Xiaomi IPO to make dozens of workers millionaires

Now Xiaomi is the fourth-largest smartphone maker in the world and likely will be valued at more than 200 times that amount. — Bloomberg

Eight years ago, before China’s Xiaomi Corp had sold a single smartphone, 56 of the earliest employees pulled together US$11mil (RM43.74mil) to invest in the startup. Rank-and-file workers dipped into savings and borrowed from parents. One receptionist tapped her dowry.

Today, they’re the Lucky 56. Xiaomi is one of the most successful smartphone makers in the world and it’s prepping a blockbuster initial public offering. Their stake in the company may soon be worth US$1bil (RM3.97bil) to US$3bil (RM11.92bil), depending on the stock sale. That works out to US$36mil (RM143.15mil) each at the midpoint.

The fortuitous decision began with workers like Li Weixing, an ex-Microsoft Corp engineer who was employee No. 12. Back in 2010, staffers were working seven days a week out of a bare-bones Beijing office park to get the unknown mobile phone maker up and running. When word spread that Lei Jun and his co-founders were chipping in their own money for a venture financing round, Li and others wanted to join them.

Li, who helped create Xiaomi’s mobile operating system, had around 500,000 yuan (RM311,843) saved up. “It wasn’t enough to buy a house, so he asked if he could invest in Xiaomi instead,” CEO Lei said in a March interview at Beijing headquarters. “We said, we can’t let only Weixing invest, so we let everyone in.”

Some early Xiaomi employees were already wealthy, including Lei who made his first fortune leading software developer Kingsoft Corp and investing in Chinese startups. But many staffers in those days had to scrape together cash to participate. Li and others preferred investing in an effort they knew rather than the uncertain stock market. Now Li stands to make US$10mil (RM39.76mil) to US$20mil (RM79.53mil), depending on Xiaomi’s IPO value.

It was employee No. 14, a receptionist now working in Xiaomi’s human resources office, who contributed her dowry of around 100,000 yuan (RM62,363) to 200,000 yuan (RM124,727). That stake could be worth between US$1mil (RM3.97mil) and US$8mil (RM31.81mil). Xiaomi declined to make her or other early employees available for interviews. Li declined to comment.

After a first surge of interest, Lei decided to cap rank-and-file investments at about 300,000 yuan (RM187,091) each to limit risk and stop employees from taking out loans to invest. “The interest was overwhelming, but we put a cap on it because we worried, if everyone put in too much money, it would be very bad if the company failed,” said co-founder Li Wanqiang in a March interview.

The group collectively stands to gain as much as US$3bil (RM11.92bil) if Xiaomi floats 15% of the company at a US$100bil (RM397.65bil) valuation when it goes public in Hong Kong later this year, according to calculations based on Xiaomi’s prospectus. A more conservative estimate would yield a US$1.4bil (RM5.56bil) payout for the 56 employees if Xiaomi floats 25% of the company at a US$50bil (RM198.82bil) valuation. (Calculations assume existing shareholders haven’t sold their stakes and the US$11mil (RM43.74mil) from employees was invested during what Xiaomi’s prospectus refers to as Series B-2.) Employees stand to make roughly 200 times their original investment. A greater number of Xiaomi’s workers should be enriched through stock options, which don’t require capital upfront.

Lei and his co-founders put in the heftiest amounts in that round and stand to make far more than the average. Five are poised to become newly-minted billionaires, according to Bloomberg calculations, and Lei’s stake, accumulated over several investment rounds, could be worth US$27bil (RM107.36bil). Investment powerhouses from Qiming Venture Partners to Morningside Group are also expected to reap mega-returns when Xiaomi goes public this year in what may be the biggest IPO since Alibaba Group Holding Ltd’s 2014 debut.

None of this was obvious in 2010. Back then, Xiaomi was really just an idea in Lei Jun’s head, said Hans Tung, one of his earliest backers. Lei was a local tech celebrity with 1 million follows on Weibo, China’s answer to Twitter, but it was far from clear he could compete with Apple Inc, Samsung Electronics Co and Huawei Technologies Co. He would host smoke-and-booze-filled meetings at Beijing hotels, showing up with bags of cell phones and gadgets for his friends to try.

But after Lei lured seven co-founders away from cushy jobs at Microsoft Corp and Alphabet Inc’s Google in a matter of months, Qiming, where Tung worked at the time, and Morningside decided to bet on him. They led fundraising rounds in late 2010 and early 2011 that valued the company at about US$250mil (RM994.12mil). That’s when employees put in their US$11mil (RM43.74mil) too. Now Xiaomi is the fourth-largest smartphone maker in the world and likely will be valued at more than 200 times that amount.

