May 3, 2018 / 6:58 AM / 18 days ago

Breakingviews - Chinese handset-maker Xiaomi wins tech IPO bingo

HONG KONG (Reuters Breakingviews) - Xiaomi just won tech IPO bingo. On its way to a potential $100 billion Hong Kong market debut, the Chinese company that derives most of its revenue from smartphones insists that it is “more than a hardware company.” It also has packed its prospectus with all the buzziest of buzzwords, established super-voting stock and comes with its own internal venture-capital-style outfit. Bonus points accrue for “artisanal craftsmanship.” 

A booth of Chinese smartphone maker Xiaomi is seen at an industrial design expo in Wuhan, Hubei province, China December 3, 2017. REUTERS/Stringer

The highly anticipated initial public offering documents unveiled on Thursday contain all the greatest hits from Silicon Valley. Borrowing from Facebook’s mission to “make the world more open and connected”, Xiaomi founder Lei Jun pledges to “let everyone in the world enjoy a better life”. And stealing a page from camera-maker GoPro, which declared itself a media company when it went public in 2014, the Beijing-based company claims to be an “innovation-driven internet company”.

That sets the tone for Xiaomi’s “triathlon” business model of hardware, internet services and “new retail.” There are 108 references to “ecosystem,” 137 mentions of “IoT” – internet of things – and 156 uses of “platform.” Cloud, big data and artificial intelligence feature prominently. In a Chinese twist, Xiaomi extols a network of nearly 100 start-ups it has seeded and its dabbling in online games and videos, and the internet-based bank it co-founded. And for the rare Apple-meets-Etsy flourish, the company boasts of “artisanal craftsmanship” for suitcases and rice cookers while simultaneously highlighting its stores.

What’s more, Xiaomi is embracing the industry’s worst governance practices. Lei will be among the first tech bosses to retain control of his company using multiple share classes under new rules in Hong Kong. 

The numbers don’t measure up to the hype. Revenue grew an impressive 67 percent last year, to $18 billion. Smartphone sales, mostly in China, accounted for 70 percent of the total. That market shrank by more than a fifth in the first quarter, though, according to shipment figures from research outfit Canalys, while cutthroat competition from local rivals like Huawei and Oppo means razor-thin margins. Unlike many other tech darlings, Xiaomi is at least profitable. After stripping out share-based compensation and other one-off items, it generated about $850 million in adjusted net profit.

At the $100 billion figure bandied around in recent media reports, it would mean valuing the company at over 100 times earnings. Even at something lower, like $75 billion, Xiaomi’s listing would really have it all.

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