A Potential $100B Valuation For Xiaomi IPO: WSJ

Chinese IT giant Xiaomi has bene pitched by investors with offers of taking it public earlier this month according to a report by the Wall Street Journal, citing sources.

Reports say that the company was valued at over $100 billion during the pitches made. This took the company to the position of being the second most valued Chinese IPO that would be put up after the $169 billion valuation for Alibaba for its IPO back in 2014.

A number of troubled smartphone launches and intensifying competition within the industry had resulted in a decline in the business of Xiaomi. But strengthening sale in India and its recovery in the Chinese market has helped the company to enhance its position and attain the $15.2 billion revenue goal that it had set itself.

Hong Kong is the most likely place where Xiaomi is potentially going to launch the IPO over New York because of the fact that the Asian city is apparently more familiar to the brand and is founder.

A role in the offering is likely to be played by Morgan Stanley, which is also one of the bidders, the report said.

Earlier, the company had informed the bankers that it would cross its annual target by more than 18 per cent this year. this would mark a comeback for the company after a slump in its business in recent years.

The revenue estimates of the company of $17 to 18 billion has made the banks to estimate that the company would make a net profit of at least $1 billion in 2017. It is also estimated that the profits would double to $2 billion next year.

Sources have also said that the profit calculations were based on the data on operating costs that was provided by the company.

There are expectations that the company would continue to make strong profits into 2019 as well which, some sources said, would put it on course for the $100 billion price tag for its IPO.

“We have never externally disclosed any expected net profit and growth data and we do not respond to irresponsible speculation and rumours,” said a spokeswoman for Xiaomi.

A 2014 funding round had valued the company at $46 billion which had also made it the most valuable startup for some time. However, the following two years were bad for Xiaomi as it faced stiff competition at home from rivals including Huawei Technologies, Vivo and Oppo while it attempted to extend itself to launch new products in new markets.

The company has since diversified into selling of accessories and home appliances. According to International Data Corp (IDC), the company outperformed Apple in the Chinese market to become the fourth largest smartphone vendor during the third quarter of this fiscal.

“This is a good time for them (Xiaomi) to list because right now they are on a roll,” said IDC’s senior research manager for client devices, Kiranjeer Kaur.

“If they get a good valuation, they will get it now,” Kaur said. She cautioned, however, that the company needed to focus on retaining customers.

“Xiaomi will need to make sure that users upgrade to higher-end Xiaomi from lower-end Xiaomi instead of ditching it for other brands.

(Adapted from WSJ.com & scmp.com)

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Categories: Economy & Finance, Strategy, Sustainability

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