Bottom stock from IPO session, it was time for Xiaomi to change

Investors are constantly looking for reasons to forgive Xiaomi after the lousy IPO session but they still seem to have not found them. Xiaomi’s stock reversed the 2.1% rise to 5.5% in the morning session on August 21 on the Hong Kong Stock Exchange because of its second-quarter earnings report. , Chinese technology unicorn shares fell 47%. Before the reversal this morning, Xiaomi had 3 consecutive days of gains with an increase of 7%, sparking hope that this stock has bottomed out.

Xiaomi’s press release shows the gap between perceptions of companies and investors. Xiaomi collected only 1.96 billion yuan, equivalent to 278 million USD, in the last quarter, lower than the average estimate of 2.6 billion yuan of analysts. Meanwhile, Xiaomi is still convinced that all is well and the data are consistent with their guidelines. Investors disagree with this view.

Xiaomi said that the focus of the problem is the business model. Since IPO, Xiaomi has always emphasized that they do not place heavy profits from smartphones. Instead, they click on the database of hundreds of handsets installed with Xiaomi software, which can help develop ads and other services that bring higher revenue.

However, the second quarter figure doesn’t say that. Although there are more devices, but Xiaomi advertising revenue decreased again. Monthly users with the MIUI interface, built on the Android operating system, rose 34.7% to 278.7 million in the 12 months to June 30. However, advertising revenue fell 0.6% or 2.5 billion yuan. In other words, advertising revenue per user is decreasing.

Still, there are positive things. That is the not-for-profit smartphone segment. Xiaomi’s gross profit margin has increased to 8.1%, the highest level in nearly 2 years. Before IPO, Lei Jun, founder of Xiaomi, pledged a net profit margin of up to 5% for hardware sales to build a service-based business.

Explaining this, it can be seen that Xiaomi’s high-end smartphone sales are strong. It is a sign that consumers are willing to pay high prices for good quality equipment. Xiaomi also needn’t say that they have to sacrifice the profits of handheld devices to ensure they have a good price.

Xiaomi may also not need to talk to investors that profit from smartphones is not a problem. The second quarter results show that making money from handheld devices is not incompatible with an increasing number of users and fans who feel happy with Xiaomi devices.

The leaders of Xiaomi soon acknowledged that they were wrong and took profits from hardware, their stocks were soon able to recover.