Xiaomi IPO

Xiaomi: China-Based Mobile Phone Upstart to Be Hottest IPO in 2018?

In the crowded mobile market with a brutally high barrier to entry, Xiaomi Technology Ltd. Co. has gone from zero to hero in just a few short years. With a $55.0-billion valuation, Xiaomi is expected to be the hottest initial public offering (IPO) in 2018.(1) And nothing warms the wallets of Wall Street like the idea of getting in on a juggernaut like Xiaomi.

Founded in 2010, China-based Xiaomi launched its first smartphone in 2011. Over the last few years, the company has experienced what can only be described as unprecedented, meteoric growth. By the third quarter of 2014, Xiaomi became the third-largest smartphone vendor in the world (behind Samsung Electronics Co. Ltd. and Apple Inc.) capturing a record 16.0% market share.(2)

In 2014, Xiaomi booked $11.97 billion in sales, a 135% increase over the $5.2 billion recorded in 2013 and up significantly over the $2.0 billion reported in 2012. The company didn’t release any profit information.(3)

The company’s chief executive, Lei Jun, said that 2014 phone sales were up 227% year-over-year to approximately 61 million. In 2012, Xiaomi sold 7.19 million units. By comparison, Apple sold a record 169.2 million “iPhones” in fiscal 2014 (ended September 27, 2014).

Even though China plans to cut its baseline-growth target to around seven percent in 2015 (its lowest goal in 11 years), Xiaomi still expects to sell 100 million phones.(4) That would represent year-over-year growth of 64%.

Xiaomi the Top Seller in the World’s Largest Smartphone Market

Roughly 500 million smartphones are expected to be sold in China in 2015, more than three times as many as in the United States.(5) And about one-third of global sales. About 85% of the smartphones sold in China will be made by its domestic producers.(6)

The increase comes in part due to the company’s ability to appeal to China’s growing young, affluent consumer base. Where companies like Apple sell their products in traditional brick-and-mortar stores, Xiaomi is available exclusively online (save for partner carriers).

While Xiaomi does technically have stores, they only sell accessories like the Xiaomi “Box” (smart TV), phone cases, batteries, cables, cloths, and even plush versions of the Xiaomi bunny mascot; they don’t offer the company’s phones.

But even the Chinese market will eventually become saturated. That’s why Xiaomi expanded beyond its borders in 2014, entering India, Singapore, Malaysia, the Philippines, and Indonesia. In 2015, Xiaomi hopes to make inroads in Thailand, Russia, Mexico, Brazil, and Turkey.

Will Xiaomi IPO in 2015? Maybe Not…

For all of these reasons, Xiaomi is on everyone’s IPO radar in 2018, especially after Alibaba Group Holding Limited (NYSE/BABA) laid claim to the largest IPO ever when it debuted on the New York Stock Exchange (NYSE) in September 2014.

After securing $1.1 billion in additional funding late last year, earning a $45.0-billion valuation, and reporting strong revenue growth, many believe Xiaomi will IPO this year. But with razor-thin margins (an iPhone is at least $600.00, while Xiaomi phones max out at around $500.00 with some options under $150.00), some think Xiaomi will wait a few years until its bottom line is more attractive.

Either way, investment bankers and retail investors will be waiting patiently.