Xiaomi’s IPO:Why the World Cares About One Company’s Stock Price

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This July, Chinese technology company Xiaomi launched its IPO in the Hong Kong stock market. If you don’t understand what that means, both literally and strategically, don’t worry, I’ll explain.

What is an IPO?

IPO stands for Initial Public Offering. When a company wants to raise money so they can make or do more things, this is one option. The company is listed on a stock market (Offering) for the first time (Initial) so that anyone who wants to invest money (Public) can buy shares in the company. Two primary reasons an IPO is big news: it’s the first time that the average person can buy the company’s stock (股票, gǔpiào) and the company’s value will be determined by their performance on the stock market rather than just sales and reported revenue.

For the average investor (投资者, tóuzīzhě) who wants to buy shares in a company, this could be their chance to make money on a growing technology company, like Xiaomi, by getting in “early” when the stock price is at its lowest. The risk for these initial investors is if the company isn’t as popular as they expect, or if the company doesn’t perform well in the first few months, then those early investors will lose money. There are many forecasts andpredictions (预测, yùcè) about what will happen after Xiaomi’s IPO but no one knows whether early investors will make or lose money. That’s the risk (风险, fēngxiǎn) and the thrill for many investors.

Why should I care about Xiaomi’s IPO?

Xiaomi’s IPO launch is generating a lot of discussion and excitement in both the financial and technology worlds. The main reason is that Xiaomi’s IPO value will be the biggest technology IPO since Alibaba (also Chinese) set the record when they launched on the New York Stock Exchange in 2014 for 25 billion USD. Xiaomi’s launch on the Hong Kong stock market is valued at just under 5 billion USD. While Xiaomi won’t break any records, it’s been years since a technology company made such a big move.

There is also a lot of speculation about whether this IPO is representative of the Chinese economy as a whole. Many Chinese companies, especially technology companies, are waiting to see how Xiaomi’s IPO turns out. If they succeed and raise the money they are aiming for, then other Chinese companies, such as Didi (ride hailing company), Ant Financial (formerly AliPay digital financial services), Tencent Music (a music streaming service), and Meituan-Dianping (a provider of a variety of online/in-person services), may quickly follow Xiaomi’s lead and launch their own IPO. Tencent Music and Meituan Dianping have already started the application process in the USA and Hong Kong respectively. Success for Xiaomi isn’t just about one company but about the potential for numerous large companies to open the Chinese technology market to the rest of the world’s markets.

What’s the big picture?

Investing in the stock market is always a risk with many factors affecting a company’s performance and value. Right now, however, there are specific issues threatening the value of Chinese companies in the market, such as the trade tariffs between the USA and China. Macroeconomic (宏观经济, hóngguān jīngjì) issues such as this will affect all companies in the market and will make it harder for newly launched stocks such as Xiaomi to succeed.

Additionally, gorecasters watching Xiaomi specifically are concerned that although the company became the 4th largest provider of smart phones (智能手机, zhìnéng shǒujī) in just 8 years, they have done so at the low end of the market and are inexperienced in their target market of premium technology products. As Xiaomi continues to diversify its product offerings, growing from just a smartphone company to a technology giant, any mistakes will be magnified in the price of their stock.

Supporters (支持者, zhīchízhě) are excited to see how much money Xiaomi can raise as they launch in the Hong Kong stock market. Competitors want to see Xiaomi succeed so that they, too, can launch an IPO this year. Skeptics believe that China’s economic growth is exaggerated and Xiaomi’s potential failure on the global market will be evidence to support their suspicions.

Whatever the outcome of Xiaomi’s IPO, investors, technology companies, and people all over the world are watching and waiting to confirm their predictions about Xiaomi, Chinese technology companies, China’s economy, and the health of global stock markets.

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