QZ.com's quote of me on the subject of Xiaomi valuation

Quartz recently published an article about Xiaomi's IPO, in which I was quoted on the subject of its valuation.

Jerry Yang, partner at Hardware Club, a Paris-based based venture capital firm specializing in hardware, says he’s optimistic the company’s internet business unit can thrive even if its new phone sales fluctuate—which would validate a larger valuation. “If you’re making money from the services, you only need to count the active Xiaomi phones out there,” he says. “I still run into people using the iPhone 4 and iPhone 5. I assume they will buy some content on the phones now and then.”

I've known the journalist Josh for a couple years. He pinged me to ask for a call to prep for this article that he's writing. I can understand that journalists usually form their opinions already before they interview people like me. It's at their discretion to decide which part of the conversation to use as long as it's not distorted or misquoted.

On the other hand I do feel this quote is a bit taken out of the context from my lengthy discussion with Josh. I hereby provide 2 main points from that discussion:

Point #1: If you view Xiaomi as a smartphone company, it actually has better Net Margin (more than 10%) compared to other smartphone makers not named Apple or Samsung. It's a profitable business by itself. Xiaomi can be valued as a hardware company without an issue.

Point #2: If you take the narrative that Xiaomi is a software service company, you should be valuing the company based on its users, namely, the amount of past and current Mi Fans that are still using Xiaomi smartphones, whether it's older versions or not. You should not pay too much attention on the new phones sold every year, i.e. revenues from the hardware sales.

In either case, Xiaomi's IPO document revealed financial data that are a lot more positive than what non-finance people believe in (or want to believe in).

And it should be! Because the company went through almost 2 years of silence in fundraising without dying. If their core biz was not profitable, they would have died without new funding.

My point is all these used to be speculation, but are now public info that are easy to judge from their IPO applications. One should make judgements based on facts, not on opinions.

I did write a column on Xiaomi IPO but it's in Chinese. Here's the link for those that read Chinese.

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