’t have the overhead of hundreds of banking branches, Vélez explained; instead, revenue comes from interest and from interchange, the fees merchants pay to Nubank for the processing of card payments to make a purchase. (The interchange fees average 1% on every credit card transaction, Nubank said.)
      Vélez says customers can be approved for a bank account, credit card or loan in “a few minutes” after downloading the app, uploading a few documents and answering a couple of basic questions.
      Some customers receive credit card interest rates as much as 50% lower than those of traditional Brazilian banks, Vélez said. In other cases, Nubank hedges by offering a line of credit as low as $10 to start, increasing the amount over time as customers build up a history of good payments.

      Vetting the unbanked

      The problem that Nubank and Vélez are tackling goes far beyond the struggles of the individual unbanked, as the effects ripple deeply into countries’ macroeconomics and culture at large.
      In rich, developed countries, widespread access to credit fuels the ability for consumers to purchase goods, entrepreneurs to launch small businesses, students to pursue higher education and the housing market to thrive — overall, for the economy to continue to grow.
        But in emerging economies where credit is rare, consumer spending is inhibited. Small businesses have less opportunity to grow. Both problems in turn hurt companies’ ability to hire. All of the interconnected issues pile up and can hold back a country’s economy. Brazil, specifically, has grappled with years of sluggish economic growth.

        Unlocking credit could be a key to turning around Brazil’s economy. But by targeting the unbanked population, many of whom do not have credit histories, Nubank doesn’t have historical data to assess potential customers — an inherent risk as customers may not have the ability to pay it back.
        In the US, tools like FICO scores are paramount: Customers’ histories of taking out loans, using credit cards and paying back their debts determine whether they are considered high or low-risk. In turn, lenders may grant them a high-limit credit card or loan at a low interest rate, a lower limit at a high interest rate or even deny their request altogether.
        But in Brazil, this type of concept is new. Until recently, the only credit scoring system was a blacklist of sorts, with unpaid balances listed on a register and removed once they were resolved. Over the past few years, though, change has begun. Brazil’s five largest banks have been working to set up a more US-like credit research company to track information on customers’ bill-paying history, and companies like FICO and Equifax are moving into Brazil as well.
        Nubank, however, has built its business on a wholly new foundation: unique data sets and algorithms that are based on “a lot of nontraditional information,” Vélez said.
        “We look at where you live…how you move, who your friends are, who invited you to Nubank, the type of people that you’re sending money to,” he said. “We look at whether you read the contract of the credit card or whether you don’t — it turns out that people [who “read” the contract] really fast tend to be fraudsters. We look at the type of transactions that you’re doing, if you’re buying groceries or if you are in a bar.”
        Overall, Vélez said, it boils down to looking “at a lot of behavioral information to try to create a more holistic picture of that consumer.”
        Davis, the CB Insights analyst, said such algorithms represent how Nubank and other challenger banks “are using innovation and technology to see how customers can be underwritten. Traditional business models just haven’t kept up with the pace of that technology, and it creates a huge opportunity when you couple it with the pent-up demand [of customers who want to become banked].”

        Brazil and beyond

        That pent-up demand has driven Nubank to sign up nearly 20 million customers so far, and Vélez said the goal is to reach 100 million customers in Latin America. The company has already expanded to Mexico and in 2020, it will begin operating in Argentina as well.
          “Traditional banks’ business models have been able to sustain them up until this point,” Davis said. “They’re are waking up to the idea that they’re being disintermediated, that ‘the bank’ can be abstracted away from the branch. In Latin America specifically, where someone like Nubank is able to get a charter, challengers can absolutely pull power away.”
          With more than 1.7 billion unbanked adults around the world, there is ample room for other Nubank-style upstarts to disrupt traditional banking. Davis added: “Even more broadly than Brazil, the challenger-bank opportunity is spreading rapidly.”
          Nubank, at least, is still focused squarely on Latin America, where the company estimates it has saved customers $1 billion in fees alone so far. Today, the company has 50% share of all new credit cards issued in Brazil.
          The company is not yet profitable — though it is narrowing losses, from 117 million Brazilian reais (USD $29.4 million) in 2017 to about a 100 million reai net loss (USD $25 million) in 2018. And looking ahead, Nubank is focused on continuing expansion rather than making a profit.
          “For the next five years we’re focused on Latin America, but over a very long-term horizon, we think emerging markets are very interesting — when you look at Nigeria, Indonesia, Vietnam, India, you find the same oligopoly structure,” Vélez said.
          In the long term, Nubank wants to explore all emerging markets to connect people with credit cards, bank accounts and other products that could change people’s financial lives, Vélez said — a lofty goal that early detractors would have scoffed at, he knows.
          “It’s been a very surreal experience; our [original] goal was a million customers in five years,” Vélez said. “It has all really happened way faster than anything we expected.”

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