Will Xiaomi Become the Next Apple?
China and India are the main markets in Xiaomi’s targeting. With a combined population of over 2.6 billion, these two markets are big enough to fuel the company's expansion.
Xiaomi's IPO subscription just started in Hong Kong. Believe it or not, this will be the world's biggest initial public offering in nearly two years as it looks to raise at least $6.1 billion in Hong Kong.
Li Kang Sing, the richest man in Hong Kong, Alibaba's Jack Ma, and Tencent's Pony Ma are among the top individual investors in this IPO, according to the South China Morning Post. Yet, Hong Kong retail investors are not acting as enthusiastic as they did in earlier cases.
The initial reception by retail investors was "worse than for Ping An Good Doctor, not to mention the record-breaking rush for China Literature," brokerage firm's chief executive Edmond Hui Yik-bun told the Morning Post.
Why the Cold Shoulder?
The biggest reason is its jaw-dropping valuation. Xiaomi Corp. said it would delay its mainland share offering and lowered its likely valuation to between $55 billion and $70 billion from its earlier mark topping $70 billion.
According to the prospectus, Xiaomi's IPO price ranged from 17 to 22 Hong Kong dollars per share, which is equivalent to 39.6 times to 51.3 times its price-to-earnings. By comparison, Apple, a company soon to reach a market value of $1 trillion, only has a PE ratio of 16.
The second reason is that Xiaomi's products are not that popular in Hong Kong. There is a humorous video on Apple's Daily showing that a reporter bought three Xiaomi products and took them home to test. The result was the smart rice-cooker can't link to the reporter's smart phone and the smart sensor nightlight only responded at certain angles.
The video might be biased, but it showed, to some degree, how folks in Hong Kong have reacted to Xiaomi's products.
It Could Be Promising
China and India are the main markets in Xiaomi's targeting. With a combined population of over 2.6 billion, these two markets are big enough to fuel the company's expansion.
According to an IDC report, Xiaomi is catching up in terms of market share. Unlike in Hong Kong where a cleaning person could make more than 12,000 Hong Kong dollars, or $1,578 per month, people in third- or four-tier cities in China and India are living with $300 per month or less. To those people, Xiaomi's idea that it will "forever limit the net profit margin after tax for its entire hardware sales to a maximum of 5 per cent" certainly sounds attractive.
In addition, UBS predicted in April that Apple would continue to see declining sales in China as competition from local vendors increases, mainly from Xiaomi and Oppo.
Jun Lei and Steve Jobs
In fact, from Xiaomi's cellphone design to CEO Jun Lei's outfit, there is a huge resemblance between Xiaomi and Apple. Lei even said in public that Steve Jobs was a "huge inspiration."
But the reality is that these two companies have completely different business models. One takes pride in its original high-end design and the other aims to making sure all smart devices are affordable to the public.
How will the market respond to the IPO? We will find out soon.
Xiaomi shares will start trading on the stock exchange in Hong Kong on July 9 under the ticker of 1810.HK, and the CFO said on Saturday that there is no time frame for a mainland China listing at this moment.