The Chinese company submitted documents Thursday to list shares on the Hong Kong stock exchange. The company is looking to raise at least $10 billion in the IPO, and could value the company as high as $100 billion. Xiaomi's decision, four years after Alibaba Group Holding Ltd. chose NY, signals a new phase for the city's ambitions to rival the USA market.
According to the news site, the company is taking advantage of changes in the Hong Kong stock market that allow companies with multiple classes of shares to raise capital for the first time. The exchange operator had modified its regulations to accommodate such companies after losing Alibaba's dual-class listing to NY because rules at the time only allowed a single share class. For instance, in 2017 Xiaomi generated a revenue of 114.6 billion yuan or about $18 billion - a 67.5-percent jump - though it ended up with a loss of 43.9 billion yuan or about $6.9 billion, which looks even worse against the mere 491.6 million yuan or $77.2 million profit in the year before.
Xiaomi operates differently to most companies in that it sells smartphones and smart devices at waiver thin margins, relying on services and efficient use of components to pull in profit. Xiaomi was the fastest growing brand in China during the quarter.
Xiaomi still depends on China for the majority of its revenues, a challenge given that that market is nearing saturation. According to the reports, Xiaomi plans to utilize 30 percent of the proceeds for its technology business, including Artificial Intelligence (AI) and Internet of Things (IoT). And if there is more profit, it will be passed on to the company's users, Xiaomi said in the filing. Currently, Xiaomi is the fourth-biggest smartphone manufacturer in terms of the number of devices sold and has succeeded tremendously in the price/performance market.
In March 2015, the head of the company's top lawyer Zhang Liang told Legal Week there were no plans for a listing within the next five years.
Xiaomi will be implementing dual-class shares. The exclusive tie-ups with online stores held Xiaomi back from reaching many less tech-savvy customers in China. The shift from smartphone maker to a fledgling internet company suggests that Xiaomi's future growth will come from its online services.
CLSA, Morgan Stanley and Goldman Sachs are sponsoring Xiaomi's IPO. At this point, I would like to pledge to our existing and potential users, starting in 2018, Xioami's hardware business overall net profit margin will not exceed 5% per year.