Update: Xiaomi Opens Down 2.3% in Trading Debut

* Shares in Xiaomi fell from a listing price of HK$17 ($2.16) to as low as HK$16.02 in the first hour of trading,

* Xiaomi’s stock price at current levels is almost identical with the valuation it received at the end of 2014, when the company was at its height

Shares of smartphone-maker Xiaomi Corp. opened down 2.3% in their trading debut in Hong Kong on Monday and moved downward from there, extending a weak reception for the company from skeptical investors.

Xiaomi shares opened at HK$16.60 ($2.12), versus an initial public offering (IPO) price of HK$17, and fell to as low as HK$16.02 in the first hour of trade. The shares were trading at HK$16.82 at the lunch break, giving the company a market value of HK$376 billion.

Xiaomi’s shares had previously priced at the bottom of their range and traded below their IPO price in gray market trade late last week, as investors worried about the company’s prospects in the intensely competitive global smartphone market.

The stock price at current levels is almost identical with the $45 billion valuation that Xiaomi achieved at the end of 2014 and the start of 2015, when the company was at its height.

“The debut has been pretty solid given the headwinds they’ve faced coming in, including the size of the deal, the newness of what they’re trying to do, CDRs (Chinese depositary receipts), dual-share class voting rights and trade wars. Lots of things were setting up headwinds here. The performance thus far has been pretty decent,” said Ryan Roberts, analyst at MCM Partners.

Chairman Lei Jun might have pre-empted the shaky debut, issuing an open letter (link in Chinese) on Sunday to urge investors to judge how the company’s “innovation has benefited consumers,” and not on the profits or the product volume it ships.

“In the critical time of a China-U.S. trade war and uncertainties looming over the capital markets, the active participation of investors in our shares subscription shows their confidence on Xiaomi,” Lei wrote, counting corporate leaders such as Alibaba Group Holding Ltd.’s Jack Ma, Hong Kong tycoon Li Ka-shing as well as Tencent Holdings Ltd.’s Pony Ma among the investors.

The company is convinced that Xiaomi has “infinite growth potential” going forward, as it aims to be one of the world’s top three smartphone company within the “shortest time” possible. Xiaomi currently is the fourth-largest brand.

The company is also furthering its globalization push. It plans to have overseas revenue account for more than half of total revenue, up from 36% in the first quarter of 2018, Lei wrote, without giving a time frame.

He said Xiaomi will also continue to expand offerings within its “ecosystem,” in which some of its nonsmartphone products such as TVs, power banks and electric scooters have been the top sellers in China.

Analysts said Xiaomi could face hurdles to its overseas expansion ambitions.

It could face “pushbacks against Chinese smartphone vendors in the U.S.,” after domestic peers Huawei Technologies Co. Ltd. and ZTE Corp. encountered a slew of setbacks in the market amid concerns of national security risks, KGI Securities said in a note on June 25.

Due to the ban on Google Play in China, Xiaomi’s internet services monetization strategy has worked well locally as its users depend on its apps and games, but this might be “a risk due to competition” outside of China, the report said.

Zhao Zuoyan contributed to this report.

Contact reporter Jason Tan (jasontan@caixin.com)