China’s Xiaomi files for what could be the world’s largest IPO since 2014

The upcoming Xiaomi floating on HKEX could be the world’s largest IPO this year and since 2014.

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China’s Xiaomi files for what could be the world’s largest IPO since 2014

  • Xiaomi might look to raise $10b at 100b valuation
  • net loss of $6.9b in 2017 against surging revenue
  • 70% of revenue from smartphone sells a business with razor thin profit margin
  • internet services with as high as 40% profit margin are rising as main profit driver

China’s Xiaomi, an all-around smart devices maker that converted from a smartphone pure play, has filed with HKEX for what could be the world’s largest IPO this year and since 2014.

While its prospectus doesn’t reveal how much Xiaomi looks to raise, people familiar with the matter told South China Morning Post that the company is looking at an initial public offering of US$ 10 billion that would value the gadget maker as high as $100 billion, propelling the business to China’s third-largest tech company after only Alibaba and Tencent.

Beijing-based Xiaomi will be the first major floating under Hong Kong Exchanges and Clearing’s new listing rules that now allows for dual-class shares structure, an arrangement that lets company founders retain control after their company’s listing.

According to its filing documents, Xiaomi incurred a net loss of RMB 43.9 billion yuan (around US$ 6.9b) in 2017 against a surging revenue of RMB 114.5 billion yuan, a 67.5% growth from a year earlier.

Founded 8 years ago in 2010 by serial entrepreneur and angel investor Mr. LEI Jun with his friends, Xiaomi is now the world’s fourth-largest smartphone manufacturer per market researcher both IDC and Gartner.

Its worldwide smartphone market share reaches 7.2% in the last quarter of 2017, coming only after Apple (19.7%), Samsung(18.9%), and Huawei(10.7%). Out of the 74 countries and regions Xiaomi has entered, there are 15 where Xiaomi was ranked top 5, including India (#1) and China (#4).

Xiaomi and Huawei are the two only cell makers that managed to grow in a saturated and slowly declining global phone market. Xiaomi’s growth due in large part to its successful comeback in China and well-steered overseas expansions in markets like India, where the company has stolen the crown from Samsung to become the largest smartphone vendor.

In addition to smartphone, Xiaomi also makes a wide variety of smart and internet connected devices ranging from water and air purifiers, laptops and routers, earbuds and power banks, e-scooters and electronic toothbrushes, to even rice cookers, robot cleaners and TVs.

Even with such an all-around product pipeline, more than 70% of Xiaomi’s revenue still comes from smartphone sales, a business with razor thin profit margin. Electronic devices (excluding smartphone) and internet services contributed to the other 20% and 10% of its total revenue.

It’s noteworthy that, according to previous reports, internet services, with as high as a 40% profit margin, are growing to become the main profit driver for the company albeit currently they are contributing only 10% to the company’s overall revenue.

In its prospectus, the firm bills its business model as a triathlon – consisting of hardware, new retail and internet services, referring, in plain words, respectively to its core device making business; using both online and offline channels to sell to customers; and providing internet services through the devices it manufactures and sells.