Smartphone giant closes 13% higher than initial price on second day
After a nearly disastrous debut at the Hong Kong Stock Exchange on Monday, Chinese smartphone behemoth, Xiaomi, made a dream comeback at the bourse with its share price surging by 3.5% just 40 minutes after trading opened on Tuesday.
The world’s third largest listed smartphone company even managed to touch HKD 19, 13% higher than its initial price at closing time on Tuesday.
Buoyed by the outcome, Xiaomi CEO Lei Jun, expressed his happiness on micro-blogging site, Weibo: “These two days seem like a dream. Luck always smiles to (read on) honest and good people. We want to thank all those who had faith on us and supported us. Let us keep making good products at a reasonable price so that the whole world can live a good life,” he wrote.
Despite the encouraging turnaround, the company faces the uphill task of convincing investors that it is more than just a smartphone maker and can survive on other products from its stable.
The Chinese tech portal, Gizmodo, on Tuesday claimed that Xiaomi could well be considering shedding its name for the smartphones it makes.
As the company looks to expand markets for its smartphones, its core revenue base, Gizmodo claimed that the company could enter the US markets as "Pocophone", a name approved by the US Federal Communications Commission.
Although Xiaomi is yet to confirm or deny the claim, market watchers say, it could be one of the reasons for Xiaomi’s dramatic surge only a day after a very unflattering public debut.
On Monday the company made a splattering entry into the Hong Kong Stock Exchange, beginning trade at HKD 16.60, lower than its initial share price of HKD 17.
The most anticipated stock sale of the year recovered slightly later through the day to settle at HKD 16.78 during the first day’s closing time.
Market analysts said the company, the first with a dual share structure to get listed at the Hong Kong Stock Exchange, fell prey to speculation of an ongoing Sino-American trade war and its own failure to convince investors about its prowess beyond being just a smartphone maker.
After months of frenzied speculations about Xiaomi’s final valuation, the company had to be content with a USD 54 billion tag, much lower than Xiaomi’s goal of USD 100 billion.
Despite the all-too-visible setback, Lei Jun had tried to inject confidence, reminding investors about the meteoric 85.7% growth figure since the last quarter. “This kind of growth is unprecedented”, he declared on Monday.
Investors however seemed far from convinced on the first day.
As Yan Zhanmeng, an analyst with Beijing-based Counterpoint Research explained, “Xiaomi’s exceedingly thin margins from hardware significantly drags down its valuation for potential investors.”
The Passage had in the past reported that Xiaomi only makes a profit of USD 2 per unit of smartphone sold against USD 14 and 15 that Oppo or Huawei respectively make.
The volatility of the global economic scenario also seemed to play hard on the minds of investors.
Peter Garnry, Saxo Bank head of equity strategy explained, “The trade war could deal a negative impact on consumer sentiment in general, not only in China but also in the U.S. and globally.”
Lei Jun seemed aware of the fact when he observed, “At this critical moment in Sino-US trade relations, the global capital markets are in constant flux, although the macroeconomic conditions are far from ideal, we believe a great company can still rise to the challenge and distinguish itself.”
Xiaomi was founded 8 years ago, focusing on budget smartphones.
The company has since then forayed into other sectors such as finance, Internet of Things and Internet services.
In its IPO prospectus, Xiaomi defined itself as a hardware, ecommerce and Internet services company.
However, the rest of the world still regards Xiaomi as a hardware company. This is another reason that led to its underperformance.
Figures provided by Xiaomi seem to back the inverstors’ position. In 2017, 70% of Xiaomi’s revenue came from the sale of smartphones, 20% from Internet of Things while lifestyle products accounted for a mere 8%. Revenue from services, mainly gaming and advertising, rose to USD 1.5 billion, 9% of the total earning.
“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 with smartphones, most of the devices it sells are lower-end products,” observed Elsie Sheng, an analyst at Orient Finance Holdings.
With the smartphone market in China showing signs of saturation, nose-diving by 14% during the last quarter of 2017 (Canalys), Xiaomi must bank on international expansion to retain its core revenue source.
In the first quarter of 2018, 36% of Xiaomi’s revenue came from overseas markets and that figure is expected to rise.
However, due to the high costs, Xiaomi has, at least for now, given up on Africa and Latin America. India and Europe remain the key expansion areas for Xiaomi. According to, Canalys Xiaomi already controls 5.3% of the European market, with 2.4 million units sold.
Despite being seemingly choked from all fronts for now, the smartphone maker can take heart from the fact that analysts still believe rosier days may be round the corner.
As Canalys analyst Lucio Chen puts it, “Xiaomi and Nokia are losing money at the moment, in order to push their products into the market, but this will change in the future.”