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Smartphone Firm Xiaomi Has Reportedly Trimmed the Valuation for Its Massive IPO. Here’s Why

Xiaomi, whose upcoming initial public offering may be the largest in four years, has reportedly dialed down the hype around its worth.

The Chinese smartphone firm had, according to a Bloomberg report last week, been aiming for a $100 billion valuation. Now, according to The Wall Street Journal, it’s looking to IPO at a valuation of somewhere between $80 billion and $90 billion.

Why the climbdown? It seems there are two reasons.

Excess optimism

Firstly, its initial targets were criticized for being overly optimistic for a company that makes more than 90% of its money from selling hardware.

Xiaomi, best known for its Android smartphones, is trying to pitch itself as being in the same league as Internet companies like Alibaba and Tencent, which enjoy huge margins. However, that doesn’t match the reality of its business, at least not yet. It still needs to convince investors that it can translate its phone sales into big profits from associated services, Apple-style.

Tough tech stock market

The other likely reason for the devaluation is simply that tech stocks are generally down this year.

Sanford C. Bernstein analyst Mark Newman told the Journal that the new reported valuation target is “more in line with Internet valuations… and still significantly higher than hardware valuations.”

The IPO still doesn’t have a date, but the Journal said it’s probably coming in the next couple of months.