IPOs: Xiaomi Growth Charms, Losses Alarm

Jun 25 2018

Everyone is fawning over the newly released IPO prospectus from Xiaomi (BATS:XI), the smartphone maker that is aiming to make what's likely to be the biggest listing of all time by a company from its class. Most eyes seem to be focused on the company's top line, headlined by revenue that grew 67.5 percent last year. But from my perspective, the picture isn't all that attractive due to the company's huge loss, along with data that show it is clearly stuck at the lower end of the global smartphone market in terms of brand positioning.

None of that is necessarily that bad, since Xiaomi, whose upcoming Hong Kong IPO is likely to be one of this year's largest, is clearly in an early stage of its development. Most major brands today didn't start out as premium names. Classic cases in that category are the Japanese and Korean electronics makers, most of which started off as makers of low-end but relatively reliable cheap products that made the "made in Japan" label at one time the equivalent of the "made in China" label now.

All that said, let's zero in on Xiaomi's newly released prospectus, which shows the company's revenue grew 67.5 percent last year to 114.6 billion ($18.2 billion). (English article) That figure is actually probably somewhat understated, since the company's current comeback, following a two-year downturn, didn't really begin to take shape until the second half of the year.

Its smartphone shipments actually nearly doubled in the fourth quarter of last year, which leads me to suspect the company's revenue probably made similar gains for that period, even though it didn't break out such quarterly data. The gains do seem to be moderating, however, though Xiaomi's smartphone shipments were still up a healthy 88 percent in the first quarter of this year. Thus, it's likely the company should still be able to post revenue growth of 50 percent or higher this year, which certainly isn't bad.

By Doug Young - Seeking Alpha