Xiaomi Just Sold a Pricey $4 Billion Narrative. Again
Investors ought to remember this tale of a company with growth potential and a unique business model.
A Xiaomi store in Hong Kong ahead of the company’s IPO in 2018.
Photographer: Bloomberg
Xiaomi Corp. has once again shown impeccable timing in raising funds, backed by a narrative that entices people into believing they got hold of a hot stock. Investors ought to remember what happened the last time China’s second-largest smartphone maker sold them on a tale of growth and wealth.
Two years ago, Xiaomi (and its bankers) weaved a narrative about a company that produced devices for no profit in order to make money from a raft of services, including advertising. There were those who thought that this innovative business model warranted a $100 billion valuation. Instead, it listed in Hong Kong at half that, with early investors convinced that the internet business would soon prove a blockbuster. After some initial euphoria, the stock tanked.
Now the company, which also sells rice cookers and watches, has just unloaded 1 billion shares, worth $3.1 billion. Investors seem none too impressed. The stock had a record 12% intraday decline when trading resumed in the afternoon session in Hong Kong, and closed down 7.1%.