Why a Xiaomi IPO Will Hit the Stock Market Like a Tsunami

We don't know exactly when the Xiaomi IPO date will be, but one thing is crystal clear.

When the Chinese smartphone maker does go public, Wall Street will gobble up shares of Xiaomi stock.

The ambitious company - just five years old - has already become the top-selling smartphone vendor in its home country. Last year Xiaomi Corp. moved into third place in the global smartphone market.

Xiaomi IPOEvery aspect of this company says it's ripe for an IPO, even though the company has said it wants to stay private for a while longer.

For one thing, it currently has the highest valuation - $46 billion - of any startup, according to The Wall Street Journal. Uber has the second-highest valuation at $41.2 billion.

Russian billionaire Yuri Milner, who invested in Facebook Inc. (Nasdaq: FB) back in 2009, thinks Xiaomi's valuation could hit $100 billion. Milner's DST Global has been investing in Xiaomi since 2012.

"I was attracted by the size of the opportunity ahead of them," Milner told Bloomberg in December. "I don't think there's any company that has reached $1 billion in revenue as fast as Xiaomi. In every conceivable benchmark, it's almost unprecedented in terms of its speed of growth."

It's also very likely that a Xiaomi IPO will take place in the United States, either on the New York Stock Exchange or the Nasdaq.

Chinese tech companies generally prefer the U.S. market to Hong Kong because U.S. investors favor tech stock more so than Chinese investors. Chinese companies are also fond of multiple share classes, like Google Inc. (Nasdaq: GOOG, GOOGL), which the Hong Kong exchange does not yet allow.

Last year alone, Momo Inc. (Nasdaq ADR: MOMO), JD.com Inc. (Nasdaq ADR: JD), Weibo Corp. (Nasdaq ADR: WB), and, of course, Alibaba Group Holding Ltd. (NYSE: BABA) all had IPOs in the U.S.

The probable Xiaomi stock symbol is "MI," as the company uses the "Mi" moniker extensively in its branding.

Meanwhile, almost everything the company has done has served to whet an investor's appetite for the eventual Xiaomi IPO - take a look...

Why Investors Can't Wait for the Xiaomi IPO

Exhibit A for why investors are eager to see a Xiaomi IPO is the explosive growth of its smartphone sales. From just 7.19 million in 2012, Xiaomi grew its phone business to 61 million units last year.

That's an eight-fold increase in sales in two years in a well-established market with plenty of strong competition, including the likes of market leaders Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Ltd. (OTCMKTS: SSNLF).

And that's almost entirely from sales in China. Over the next year or so, Xiaomi plans to expand into other Asian markets as well as Brazil and India.

The Indian smartphone market in particular holds tremendous potential for Xiaomi. India is the world's third-largest - but fastest-growing - smartphone market now.

[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]

Xiaomi has made deals with several electronics retailers in India to enhance its presence there.

The company hopes that the approach that brought it success in China will carry over to India and other new markets.

One thing that has set Xiaomi apart is its philosophy of "being friends with our fans." Xiaomi puts a great deal of effort into communicating with its customers on social media. It will often promote flash sales on social media to offer loyal customers deep discounts.

During one such sale in February, the company sold 2 million phones in 12 hours.

What's more, Xiaomi phones mimic Apple's elegant designs at less than half the price. Its high-end Mi Note, with a 5.7-inch screen, starts at just $370. Both Samsung's Galaxy S6 and Apple's iPhone 6 start at $850.

Another edge Xiaomi has is its customized version of the Android operating system, MIUI. That lets Xiaomi provide its own apps and services while allowing users access to the larger universe of Android apps.

But what makes this company so appealing is that it has ambitions far beyond simply selling smartphones.

"We Are an Internet Company"

You see, for all its success in selling smartphones, Xiaomi's bargain prices have kept profits low.

In a filing last year the company revealed that it had made just $56 million in profit on $4.3 billion in revenue for an operating margin of just 1.8%.

But that fits Xiaomi's larger strategy, which is to create a large customer base to which they will sell other software and services.

"We are an Internet company," Xiaomi cofounder Lin Bin said at a media event the company held in San Francisco in February. "We are not a handset company."

While its main business is phones, Xiaomi has already started branching out into other products, including tablets, a 3D TV, a fitness band, a "smart" air purifier, action cameras, a "smart" light bulb, a "smart" bathroom scale that beams your weight to your phone, and a power strip.

Note all the "smart" devices that reveal Xiaomi's master plan - to take over the connected home. The company already has the phone app to control them. And in January it unveiled a cheap ($3.60) "smart home" module that can attach easily to other home appliances.

That's a market with tons of profit potential.

"Xiaomi is expanding into the smart home and following the lead of Apple, Samsung, and others," Neil Mawston, executive director of researcher Strategy Analytics, told Bloomberg. "We expect Xiaomi to build an ecosystem of Mi devices and apps for the home, office, and car."

The Bottom Line: We can't be sure when we'll see a Xiaomi IPO. But when it happens, which is almost inevitable, it will be a monster. Between its rapid growth and expansion into new markets, this company has the kind of extraordinary upside potential that investors dream of.

Follow me on Twitter @DavidGZeiler.

A Lot of IPOs on the Horizon: Rising late-stage venture capital investments this year points to a healthy pipeline of IPOs over the next year or so. Overall venture capital investment in Q1 was up 26%, with nearly a third of the money going to later stage startups. Here are the top nine candidates to be the next high-profile IPOs...

Related Articles:

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

Read full bio