China's mobile phone and TV maker Millet will be listed on the Hong Kong Stock Exchange soon. Media and investors questioned Xiaomi’s “Internet company” attribute, and the British “The Economist” sent a document that Google dominates overseas. In the mobile internet market, it is very difficult for Xiaomi to rely on Internet services for profit.
In 2011, Xiaomi released the first smartphone. In the second year, the company’s valuation exceeded US$1 billion. No other second company in China can achieve a US$1 billion valuation faster than Xiaomi.
The Chinese media earlier referred to Xiaomi as “Oriental Apple,” which is, of course, a bit exaggerated (even when Xiaomi is the best). Two years later, Xiaomi, the maker of cheap mobile phones, became the world’s most highly valued technology startup with a value of US$46 billion.
According to some analysts, Xiaomi’s application for listing in Hong Kong is planned to raise US$10 billion (its prospectus documents do not disclose the expected valuation or financing targets), and Xiaomi may receive a valuation of US$80 billion. This figure is close to that. The market value of Baidu, a search engine service provider in China.
However, discussing these valuations or financing before one and a half years may be a fantasy. In 2016, Xiaomi’s sales revenue plummeted, dropping from the first to fifth in the Chinese mobile phone market. Xiao Jun co-founder Lei Jun believes that the excessive supply chain bottleneck caused by the rapid decline.
For many people, the millet front has been pulled too long and the company has released various networking devices such as rice cookers and drones, allegedly creating a smartphone-controlled hardware ecosystem.
Last year, Xiaomi’s total revenue was US$18 billion, of which cost-effective mobile phones and various appliances accounted for 91%, but these products only contributed a small margin of 8.8%. In contrast, Apple's mobile phone contributed 39% of the company's profits.
Subsequently, the millet business rebounded. At the Shanghai conference that launched the MIX 2S mobile phone, rice flour gathered and Lei Jun appeared in a pair of white sports shoes. Lei Jun said that this new mobile phone has "crushed" the Apple iPhone X.
However, when the Xiaomi game notebook was released, the scene calmed down. Xiao Mi introduced that this notebook has a special button that allows players to order the middle of the game takeaway.
According to Xiaomi, the rice flour group has a high degree of brand loyalty, and they often submit various suggestions and feedback online. In addition to rice flour, Xiaomi's other chip is a highly cost-effective product. Xiaomi believes that these products will attract more consumers.
Xiaomi said that there are already more than 1.4 million rice flours with more than five millet consumer electronics products. By 2022, Xiaomi is expected to receive US$10 billion in revenue, and 1000 retail stores scattered around Xiaomi will also sell mobile phones, notebooks, and all kinds of living appliances (mainly made by Xiaomi’s participation in an external company).
Last month, Lei Jun made a statement that shocked potential investors. He said that the overall net profit margin of hardware products should be controlled below 5%. In fact, for a long time, Lei Jun’s profitable thinking has attracted consumers to Xiaomi’s world through attractive prices, and then made money through Internet services.
Millet did get a 60% profit margin through internet services and built-in ads for Xiaomi official software. Some of Xiaomi’s software and services include Xiaomi Music, Xiaomi Mall and others. According to statistics, the average revenue of Xiaomi’s custom Android system’s MIUI users has doubled from 2015 to 2017.
A banker involved in the marketing of Xiaomi believes that Xiaomi will have a good profit prospect in India in the future. In the fourth quarter of last year, Xiaomi surpassed South Korea’s Samsung Electronics as the No. 1 in India’s smart phone market (which also contributed to the reinvigoration of Xiaomi’s performance).
Last year, 28% of Xiaomi’s income came from overseas markets, which was far higher than the 6% share in 2015. In particular, it is worth mentioning that in the first quarter of this year, half of Xiaomi’s sales revenue came from overseas, and the company became one of the most international companies in China.
Of course, Xiaomi still faces some difficulties.
In the Indian market where Xiaomi has gained an advantage, Xiaomi’s strong rival in the Chinese market, Huawei, is stepping up to catch up. In the first quarter of this year, the growth rate of mobile phone sales has exceeded that of Xiaomi.
Neil Shah, an analyst with market research firm Counterpoint in Mumbai, said that in the overseas mobile internet market, Google’s services are more mainstream, and Xiaomi will find it difficult to promote the model of profit-making services.
Lei Jun also plans to enter the US mobile phone market this year, but recently there have been some troubles with Chinese handset manufacturers such as Huawei and ZTE. Shelly Jing, an analyst at IDC, a US market research company, said that Xiaomi is unlikely to invest resources in such a difficult US market.
In the Chinese market, with the "old rice noodles" attracted by competitors' high-end mobile phones, Xiaomi will face greater pressure to improve the quality of mobile phones and the average selling price (the current average selling price is only 881 yuan, equivalent to 138 USD). It is reported that Xiaomi’s net profit last year was only modest at US$700 million if one-time costs were eliminated.
If the prediction of Xiaomi's financing scale is accurate, then Xiaomi will become the world's largest IPO after Alibaba's IPO in 2014 (Alibaba Capital is US$21.8 billion).
Xiaomi is very eager to prove to investors that he is an Internet company and should get a higher valuation than hardware manufacturers. Xiaomi claimed that more than 100 million devices have already accessed their "Internet of Things platform". In addition, Xiaomi has accumulatively invested more than 210 companies in the world and already has the property of an incubator company.
Fu Sheng, the founder of Cheetah Mobile, said, "BAT" (in the past represents the three major Chinese technology companies Baidu, Alibaba and Tencent) the term may become "ATM", millet or will replace Baidu.