Xiaomi, The Whopping Loss And The Mega IPO: A Worrisome Scenario

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Xiaomi Group published the deposit receipts prospectus (reported on June 7, 2018) which revealed that it has lost RMB 7 billion (more than $1 billion) on revenues of RMB 34.41 billion ($5.3 billion) in the first quarter of 2018. This comes just after one month when the company has filled its Initial Public Offering (IPO), that would be the world’s biggest IPO since Alibaba’s $25 billion debut in 2014.

The Chinese Smartphone maker claims to have made a profit of roughly $162 million (RMB 1.038 billion) during the last quarter if the one-time items are excluded.

Though Xiaomi has not officially declared the amount it aims to raise for IPO, it has been widely speculated at least $10 billion. This would let the company valuation hit the $100 billion mark.

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Xiaomi’s Past Performance: A Brief Glance

Xiaomi has started its operations in 2010 as a smartphone manufacturer. Just three years after launching its first smartphone, the company has become China’s largest smartphone manufacturer in 2014. The company had also clocked over US$10 billion in annual revenue for the first time in 2014, which is the fastest in the history.

Now after 8 years of inception, Xiaomi has emerged as the fourth largest smartphone manufacturer in the world in Q4 2017. The Chinese smartphone vendor shipped a total of 92.4 million units in 2017, resulting in a year-over-year growth of 74.5%. After China, India is the second biggest smartphone market for Xiaomi. Currently, it is holding a whopping 31% share of India smartphone market as of Q1 2018.

Talking about numbers, the company’s revenues have been growing at an impressive rate. Xiaomi has registered a $17.9 billion (RMB 114.62 billion) in revenue in 2017, that’s an increase of 67.5% as compared to that of 2016. Despite this, the company posted a loss of $6.9 billion (RMB 43.83 billion) in 2017, while it had posted a small profit of $86.4 million (RMB 553 million) in 2016.

It is interesting to note that Xiaomi has made a net profit of RMB 1.038 billion (nearly $161 million) in Q1 2018, if one-off items are excluded.

The company has successfully out-powered all the setbacks it faced in 2016 as it is inching towards $100 billion valuations.

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xiaomi revenue loss

The reason behind the losses could be the increase in one-time expenses occurred as the company noted high operational profits.

Today, the company’s catalogue features a much more diverse collection showcasing not just smartphones but other various products like the smart-home range which houses IoT based devices such as Scooters, Air Purifiers and Vacuum Cleaner to name a few. The company also offers a host of Internet Services like Cloud services, Music and Video streaming services to name a few. Reportedly, a good 31.8% of the total revenue of Xiaomi in Q1 2018 came from these 2 segments.

The Plan Ahead: Xiaomi’s Quest to Lead the Global Markets

Xiaomi has a strong presence in Mainland China, Hong Kong and India. The prospectus, that the company issued while filing for IPO in Chinese mentions, that in the year of 2018, it aims to enter or consolidate its position in the markets of South-East Asia and Europe. Xiaomi has also recently opened its first store in Paris. Reports suggest that Xiaomi is also looking forward to re-entering the Brazilian market, which saw the hushed exit of the company in 2016.

Highlights From the IPO Letter

In his IPO letter, CEO and Co-founder of Xiaomi Lei Jun mentions that they have always strived to provide “amazing products at honest pricing“. He also claimed that the company has a maximum of 5% profit margin on any of its hardware offerings. Xiaomi today has its hands in more than 70 different countries and is among the top 5 smartphone companies in about 15 countries. Jun stated the company’s mission to develop an inclusive environment empowering all its users to take advantage of the company’s offerings to its maximum potential, regardless of their gender, ethnicity, nationality or educational level. They are also committed to giving wings to various other smaller startups.

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