{"id":266593,"date":"2018-08-22T07:19:24","date_gmt":"2018-08-22T05:19:24","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=266593"},"modified":"2018-08-22T07:19:24","modified_gmt":"2018-08-22T05:19:24","slug":"xiaomi-struggles-to-live-up-to-ipo-hype","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/mobile\/266593\/xiaomi-struggles-to-live-up-to-ipo-hype\/","title":{"rendered":"Xiaomi struggles to live up to IPO hype"},"content":{"rendered":"

Xiaomi Corp raised $5.4 billion by selling investors on its promise as a high-growth internet company. Some are starting to lose faith.<\/p>\n

The Beijing-based purveyor of mostly cheap smartphones has sunk 19 percent from its post-IPO peak despite a spate of positive ratings – mostly from the same banks and outfits that sponsored its coming-out party.<\/p>\n

On Wednesday, Xiaomi reports earnings for the first time as a public company, offering a close-up of two of its most important initiatives: an international expansion and its evolution beyond hardware and into online services from music to video, a la Apple Inc.<\/p>\n

Lei Jun, Xiaomi\u2019s billionaire co-founder, has consistently pushed the internet-giant narrative. That helped the company price its IPO at multiples far higher than celebrated tech names such as Tencent Holdings Ltd and Facebook Inc.<\/p>\n

But even then the market balked, and the company ended up valued at around half the $100 billion price tag touted just months prior. Analysts preach caution at a time investors are fleeing tech stocks, spooked by trade tensions and a backlash against the industry\u2019s outsized clout.<\/p>\n

The stock was largely unchanged Wednesday, hovering barely above its IPO price.<\/p>\n

\u201cWe don\u2019t think it\u2019s worth a pure internet company because it\u2019s not the same as Alibaba or Baidu or Amazon. They can only get a new subscriber by selling a smartphone,\u201d said Mark Newman, an analyst with Sanford C. Bernstein who said investors he\u2019d spoken to harbored mixed to negative views.<\/p>\n

\u201cI like the business model, I think it is good. The problem is just what it\u2019s worth.\u201d<\/p>\n

By any measure, Xiaomi\u2019s come a long way since 2016, when growth flat-lined and Lei penned a heartfelt missive to rally his troops.<\/p>\n

Now, the 10 of 16 analysts plugging the stock advise investors to again look beyond transient hiccups. Xiaomi\u2019s busy building stores that\u2019ll serve as beach-heads for expansion into emerging markets like India and Russia.<\/p>\n

Its estimated 190 million monthly active users are a rich pool of buyers for high-margin services.<\/p>\n

That base should grow as Xiaomi pushes gadgets to users for what it calls \u2018 \u2018honest prices.\u201d As Goldman Sachs analysts led by Piyush Mubayi put it, it\u2019s \u201cbuilding a mountain one grain at a time.\u201d<\/p>\n

\u201cThe internet services growth is highly related to their smartphone sales, especially in China,\u201d Elinor Leung, CLSA Ltd.\u2019s head of Asian telecoms and internet research, told Bloomberg Television.<\/p>\n

\u201cThe good thing is that we\u2019re still seeing good momentum in China although the shipment number is not going up a lot.\u201d<\/p>\n

But to the five analysts who rate Xiaomi a hold, the company faces no shortage of challenges, particularly in the smartphone business that yields 70% of its revenue.<\/p>\n

Local rivals are directing precision attacks against the company overseas, a key area for growth given a saturated Chinese market. Oppo created the Realme brand for India, selling budget phones online to try and topple Xiaomi from its leading position.<\/p>\n

At the other end of the spectrum, Huawei is shifting its focus back to Europe, a critical market for Xiaomi\u2019s more expensive devices.<\/p>\n

\"\"<\/a><\/p>\n

\u201cXiaomi is expensive in the short term no matter what,\u201d said James Wei, an analyst with Yuanta Securities.<\/p>\n

\u201cXiaomi needs to restructure its businesses over the next year, because China is saturated. Re-adjustments will be unavoidable so we need to be relatively cautious.\u201d<\/p>\n

Even if Xiaomi fends off its rivals, the real battle revolves around growing services income — its main source of profit. While it\u2019s made advances in China with its own video, music and finance apps, those businesses barely exist elsewhere.<\/p>\n

Its ecosystem partners – the ones that make everything from air purifiers to toy robots – are mostly domestically oriented. Global smartphone demand itself is on the wane, threatening the device sales that Xiaomi depends on to grow and engage its user base.<\/p>\n

\u201cThe overseas smartphone business is the key driver for growth. But many headwinds are expected, such as resistance from local governments and competition from other brands,\u201d said Fu Tianzi, an Everbright Securities analyst with the lone sell rating on Xiaomi.<\/p>\n

\u201cIn areas like self-operated gaming and content creation, the company still lags behind.\u201d<\/p>\n

\"\"<\/a><\/p>\n

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Read: Xiaomi\u2019s growth model is already showing cracks<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Xiaomi Corp raised $5.4 billion by selling investors on its promise as a high-growth internet company. Some are starting to lose faith.<\/p>\n","protected":false},"author":59,"featured_media":189814,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[26,7210],"class_list":["post-266593","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","tag-headline","tag-xiaomi"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/266593","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=266593"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/266593\/revisions"}],"predecessor-version":[{"id":266603,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/266593\/revisions\/266603"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/189814"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=266593"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=266593"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=266593"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}