Has Chinese smartphone giant Xiaomi lived up to its pre-IPO hype?
Lei Jun, Xiaomi’s billionaire co-founder, has consistently pushed the internet-giant narrative. That helped the company price its IPO at multiples far higher than celebrated tech names such as Tencent and Facebook
Xiaomi Corp raised US$5.4 billion by selling investors on its promise as a high-growth internet company. Some are starting to lose faith.
The Beijing-based purveyor of mostly cheap smartphones has sunk 19 per cent from its post-initial publis offering peak despite a spate of positive ratings – mostly from the same banks and outfits that sponsored its coming-out party. On Wednesday, Xiaomi’s maiden financial report will offer a close-up of two of its most important initiatives: an international expansion and its evolution beyond hardware and into online services from music to video, à la Apple.
Lei Jun, Xiaomi’s billionaire co-founder, has consistently pushed the internet-giant narrative. That helped the company price its IPO at multiples far higher than celebrated tech names such as Tencent Holdings and Facebook. But even then the market balked, and the company ended up valued at around half the US$100 billion price tag touted just months prior. Analysts preach caution at a time investors are fleeing tech stocks, spooked by trade tensions and a backlash against the industry’s outsize clout. The stock jumped more than 5 per cent Tuesday but remains barely above its IPO price.
“We do not think it’s worth a pure internet company because it’s not the same as Alibaba or Baidu or Amazon. They can only get a new subscriber by selling a smartphone,” said Mark Newman, an analyst with Sanford C Bernstein who said investors he’d spoken to harboured mixed to negative views. “I like the business model, I think it is good. The problem is just what it’s worth, and how much money they can make from it. I just think that the sell-side consensus estimates are too generous and the valuation of the IPO was a bit stretched.”
Now, the 10 of 16 analysts plugging the stock advise investors to again look beyond transient hiccups. Xiaomi’s busy building stores that’ll serve as beachheads for expansion into emerging markets like India and Russia. Its estimated 190 million monthly active users are a rich pool of buyers for high-margin services. That base should grow as Xiaomi pushes gadgets to users for what it calls ‘‘honest prices.” As Goldman Sachs analysts led by Piyush Mubayi put it, it’s "building a mountain one grain at a time".