Xiaomi's poor IPO may have little bearing on its consumer brand equity

Is Xiaomi a smartphone brand? Is it a hardware ecosystem incubator? Is it an internet company? Confused investors did not buy into Xiaomi's narrative, but its intangible brand equity remains, experts posit.

Source: Lei Jun/Twitter
Source: Lei Jun/Twitter

It's revealing when you notice media outlets still preface Xiaomi as a "Chinese smartphone maker" in their reporting when the brand has been sowing the seeds for its “triathlon business model", encompassing hardware, internet service and new retail, in the run-up to its debut. Xiaomi's initial public offering yesterday watched its shares plummet by nearly 6% at one point, assaulted by an untimely China-US trade war, and ultimately closing below its IPO list price of HK$17.

Is Xiaomi a smartphone brand? Is it a hardware ecosystem incubator? Is it an internet company? Confused investors did not buy into Xiaomi's brand narrative. We asked seven less confused experts for their reactions to the poor Xiaomi debut, whether it will do damage to the Xiaomi brand, and their long-term prognosis for the eight-year-old Chinese firm.



Sandy Burns
Brand Strategist & Managing Partner
Red Spider Asia

I’m not entirely surprised Xiaomi failed to live up to the IPO hype. Its profits, huge as they may be, have been largely built by outpricing the competition, which is a short-sighted play in China’s cutthroat mid/low range smartphone market.

Despite Xiaomi's innovation push, I’ve yet to see how Xiaomi provides a service or platform that captures loyal customers with the stickiness of the other tech unicorns like Tencent, and WeChat in particular. That’s what the market is looking for right now.

The IPO market is not just looking for profits, but solid future performance. Without building a loyal following of the Xiaomi ecosystem, the company could be accused of trying to cash in too early. 

I think the stock market will now question Xiaomi’s long-term future. Is it a true tech unicorn, or another huge-scale gadget maker? The market has seen too many of the latter come and go.

If Xiaomi is to maintain and grow its brand status, it needs to make a definitive shift from a smartphone maker to a unique tech-enabled lifestyle brand. What unique platform experience will it provide that the other tech unicorns can’t? Until Xiaomi answers that, I think the stock market will continue to respond the way it did today.


Bryan Ma
VP, Devices Research

I suspect that there is a lot of confusion and even scepticism about Xiaomi’s positioning as an 'internet company' given that the bulk of its business today comes from smartphones. So investors may be looking at it as more of a low-margin hardware company rather than a platform selling higher-margin services. Even if the company’s long-term goal is the latter, I am concerned that it won’t be that easy to translate many of its services into markets outside of China.

One day alone of bad trading probably won’t drag down the brand, but it could be a concern if the downbeat sentiment persists over time. That said, Xiaomi fans are much more influenced by the company’s technology and product announcements rather than investor sentiment. One of the things that make Xiaomi rather unique is its intimate user-engagement model through events, online forums, etc. that ultimately help drive interest in the brand, and I’d expect Xiaomi to continue with this formula. 


Angie Wang
Principal Research Analyst

The poor Xiaomi debut is not surprising news. Firstly, despite the Hong Kong stock market reaching a peak in terms of the number of IPOs in the first half of 2018, most of the newly-listed companies have been trading lower than their IPO prices. Secondly, unfavourable news over the past few weeks questioning Xiaomi's valuation, profitability, and positioning as an internet company reflect investor expectations.

Xiaomi's company value is still expected to be derived from hardware in the short term, given the recent complex macro environment (e.g. stock market downturn, the trade war between China & US, weakened passion from investors, challenging market growth for smartphones).

I don’t think the current underwhelming IPO will impact the Xiaomi brand significantly. Xiaomi is well positioned compared to most of the other Chinese smartphone/IOT device brands in the long term with its presence across product categories.

Benefitting from good pricing, innovative marketing and holistic investments, its long-term value depends on the following:

  1. Successful transition from a hardware-oriented company to a true internet-based company that can leverage hardware devices to attract users as a volume play, then monetise with internet services to generate higher profit.
  2. Sucesssful overseas penetration into emerging markets and settlement of patent issues.
  3. Successful ecosystem development with progress in expanding into smart devices and internet-service offerings while maintaining consistent quality and brand identity.


Hanish Bhatia
Senior Analyst, IoT and Mobility
Counterpoint Research

The weak pricing can be attributed to existing market conditions, amid the ongoing US-China trade tensions. Although Xiaomi’s exposure to the US is minimal, the market has developed an overall negative sentiment toward global equities as of now. Apart from that, the delay in its Chinese CDR (Chinese Depositary Receipt) listing also impacted Xiaomi’s performance. Furthermore, concerns among some investors on Xiaomi’s weak operating margins from its core businesses contributed to its frail debut.

