Investors doubt Xiaomi’s ability to transition to higher profit internet services industry after latest earning release
Mar 21, 2019 (China Knowledge) - Xiaomi’s shares sank yesterday after its latest earnings release despite the smartphone maker managing to turn a profit of RMB 13.5 billion last year after major losses in 2017 as investors worry about the company’s future.
The company’s shares are now down by about 30% from its IPO price of HKD 16.60 per share.
Xiaomi which has managed to rise up to become the fourth largest smartphone manufacturer in the world in 2017 in terms of shipments by selling its phones cheaply has failed to make significant progress in its more profitable internet services segment.
Xiaomi which currently provides internet services through partnerships with major app operators and pre-installing the apps on its smartphones and also running advertisements on its operating system hopes to turn this segment into a major growth driver for the company in the future by expanding its customer base with cheap smartphones.
However, the company’s latest earnings release has put into doubt its strategy of attracting customers with low-cost smartphones and channeling them to its more profitable internet services business after smartphone sales plunged by 28% in the last quarter while internet services revenue fell by 15%.
Xiaomi was hit by a sell-off earlier this year in January after early investors made their exits following the end of a post-IPO six months lockup period where these investors are not allowed to sell their shares, signaling a loss in confidence in the company.
Despite this, the internet services industry remains as a growing industry and there are still investors that believe this will help to boost Xiaomi in the future.
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