Did Xiaomi live up to the hype with its first ever earnings report?

22 Aug 2018

Xiaomi logo. Image: AlesiaKan/Shutterstock

Xiaomi only went public in June, so how did its maiden earnings measure up?

Beijing consumer electronics firm Xiaomi went public after much fanfare in June of this year. It raised $4.7bn, making the IPO the largest share sale on the Hong Kong stock exchange since Postal Savings Bank of China went public in 2016.

Many viewed the IPO as an anti-climax. Xiaomi is valued at approximately $54bn, about half of the earlier industry estimates of $100bn.

Future Human

Despite this, its results show major growth. The company reported a 68.3pc surge in second-quarter revenue. Both its smartphone sales and connected device businesses made major leaps.

Dramatic turnaround for Xiaomi

Xiaomi revenue for the three months ending in June rose to 45.24bn yuan ($6.58bn) from 26.88bn yuan. Compared to 2017, when it made a net loss of 11.97bn yuan, it posted a net profit of 14.63bn yuan. This dramatic turnaround in fortunes is down to a one-time gain of 22.5bn yuan following the revaluation of some preferred stock in the wake of its IPO.

International revenue accounted for 36.3pc of total revenue as sales of connected devices steadily rose.

While the company does well on the back of its smartphone sales, the profit margins are very thin compared to rivals such as Apple. This segment currently yields the majority of Xiaomi’s revenue, but the company is selling itself as a high-growth internet company in the longer term. It aims to use its hardware sales to acquire users for its suite of online services over time. Use of its internet services accounts for just 9pc of total revenues.

“Over the past few years, Xiaomi has built a unique, integrated internet-hardware ecosystem that acquires users by selling high-quality products and monetising user traffic, a virtuous circle that underpins long-term growth,” said analysts Rocky Zhang and Ronnie Ho.

Dip in smartphone sales may spell trouble

Smartphone sales are generally on the wane, so it may be a challenging time for Xiaomi, a firm that depends on the sale of phones on razor-thin margins to gain users for its digital services side.

The company said it is in a period of “recalibration” to further penetrate the high-end smartphone market. This could create the stability it requires.

Xiaomi recently launched yet another affordable smartphone, the Poco F1, which retails at a mere $300. For that price, users get a 2.8GHz Snapdragon 845 and Adreno 630 GPU, which is pretty impressive.

Xiaomi logo. Image: AlesiaKan/Shutterstock

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects