Xiaomi Plunges to All-time Low After Billions of Shares Are Unlocked for Sale

At the same time, the volatility of the stock price after the lockup expiration did present a unique buying opportunity for investors who are bullish on Xiaomi's future.

Selina Cheng
    Jan 09, 2019 12:48 PM  PT
Xiaomi Plunges to All-time Low After Billions of Shares Are Unlocked for Sale
author: Selina Cheng   

"To investors who bought Xiaomi stocks on the first day of the listing, I promise you will make twice as much money," said Jun Lei, CEO of Xiaomi, at a celebration banquet after the company's IPO.

Six months later, shares of Xiaomi Corp. (HKEX: 1810) plunged 7 percent Wednesday in Hong Kong to an all-time low of HK$10.34 per share from a listing price of HK$17. Investors who purchased on the IPO day at the listing price would have lost nearly 40 percent of their investment if they sold their shares Wednesday. 

More than 3 billion shares of the smartphone maker were unlocked on Wednesday, equal to about 19 percent of those outstanding. The company said in a statement that the lockup period for controlling shareholders, for example, Chairman Jun Lei, was extended for another 365 days. It was previously due to expire in July.

However, at the same time, the volatility of the stock price after the lockup expiration did present a unique buying opportunity for investors who are bullish on Xiaomi's future. Analysts on average predict that the stock price of Xiaomi is not likely to double any time soon as Lei promised, but it will rebound to its IPO price, according to Bloomberg. 

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The drop is a far cry from where Xiaomi looked to be headed initially. A few days after its IPO on July 9, Xiaomi's market capitalization briefly exceeded China's second-largest e-commerce giant JD.com Inc. (Nasdaq: JD) at HK$443 billion ($56.4 billion), breaking into Hong Kong's top 10 companies. But shortly after, its stock started to fall sharply during the recent big downturn in the stock market because of the US-China trade war.

Xiaomi was the first company to list in Hong Kong, selling $4.7 billion of shares, after the Hong Kong exchange changed its rules to allow dual-class share structures.

The Beijing-based company initially expected to raise up to $10 billion, split between Hong Kong and mainland China, but later announced to shelve the mainland offering until after listing in Hong Kong. 

Cornerstone investors included U.S. chipmaker Qualcomm Inc. (Nasdaq: QCOM) and telecom service provider China Mobile Ltd. 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. 

Xiaomi was founded in 2010 by famous entrepreneur Lei Jun, who believes that high-quality technology doesn't need to cost a fortune. The company designs and produces smartphones, TVs, notebooks and other smart devices, including smart rice-cooker, lights, air purifiers, drones and etc. The company said it will forever limit the net profit margin after tax for its entire hardware sales to a maximum of 5 percent.  

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