Investors across the market found themselves jumping for joy after it was announced that Xiaomi (HK:XMGP), the massive Chinese smartphone brand with loyal customers around the globe, has filed to go public in an IPO that could spawn more than $10 billion for the Asian tech giant. The Beijing-based company’s market debut could be one of the biggest to shake up the market in years, and its IPO is sure to suck the oxygen out of the room when it arrives.
These are the key factors that have fueled Xiaomi’s historic rise thus far, and how the company may fare after it makes its colossal debut on the open market.
A Chinese tech giant awakens
For years, the market has been rife with misleading rumors that Xiaomi would be going public, but it seems that the normally baseless chatter has finally been confirmed. Those who aren’t seasoned experts of the tech market may have never even heard of the company before, however; its products and services are all-but exclusively sold on the Chinese market, after all, meaning many Western investors will be wholly unfamiliar with the firm despite its impressive size. The company is a veritable tech behemoth in China, marketing tech products like televisions, speakers, and other smart appliances.
Early reports indicate that Xiaomi will be seeking some $10 billion during its market debut, but specific information isn’t quite available to the public just yet. Filings made by the company for its debut, for instance, make no mention of an estimated price for its IPO. If investors are smitten by the Chinese tech giant, it could end up with a market valuation north of $100 billion, though much of Xiaomi’s fate will be determined by shareholders’ estimations of how the Chinese tech market will fare I the immediate future.
The company’s finances may worry some, too, as they’re rather peculiar, especially for a tech behemoth of its size. Xiaomi posted a net loss of some $6.9 billion in 2017, for instance, though it had been turning a net profit in 2016. Total revenues soared in that same period, however, surging by 67.5 percent according to the filings made by the company, an impressive figure sure to convince some investors that Xiaomi has serious potential on the open market. Revenues in mainland China continue to tick up for the company, which is a strong sign of its future growth potential, especially as wealthy Chinese consumers who are rising into the middle-class flock to such consumer gadgets like smartphones and smart televisions in greater numbers.
As long as the amount of Chinese consumers who will be buying Xiaomi’s products continues to explode at a staggering pace, the company will face few problems when it comes to finding demand for its products and services. The company specializes in the sales of its smartphones, and its current focus on China isn’t necessarily reflective of its long-term ambitions; if Xiaomi can corner the smartphone market in emerging economies, it stands to generate a tremendous amount of revenue for years to come.
A new model is needed
Xiaomi can’t rely on its smartphone strategy entirely, however. Like most mammoth tech companies, especially those based in China, Xiaomi is trying to pivot away from a business strategy that sees most of the company’s revenue generating by selling hardware, and would prefer to focus more of its efforts selling software and digital services. Digital services are thriving right now, and companies like Xiaomi stand to seriously generate huge profits in the future if they can get customers to opt-in to subscription-based software services for years at a time.
If Xiaomi’s new model that sees it emphasizing software services over hardware sales works, expect the company’s shares to soar on the open market. The Chinese tech market is a mysterious place for foreign investors, but the Chinese government’s loosening of restrictions on how tech markets can list themselves present serious opportunities for investors who have their eyes on savvy, aspiring companies like Xiaomi. Still, before Xiaomi can become a staple of the tech market, it needs to establish a strong name for itself amongst the Western investors it will need to woe over for long-term success.
If the company can prove to would-be shareholders that its soaring revenue streams are sure to guarantee its turning of a profit sooner rather than later, expect Xiaomi’s IPO to be one of the biggest events to shake up the market in years. The specifics behind the company’s market debut may not be clear as of yet, but when Xiaomi reveals more information about its inner operations and expected debut date, expect investors from across the world to gobble up shares of the tech company.