Xiaomi Eyes Finance, Phoenix Tries News Feeds
A couple of smaller deals are in the headlines today, with smartphone sensation Xiaomi dipping its toe into the financial services market and online news portal Phoenix New Media (NYSE: FENG) eying the news feed business. Both deals are relatively small in terms of size, but each provides some interesting insight on the thinking at these 2 different companies in the tech and new media space. The first deal has Xiaomi joining a group of investors betting on a peer-to-peer (P2P) online lending platform called Jimu Box. The second has Phoenix investing in Particle Inc, maker of an app that lets users design personalized feeds to receive news over their mobile phones.
Major M&A worth more than $100 million often makes the biggest headlines, and there’s been no shortage of such deals over the last year and a half by the “big 3” Internet trio of Tencent (HKEx: 700), Alibaba and Baidu (Nasdaq: BIDU). But smaller companies like Xiaomi and Phoenix have far less cash to spare and can’t compete in such big-time M&A. Thus they must be far more careful in their M&A and strategic investment strategies, which often reflect where the companies see their best future growth potential.
In the case of Xiaomi, that future appears to lie in the world of online finance, which has become quite popular but also very unruly these days. P2P finance sites operate online platforms where people with extra cash can lend their money to borrowers at relatively high interest rates. The big problem is that the industry isn’t very regulated, leading to a steady stream of scandals that often leave lenders with big losses when site operators suddenly disappear or borrowers turn out to be fraudulent.
In this case, Xiaomi is just one of several companies that have provided a second round of venture financing to Jimu Box totaling $37 million. (Chinese article) Xiaomi was one of the leaders in this particular round, whose other investors also included such names as Singapore sovereign wealth fund Temasek. Jimu previously raised $10 million in its first funding round back in February. The company has grown quickly since then, and boasted transaction volume of 2 billion yuan ($325 million) since its platform began operating a year ago.
The addition of big names like Xioami and Temasek will certainly boost Jimu’s credibility, though association with such big names isn’t always a guarantee of high quality. But from Xiaomi’s perspective, the move also offers a window onto the company’s future direction as it tries to diversify beyond its core smartphone business. Xiaomi has always said it wants to develop an entire ecosystem around its products, including services that can run on those products. With this latest investment, it appears the company is paying special attention to financial services, which have huge growth potential as Beijing starts to open up a sector previously dominated by state-run firms to private sector investment.
Next let’s look at Phoenix, which will pay a relatively modest $6 million for 8.75 percent of Particle Inc, owner of the mobile app Yidan Zixun, valuing the company at about $68 million. (company announcement) Particle’s app allows users to create personalized feeds from multiple news sources to meet their personal interests, and currently has about 1 million users. Another such app developer, Today’s Headlines, made its own headlines earlier this year when it raised a whopping $100 million in new venture funding just 2 years after its founding. (previous post)
Investors weren’t too excited by Phoenix’s investment, with the company’s shares actually dipping 1.2 percent after the announcement came out. That’s probably because the investment itself is relatively small, and Phoenix is operating in a highly competitive market. But from a strategic standpoint, I quite like this new investment as it shows some foresight into where online news is going. Accordingly, I wouldn’t be surprised to see Phoenix boost its stake in Particle or perhaps even buy the company outright if the pair work well together.
Bottom line: Xiaomi’s new investment in a P2P platform reflects its interest in online finance, while Phoenix’s investment in a customized news feed app looks like a smart move into a hot new area for online news.
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