(Bloomberg) -- Xiaomi Corp. surged 13 percent a day after its disappointing debut, gaining roughly $6 billion of market value as investors begin to pile into the world's third-largest listed smartphone maker.
The Chinese company finished Tuesday at HK$19, well above its HK$17 initial public offering price. About HK$9.7 billion ($1.2 billion) worth of shares changed hands, more than the value traded during its debut. That rebound more than made up for Monday's 1.2 percent decline: the worst first-day performance by a $1 billion-plus Hong Kong IPO since 2015.
In the long run, Xiaomi still needs to convince investors it's capable of shedding a reliance on cheap phones and becoming an internet giant. The company now faces intense scrutiny while it tries to prove it should be twice as expensive as Apple Inc. It'll need to show in future financial results that it can squeeze more profit out of non-smartphone businesses from rice-cookers and scooters to online content.
“It's mostly a smartphone company, or hardware company because they do other things as well,” said Daniel Baker, an analyst with Morningstar Investment who's got a sell rating and a target price of just HK$10 on Xiaomi. He wouldn't speculate on Tuesday's spike. But “if they can develop some sort of ecosystem across the IoT spaces as well as the smartphone spaces, then it might well develop some sort of switching cost and a real way to increase returns and margins.”
Xiaomi had priced its IPO at earnings multiples higher than more established tech giants, including Apple, Tencent Holdings Ltd. and Facebook Inc., arguing it was an internet services company even though most of its revenue comes from hardware. It then suffered a number of setbacks, from being forced to jettison plans to sell Chinese depositary receipts in Shanghai to the onset of global trade tensions.
On the brighter side, it was announced that Xiaomi would join the Hang Seng Composite Index on July 23 and a clutch of FTSE indices from July 16, as proposed earlier.
Read about Xiaomi's turbulent IPO journey
--With assistance from Sofia Horta e Costa.
To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net
To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Fion Li
©2018 Bloomberg L.P.
With assistance from Editorial Board
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