Xiaomi's Ill-Timed Debut Sows Doubt About Its Internet Ambitions

Xiaomi’s market debut has failed to convince investors that it’s capable of shedding a reliance on cheap phones and becoming an internet giant, according to Bloomberg. The Chinese smartphone behemoth now faces intense scrutiny while it tries to prove it should be twice as expensive as Apple.

After raising $4.7 billion in an initial public offering selling stock at the bottom of its marketed range, the first day of trade saw the shares slide as much as 6 percent in Hong Kong. The IPO had been touted as the culmination of a remarkable turnaround and the starting gun for a clutch of mega debuts but it came amid sliding markets and an escalating trade spat between the U.S. and China.

Xiaomi has a market value of about $50 billion, a far cry from the $100 billion touted last year. The 1.2 percent slide at the close of trade is the worst first-day performance for a $1 billion-plus Hong Kong IPO since 2015. Such a high-profile stumble may have a chilling effect on a swathe of Chinese tech corporations keen on raising capital to fuel their ambitions.

Xiaomi priced its IPO at earnings multiples higher than more established tech giants, including Apple, Tencent and Facebook, arguing it was an internet services company even as most of its revenue came from hardware. It then suffered a number of setbacks, from being forced to jettison plans to sell Chinese depositary receipts in Shanghai to the onset of trade tensions.

In the longer term, Xiaomi’s proponents argue that dominance in markets from India to China and a diversifying Internet of Things business will help it grow into its valuation. While $50 billion isn’t insignificant for a company many wrote off when sales flatlined in 2016, it’s still barely grown from its $46 billion valuation from a 2014 fundraising round.