At the end of its most recent day of trading, Xiaomi’s stock was down to around $1.15 (USD) a share, just a hair above half of what it debuted on its first day on the market nearly a year ago. As a result, Xiaomi’s total market capitalization is around $28 billion.
The stock’s price has steadily and consistently declined over the past year with very little fluctuation. That suggests most investors don’t see a bright future for a company many thought was poised to take over the smartphone-as-a-commodity market. The question is why?
… when you’re talking about a corporation that makes and sells products through hundreds of verticals in dozens of countries around the world which are then subject to their own micro and macroeconomic forces, things can get complicated quickly…
Equally, to blame individual phone models or one particular decision by the company is unhelpful—knee-jerk stock movements perhaps can be attributed to such things, but not long-term trends. Looking at the basic financials, Xiaomi isn’t doing terribly, either: the company has reaped a net profit for the last four consecutive quarters.
What do we know about the smartphone market that could cause a company like Xiaomi to fail, though? … For one, we know it’s plateauing. In 2017 and 2018, the global smartphone market actually shrunk, and in 2018 the rate of shrinkage actually increased. The data we have to date shows this trend isn’t abating in 2019, either.
That’s seriously bad news for a company that has positioned itself as driven by the expansion of the global smartphone market to new regions and demographics—Xiaomi has relied on the notion that global smartphone sales would grow and create an ever-larger pie to slice up. Now, that trend is reversing.
There’s also the continued pressure Xiaomi has faced from competitors—some old, like Huawei and its Honor sub-brand—and some new, like Oppo’s Realme, which seeks to directly undercut Xiaomi’s Redmi line.
This isn’t to mention Vivo, Samsung, LG, and the various regional brands available in India and China, Xiaomi’s largest markets. The competition didn’t take long to figure out what Xiaomi was doing right—and copy it. And it turned out what Xiaomi was doing wasn’t actually very special: building smartphones with good components and then pricing them to razor-thin margins.
XiAnd when it comes to the company’s services, in a world full of highly competitive online and cloud options for consumers which are all accessible on Xiaomi’s own phones, the same problem arises: why choose Xiaomi???…
This, I think, gets to the heart of the issue: Xiaomi isn’t as special as all the hype it initially received suggested. Xiaomi makes a commodity—smartphones—and it makes them very well. And perhaps in China, its ecosystem of products and services are compelling and competitive enough to truly stand apart. But in the rest of the world, particularly the west, online retail, services, and consumer products at large are highly evolved industries.
And with Xiaomi’s core commodity facing a shrinking market, it seems less likely than ever that its repeated promises to come to America will be realized, even as it now attempts to move into Europe.
Xiaomi, then, may be priced by investors as what it increasingly seems to be: just another company building affordable smartphones.
Xiaomi Corp Company Profile:
XIAOMI CORPORATION is a China-based investment holding company principally engaged in the research, development and sales of smartphones, Internet of things (IoTs) and lifestyle products, the provision of Internet services, and investment business. The Company mainly conducts its businesses through four segments.
The Smartphone segment is engaged in the sales of smartphones. The IoT and Lifestyle product segment is engaged in the sales of other in-house products, including smart televisions (TVs), laptops, artificial intelligence (AI) speakers and smart routers; ecosystem products, including IoT and other smart hardware products, as well as certain lifestyle products.
The Internet service segment is engaged in the provision of advertising services and Internet value-added services. The Others segment is engaged in the provision of repair services for its hardware products. The Company distributes its products in domestic market and to overseas markets.