As a brand, Xiaomi is known to deliver good quality products at affordable prices. It has earned a lot of respect within the industry and it has diversified its product portfolio targeting other connected device categories, but the bulk of the top line comes from its hardware business rather than an ecosystem of both hardware and services.

From the way it has positioned itself as an 'internet' or 'ecommerce' company, investors will be looking for more proof, whether it is ecosystem stickiness, MAUs, and revenue or profit generated per user.

Looking at the business model, however, Xiaomi will have to scale its content, services and advertising business beyond the China market to India and Europe to reap ecosystem benefits. At the same time, Xiaomi needs to also scale its hardware portfolio across different markets and keep users interested enough to increase their spending and usage across multiple Mi products. The company must also build up its cutting-edge premium devices to maintain a halo effect for other devices in its portfolio. 


Gorden Guo
Max Communications

From a macro perspective, the current market is not particularly good. Before its listing, Xiaomi was asked by the Hong Kong Stock Exchange to lower its valuation. The stock price decline is normal.
Xiaomi’s origin is in selling mobile phones, but its mobile phone sales are actually falling. Xiaomi’s mobile phones were only sold online before, and it was not familiar with above-the-line marketing. We can see that in the past two years, Oppo and Vivo actually grabbed a lot of market share in the mainland from Xiaomi. Affected sales made Xiaomi quickly switch strategy to an entire hardware ecosystem.
Because the scope of such a hardware ecosystem is very large, while still playing a low-cost, low-margin game, Xiaomi's losses affected the market's judgment. Hong Kong's stock market is a mature one moved by institutional investors, so it was not entirely convinced by Xiaomi's brand story.
At present, core users and cornerstone investors still value Xiaomi, and are still very supportive of the IPO in Hong Kong. The recognition of founder Lei Jun, a KOL, is still very high. We see that positive voices dominate mainstream coverage, so I think the impact of this underwhelming IPO on the Xiaomi brand will not be too great in the long run.
In fact, an underwhelming IPO is actually a normal situation. For example, Baozun, a Chinese e-commerce solutions provider, started off as a loser, but now its stock price has risen 12 times in two years. I am still optimistic.

Simon Shaw
Chief Creative Strategist + Officer
Hill+Knowlton Strategies London

Xiaomi is a victim of the global uncertainty faced by many of our clients across the globe. The uncertainty is coming from all political sides; whether it be Huawei’s stalled attempt to enter the US with the failure of the deal with AT&T or Wanda’s sudden need to dispose of global assets.

While we used to say the main disruption brands face was from new technologies, the disruption now seems to come from competing political ideologies.

While the disappointing IPO might be a rational blow I do not imagine it will impact the brand from a consumer point of view. As the emotional stock of Chinese brands continues to climb outside of China especially amongst the younger consumers, I am sure Xiaomi will continue to ride this wave.


Harshal Gajria

Freelance account planning & strategy consultant

It is a long uphill slog for Xiaomi. At least it has now invested in physical experience stores and 'came back to earth' in mainland China about its marketing thinking. By doing only online marketing in the past, Xiaomi reduced its sales funnel to a narrowcast.

IMHO, IPOs are great as exit strategies for investors, but not necessarily have any bearing on the brand. The market is a pretty sharp determinant of value, but are more relevant for investor exits, or in this case, for fueling Xiaomi's growth ambitions. 

Xiaomi is still fundamentally a very good brand with a lot of headroom to grow in emerging markets where it has a pricing advantage. Sales numbers in the pre-IPO prospectus are projected to be healthy. The hope for Xiaomi is SE Asia, India, Indonesia where there is reach (distribution) and new customer acquisition (infrequent buyers).

The long-term prognosis for the Xiaomi brand is the tricky bit. When you read the prospectus, Xiaomi's ecosystem strategy still very much revolves around its phones, which unfortunately is a heavily-competitive category. Xiaomi's challenge has always been premiumisation, and broad-basing its offering - both in products and distribution. These are fundamental issues.

Shifting away from an online-only model towards in-store experience is a positive effort, because it builds both physical and mental availability for the brand to grow.

Some of the chaps inside Xiaomi are ex-agency people now trying to figure out stuff like expressing what the Xiaomi brand essence is, beyond low-cost mass innovation. About Xiaomi's innovation incubator, do you realise what it is doing? It's what we used to call outsourcing of assembly and manufacturing. The incubator is simply repurchasing hardware and redistributing under its brand. Xiaomi CFO is right to say that the incubator is unique. And maybe even apposite for China. But how does all this build Xiaomi's brand?

Nothing is wrong or right. But it will be a giant step for it to compete with Samsung and Apple, which Xiaomi in its prospectus has benchmarked against. They are distantly ahead in terms of branding.

I want Xiaomi to do well. They are decent people, and Lei Jun means well, but almost every foreign paper has given him a tough time.

Campaign China

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