Xiaomi’s weak debut shadows internet dream
First day of trade saw its shares slide as much as 6 per cent in Hong Kong
Xiaomi’s market debut has failed to convince investors that it’s capable of shedding a reliance on cheap phones and becoming an internet giant. The Chinese smartphone giant now faces intense scrutiny while it tries to prove it should be twice as expensive as Apple.
After raising $4.7 billion in an initial public offering selling stock at the bottom of its marketed range, the first day of trade saw the shares slide as much as 6 per cent in Hong Kong. The IPO had been touted as the culmination of a remarkable turnaround and the starting gun for a clutch of mega debuts but it came amid sliding markets and an escalating trade spat between the US and China.
Co-founded by billionaire Lei Jun, Xiaomi has a market value of about $50 billion, a far cry from the $100 billion touted last year. The 1.2 per cent slide at the close of trade is the worst first—day performance for a $1 billion—plus Hong Kong IPO since 2015.
Such a high—profile stumble may have a chilling effect on a swathe of Chinese tech corporations keen on raising capital to fuel their ambitions, from Meituan Dianping in Hong Kong to Tencent Music in the US It’s a disappointing showing for an eight-year-old smartphone label with designs on expanding globally and transforming from a low-margin hardware company into an internet services player in Apple’s mold.
Xiaomi priced its IPO at earnings multiples higher than more established tech giants, including Apple, Tencent Holdings and Facebook, arguing it was an internet services company even as most of its revenue came from hardware.
It then suffered a number of setbacks, from being forced to jettison plans to sell Chinese depositary receipts in Shanghai to the onset of trade tensions.
“It will be hard to convince investors,” said Elsie Sheng, an analyst with Orient Finance Holdings. “Although it claims to be an internet company with lots of big data-related businesses, it remains a hardware company in terms of source of revenue. Even in smartphones, most of the devices it sells are lower-end products.”
In the longer term, Xiaomi’s proponents argue that dominance in markets from India to China and a diversifying Internet of Things business will help it grow into its valuation. As Lei Jun struck the opening gong Monday, he continued pitching Xiaomi as an “internet company.”