ZTE Eyes Profits, Meituan Targets Growth 中兴关注利润 美团瞄准增长
Companies have been filling the airwaves with 2013 sales and revenue targets these last few weeks as the new year gets underway, with smartphone maker ZTE (HKEx: 763) and top group buying site Meituan becoming the latest to add their forecasts to the list. In ZTE’s case, the company seems to be taking a smart approach to its newer, fast-growing smartphone unit by shifting its focus to improving margins and making the business profitable sooner rather than later. Meanwhile, Meituan’s announcement of extremely aggressive sales targets seem to reflect the company’s confidence that it will emerge stronger than ever from the painful consolidation now gripping China’s group buying sector.
Let’s start with a look at ZTE, which is issuing quite a few announcements from the annual Mobile World Congress, the world’s biggest mobile communications trade show taking place this week in Barcelona. Most of those announcements are about new products, but the one I want to look at saw ZTE announce it is targeting 30 percent revenue growth for its smartphone business in 2013. (company announcement)
The announcement is interesting because usually ZTE likes to talk more about growth in the number of actual smartphones it sells, which doesn’t give any indication of how profitable those sales are. For instance, IDC reported that ZTE’s smartphone sales rose 48 percent in the fourth quarter of last year to 9.5 million units, making the company the world’s fifth biggest seller by unit sales. But I suspect ZTE’s smartphone revenue grew at a much lower rate, probably lower than 20 percent, as the company priced its products aggressively to gain share in the competitive global smartphone market.
ZTE previously said it is aiming to sell 42 percent more smartphones this year than it did in 2012. In this latest announcement, which isn’t too much higher than the 30 percent revenue growth target it has just announced. The shrinking gap between revenue and unit sales growth seems to indicate the company intends to focus more on selling its phones profitably rather than simply trying to grab more market share.
This strategy looks good, especially for a company like ZTE that has struggled recently due to a weak global market for its traditional telecoms equipment business. The main risk is that by focusing on profits, ZTE could find itself losing business from price-conscious consumers who have been some of its biggest fans so far.
Meantime, let’s take a quick look at Meituan, which has just reported its sales reached 5.5 billion yuan, or nearly $900 million, in 2012. (English article) What caught my attention in the latest reports were the company’s aggressive growth targets for the next 3 years, with Meituan aiming to more than triple its sales this year to 18.8 billion yuan. It would need to maintain similar growth rates for the next 2 years after that to reach its target of 100 billion yuan in sales by 2015.
Meituan is currently China’s leading group buying site with 13 percent of the market, making it the only player with more than 10 percent share as the industry undergoes a painful consolidation. This kind of aggressive growth figure seems to indicate Meituan is confident it will rapidly gain share over the next 3 years, perhaps by buying 1 or 2 rivals and also as it picks up business from other companies that go out of business.
From my perspective, these numbers look a bit like wishful thinking and I seriously doubt that Meituan will attain them. But they also do seem to imply that Meituan is confident about its position in the market, and has the resources and expertise it needs to help it emerge from the current consolidation as an industry leader that could have more than 20 percent market share by the end of this year.
Bottom line: ZTE’s new smartphone forecast indicates it will shift its focus to profitability, while Meituan’s sales forecasts indicate it is eying aggressive expansion.
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