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Xiaomi Files for an IPO
May 14, 2018

 
Shenzhen based Xiaomi; the 4th largest smartphone brand worldwide filed an initial prospectus for listing on the Hong Kong stock exchange.  Xiaomi initially put a US$100b market value on the IPO, but the WSJ indicated that the value would come to more like US$60b to US$70b. The almost 600 page document opens up the company’s details to the public for the first time, and gives a picture as to what it is to be a smartphone vendor based in China.  Here are a few pertinent facts that we have gleaned so far:
 

• 9 rounds of financing from 9/2010 to 12/2014 totaling $1.58b (preferred converts)
• Founder’s (Lei Jun) pledge – Starting in 2018 Xiaomi’s hardware business (including smartphones, IoT, and lifestyle products) will have an overall net profit margin that will not exceed 5%/yr.  If the net margin exceeds 5%, we will return the excess above 5% to our users.  (Also, “to be the coolest company in the hearts of our users” – actually in the prospectus)
• 190m monthly active users with over 1.4m users having more than 5 interconnected devices, excluding smartphones and laptops.
• Within two years of inception annual sales exceeded $1b and #1 in Mainland China (units shipped) by year three.  Annual sales over $10b by year four.
• Largest consumer IoT platform (100m devices excluding smartphones and laptops) as of 12/2017
• Number one on-line smartphone seller in China and India in 4Q 2017.
• While the company was developed using on-line distribution, they have more recently been adding off-line retail distribution.  Between the beginning of 2015 and the end of 2017, they added over 1,080 off-line distributors and had 331 Mi home stores (direct) in Mainland China.
• Gross margin for the last three years has been 4.0%, 10.6%, and 13.2% with operating margins of 2.0%, 5.5%, and 10.7%.  Inclusive of finance expense (small) and convert value mark (large), the company had a pretax P/L of -11.2%, +0.7%, and -38.3%, with an adjusted (non-IFRS) P/L margin of -0.5%, +2.8%, and +4.7%.
• Smartphones were 80.4%, 71.3%, and 70.3% of sales and Mainland China was 93.9%, 86.6%, and 72.0% of sales.  The company sold 66.5m, 55.4m, and 91.4m smartphones, with an average selling price of $126.76, $138.18, and $138.40

 
Aside from smartphones, which span prices ranging from under $125 to over $500, the company sells branded smart TVs, streaming and gaming boxes (#1 in China – 2017), laptops, AI Speakers (#1 in China in 2017), and routers.  With partners, they also develop and sell air and water purifiers, rice cookers, laser projectors, robotic vacuum cleaners, drones, and folding bicycles, along with a variety of mobile products including mobile battery packs (#1 worldwide), headphones, fitness bands, self-balancing scooters (#1).