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From: Jon Koplik12/25/2017 1:39:50 AM
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WSJ -- Xiaomi Plots a Path Out of the Wilderness With a Big IPO ........................


Dec. 22, 2017


Xiaomi Plots a Path Out of the Wilderness With a Big IPO

Investment banks pitched the company earlier this month; some offered valuation of more than $100 billion


By Dan Strumpf in Hong Kong, Wayne Ma in Beijing and Liza Lin in Shanghai

Xiaomi Corp., once China’s top smartphone vendor, recently looked like a company past its prime. But a revival this year has brought resurgent sales at home and abroad, and now it is looking to cash in by going public.

Investment banks eager to take Xiaomi public pitched the company earlier this month, with some offering a valuation of more than $100 billion, according to people familiar with the matter. That would make Xiaomi the largest Chinese company to list since Alibaba Group Holding Ltd. was valued at $169 billion when it made its debut in 2014, according to Dealogic.

An initial public offering would be a big step for Xiaomi, which was once one of the world’s most valuable startups when it garnered a $46 billion estimation in 2014.

Yet it was soon eclipsed by rivals that copied its sales tactics and outspent Xiaomi on advertising. The company also launched several smartphones with glitches, which hurt its reputation.

People familiar with the company say its sales recovery in China and strong performance in India justify a higher valuation than its 2014 assessment. It has soared past its own revenue goal for this year, they say.

More than 10 Western and Chinese banks are in the running to lead the IPO, the people said. The company is leaning toward a listing in Hong Kong over New York, they said, because retail investors in the Asian city are familiar with Xiaomi’s products and its founder, Lei Jun, who has achieved cult-like status in China similar to that of Apple Inc.’s late founder Steve Job

Morgan Stanley, one of the banks pitching for a role in the offering, is seen by rivals as likely to win part of the mandate. The U.S. bank has underwritten many large global technology IPOs over the past few years, including Alibaba, Facebook Inc. and Snap Inc. One of Morgan Stanley’s former top research analysts in Asia, Richard Ji, is now a key Xiaomi shareholder. Mr. Ji left the bank in 2013 and currently manages a fund that holds tech stocks.

A Xiaomi spokeswoman declined to comment on the company’s IPO plans.

People familiar with the matter said the Beijing-based company has been buoyed by blockbuster earnings, which it doesn’t publicly report.

The Xiaomi spokeswoman said that as of the end of October, Xiaomi exceeded its 100-billion-yuan ($15.2 billion) revenue goal for the year.

She declined to comment further.

People familiar with the matter said revenue in Xiaomi’s fiscal third quarter grew 104% from a year earlier, without giving a precise figure. Xiaomi’s net profit surged 133% to more than $400 million in the same quarter, the people added.

The question for investors is whether its revival can be sustained -- it still trails some of its Chinese rivals in market share and has yet to sell smartphones in the U.S.

However, one bank that pitched to Xiaomi projected that the company could report a net profit of $4 billion by 2019 and $12 billion by 2021, one person said, adding that this could justify a valuation of more than $100 billion.

The projections imply Xiaomi’s net profit is growing steadily, by more than 70% a year.

Xiaomi says it plans to sell handsets in the U.S., the world’s second-largest smartphone market. A spokeswoman said the company was deciding “on the right time to enter the U.S. with our smartphones.”

“‘All our competitors are strong so we have to be very, very careful, we have to be very focused,” Wang Xiang, a Xiaomi senior vice president, said in an interview in the U.S. in early December. Mr. Wang said he was in the U.S. to learn more about American consumer tastes. He declined to comment on the company’s IPO plans.

Little known outside Asia, Xiaomi­ -- which means “little rice” in Chinese­ -- rode China’s smartphone boom in the early 2010s to become the country’s biggest handset vendor by late 2014, unseating giants like Apple Inc.’s iPhone and Samsung Electronics Co.’s Galaxy phone, which had dominated the market. Its formula was relatively simple: offer slick-looking devices with some high-end specifications -- like its popular Redmi series phones -- at a low price.

But rivals like Shenzhen-based Huawei Technologies Co. soon followed a similar business model. Startups such as Oppo and Vivo challenged Xiaomi on price. Xiaomi began missing sales targets and by 2016, it had fallen to fourth place in the Chinese smartphone market.

India has been key to its comeback. The world’s third-largest smartphone market behind China and the U.S., India’s large population and fast pace of smartphone adoption has made it a key battleground for tech companies. Xiaomi’s market share there jumped to 19% this year from 6.2% in 2016, placing it behind Samsung at No. 1, according to Counterpoint Research.

The company hopes a push into software and services will help fuel growth. It has made inroads in other developing markets, including Russia, Ukraine and parts of Southeast Asia. Last month, it expanded into Spain. But other European markets and the U.S.­which are controlled and subsidized by mobile-phone carriers­will be tough to crack because Xiaomi lacks the strong telecom ties of larger rivals, analysts say.

“They have reached at least one inflection point,” said Neil Shah, an analyst at Counterpoint. “To reach another inflection point they will need to expand beyond India and China.”


-- Julie Steinberg in Hong Kong and Ted Greenwald in San Francisco contributed to this article.


Write to Dan Strumpf at daniel.strumpf@wsj.com, Wayne Ma at wayne.ma@wsj.com and Liza Lin at Liza.Lin@wsj.com


Copyright © 2017 Dow Jones & Company, Inc.

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