Xiaomi’s much-publicized initial public offering has raised $4.7 billion for the company, and has valued the Chinese smartphone maker at $54 billion. The IPO was conducted in Hong Kong, and the shares were sold at HK$17 per unit. The valuation and capital infusion is significantly lower than was earlier expected, and the overall result is much more conservative than most observers had believed would be the outcome.
According to reports by Bloomberg, Billionaire George Soros and Chinese investment firm Hillhouse Capital purchased Xiaomi IPO shares, and other institutional investors including Qualcomm are believed to have participated in the IPO.
“Xiaomi’s exceedingly thin margins from hardware significantly drags down its valuation for potential investors,” said James Yan, an analyst with Counterpoint Research in Beijing, to Bloomberg. “I expect it to invest more in the smartphone unit, especially on international expansion. It also needs cash to beef up its ecosystem in markets like India. All those fronts are extremely capital-intensive.”
Xiaomi has been seeing rapid growth globally, and is currently the largest smartphone vendor in India by shipments. This has a lot to do with the fact that India is rapidly adopting the online model for smartphones, and more and more Indians are growing comfortable with buying their smartphones online. Xiaomi, which has pushed the online-first retail model, is one the biggest beneficiaries of this change in buying habits.
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However, the competitive nature of the smartphone industry and the constant need to innovate means that even a highly successful company like Xiaomi can’t take its position for granted. Another key factor is Xiaomi’s lack of product versatility; the company is primarily in the business of affordable smartphones, and has no other truly viable business opportunities. This could be the key reason for Xiaomi’s IPO being on the conservative side. The IPO was initially expected to value the Chinese smartphone maker significantly higher than the $54 billion valuation that has finally been settled on.