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Xiaomi Doesn’t Wow


Image source: quangmooo / Shutterstock.com

What's going on?

It was a rough day on Monday for Xiaomi (pronounced “shaou-me”) – the world’s fourth-largest smartphone maker – as its stock slipped and fell at its Hong Kong stock market debut.

What does this mean?

Xiaomi filed paperwork to “go public” back in May, looking to raise $10 billion from investors at a massive valuation of $100 billion. The company completed its initial public offering (IPO) on Monday as planned – but only managed to raise $3 billion at about half the valuation that it wanted.

Although over 70% of Xiaomi’s revenue comes from selling smartphones, it doesn’t see itself as a smartphone company. Instead, it claims to be an “internet company” – dealing in data and services (like Google or Amazon’s web services). These types of companies often carry the kind of high valuation that Xiaomi was looking for, but it seems that investors didn’t buy into its vision – giving Xiaomi a reality check (not quite the check it was after).

Why should I care?

For markets: Shares took a tumble despite Xiaomi’s valuation slash.

Compared to what it expects to earn, Xiaomi’s share price was higher than the likes of Apple and Facebook. Investors commonly look at this ratio (share price divided by earnings per share) to compare stocks – and perhaps thought Xiaomi didn’t stack up. The stock fell by 6% during the day but recovered to being down 1%. Investors may have sold Xiaomi’s stock as they saw it was more expensive than big, better-known companies with longer public track records.

The bigger picture: Chinese IPOs roll on, home and abroad.

Tencent, China’s answer to Facebook, said on Sunday that it plans to list its music and entertainment business in the US (tweet this). It’ll compete with major rival Spotify, which completed its own stock market listing earlier in the year. Tencent said that it’s looking to raise $4 billion at a valuation of $25 billion – and its shares rose 2% on Monday.

Originally posted as part of the Finimize daily email.

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