What's going on?
The world’s fourth-largest smartphone maker, Xiaomi, reported better-than-expected quarterly profit on Tuesday – but its shares continue to trail most Chinese stocks’ stellar 2019.
What does this mean?
When Xiaomi listed on the Hong Kong stock exchange last year, one of its aims was world domination – and it’s wasted no time in achieving exactly that. Sales outside of China more than doubled last year and now represent 40% of the company’s total revenue. In Western Europe, Xiaomi shipped over 400% more smartphones in 2018 than in 2017, becoming the region’s number four brand. Who says there’s a slowdown in global smartphone sales?
The US might be next up, although Xiaomi hasn’t announced a game plan yet. With Chinese rival Huawei bossing it at home but under greater scrutiny abroad, Xiaomi could find customers where Huawei can’t.
Why should I care?
For markets: Investors are no longer locked up.
In an initial public offering, existing shareholders typically commit to staying invested for a certain period of time (a.k.a. a “lockup”). Some of Xiaomi’s investors weren’t allowed to sell their stock until January. That means there were likely more sellers around than there’d normally have been – potentially preventing Xiaomi from enjoying the stock price rises seen by other Chinese companies following better-than-expected economic data and tax cut announcements. Xiaomi’s market debut was a damp squib, and its share price has declined since; but for early investors who paid as little as 0.25¢ per share in 2010 and 2011, selling in January would still have netted a cool 57,000% profit.
Zooming out: Apple bites.
The king of expensive smartphones, Apple, is making waves. On Monday, it released new iPads – but that’s an appetizer. The entrée is next Monday, when Apple’s expected to announce new video streaming and news subscription services. The hope is that this strengthens its highly profitable “services” ecosystem, locking in existing iPhone users – and enticing Xiaomi showoffs to switch.