On November 19, 2018, Xiaomi Group released the third quarterly report, and various financial indicators showed an upward trend. On November 20, its share price rose by 8.38%. Despite this, it is still impossible to cover up the fact that its share price has fallen below the issue price. On July 9, 2018, Xiaomi was listed on the Hong Kong Stock Exchange at an issue price of HK$16.60, and the closing price on November 23, 2018, was HK$14.44, a decrease of 13.01%. At the same time, according to the highest price of HK$22.2 on July 18, 2018, the listing was only four months, and the market value of Xiaomi evaporated more than HK$120 billion.
Why does Xiaomi’s share price fall below the issue price? Is its performance as good as we have seen? Can Lei Jun realize the oath of “Xiaomi will become a part of the lives of billions of people around the world?”
Smart TV business boosts performance growth
In the first three quarters of 2018, Xiaomi’s revenue was more than HK$140 billion, a year-on-year increase of 64.11%; net profit was more than 11 billion Hong Kong dollars, an increase of 132.94%. Among them, the smart TV business has grown by leaps and bounds, with more than 5 million sales worldwide. At the same time, according to the statistics of Ovi Cloud and Guosheng Securities Research Institute, in the comparison of corporate brand shipments of global TV products in 2017, Xiaomi also ranked first with a growth rate of 157%.
From the perspective of the revenue share of Xiaomi products, at present, smartphones and IoT and consumer products have become the two major sources of income for Xiaomi. According to the third quarterly report of 2018, their smartphones accounted for 67.99% of the company’s total revenue, IoT and consumer products are 22.13%.
Valuation of large diving free cash flow is negative
Why is Xiaomi’s share price and valuation falling? Some insiders believe that there is a lot of relationship with investors about their future cash profitability. Among them, free cash flow is an important indicator to measure the future value of the company. In short, free cash flow is the amount of money that is earned from business activities, after deducting the necessary investment to maintain the normal operation of the enterprise and maintaining the competitiveness of the enterprise, and the maximum amount of money available for distribution to corporate shareholders and creditors.
In this regard, Xiaomi Group’s free cash flow in 2017 was -HK$22 billion, in the first three quarters of 2018, it was – more than -HK$900 million.
Xiaomi also mentioned in the third quarterly report that its research and development expenses in the third quarter increased by 90.7%.
Frankly speaking, when everyone is still thinking whether Xiaomi is a hardware company or an Internet company, many analysts believe that Xiaomi can be a hardware company that does not take the usual path, or it can be a wave of the Internet.