“Lei Jun is the founder. He could afford all the capital. But why did he share with everyone?” said Morningside co-founder Richard Liu. “He has a vision and he can build up that strong belief and people are willing to take the huge risks.”

Silicon Valley is known for its secret millionaires who were early joiners at companies like Facebook Inc. Among the more famous examples is Bonnie Brown, the massage therapist who bargained for stock options to accompany the US$450 (RM1,789) a week she was making at her part-time job at Google. She retired a millionaire after five years at the company.

In China, such riches are virtually unknown. “These employees already had enough risk working for a small, untested startup and it showed this great enthusiasm,” said Tung. “They turned out to be right.” — Bloomberg

Source: The Star Online

Tencent faces worst margins on record

HONG KONG: After the giddy heights of January when its shares hit an all-time high, Tencent Holdings Ltd. has shed $82 billion in value as investors price in the costs of the internet giant’s massive spending spree.

Results on Wednesday are expected to show that rising costs and investments will hurt profitability at Asia’s biggest listed company.

While Tencent has said sacrificing margins in the short-term is necessary to anchor future growth, analysts are concerned that the company isn’t yet able to make enough money from its mobile games to offset a decline in the desktop unit, its most profitable platform.

Shenzhen-based Tencent has been expanding into new businesses such as cloud computing and paying for fresh content, a strategy that contributed to a 72 percent surge in costs in the fourth quarter.

Analysts predict gross margin in the latest period dipped below 47 percent for the first time since 2003, the earliest figures available, according to the average of 11 estimates compiled by Bloomberg.

While they remain bullish on the stock, Citigroup Inc. and Deutsche Bank AG are among brokerages that have lowered their sales or earnings expectations in 2018.

“The short-term weak performance in PC games coupled with larger payment-related subsidies and weaker ad seasonality may affect the company’s margin,” China International Capital Corp. analyst Natalie Yue Wu wrote in a May 8 note.

“We see a period of share price weakness due to game business.”

Shares of Tencent have slipped 14 percent since its high on Jan. 23, declining more than twice as much as Hong Kong’s benchmark index.

Tencent ramped up spending this year as it competes with e-commerce rival Alibaba Group Holding Ltd. on most fronts, including online entertainment, payments, cloud computing and even retail, Alibaba’s home turf.

Tencent’s retail-related deals this year include its backing of Carrefour SA’s China unit and leading a $5.4 billion investment in Wanda Commercial Properties Co. It’s also been pumping money into its hottest online games, and fending off competitors in the mobile-streaming and content business.

The battle has been a drag on margins at both Chinese companies. For Tencent, a stake sale from a major holder and a decline in the shares of some of its largest investments have put more pressure on the stock.

The options market is implying a daily move of 2.4 percent either way after the results, which would be the biggest earnings-day reaction in more than two years. – Bloomberg

Source: The Star Online

Lazada rolls out e-wallet for quicker payments

Lazada rolls out its own Lazada e-wallet, which allows for more seamless purchasing on the e-commerce site – Lazada

Removing more barriers from impulsive shopping, e-commerce site Lazada now allows users to make one-click payments using its new e-wallet.

The e-wallet can be topped up through several methods, including credit and debit cards, payments via 7-Eleven stores and bank transfers.

The maximum the e-wallet can hold is RM4,999.

To incentivise users to adopt the Lazada e-wallet, the site is offering discounts and rebates, in addition to allowing for one-click payments and speeding up refunds.

For instance, it has introduced Wallet Tuesdays which offers 10% cashback for purchases made in app with a minimum spend of RM100. However, the max discount offered will be RM20.

It is not clear at this time if the Lazada e-wallet would be opened up for payments outside the site.

According to Lazada’s promotion page, users can activate the e-wallet by requesting Lazada to issue a confirmation e-mail as a security measure.

Users would also need to confirm their mobile number so they could receive OTP (One Time Password) messages when using Lazada e-wallet.

Source: The Star Online

Alibaba buys $9.5b food-delivery startup

An Ele.me deliveryman on his electric scooter. Photo credit: Alibaba

Jack Ma just ordered some Chinese takeaway – he’s bought food-delivery startup Ele.me in a multibillion-dollar deal.

Ma’s Alibaba announced this morning that it’s taking “full ownership” of Ele.me – which means “Hungry?” in Chinese – by topping up the stake it had in the startup after earlier investments. The buyout figure isn’t disclosed, but the online shopping giant says Ele.me is now valued at US$9.5 billion, up from the US$5.5 billion it was pegged at last year.

Ele.me’s blue-and-white delivery personnel and their electric scooters are a common sight across China. The service gets 9 to 10 million orders each day, which its riders dash to collect and deliver from around 1.3 million participating stores, including major chains like KFC and Starbucks. Its app claims to have 260 million users.

Food fight

Even before today’s deal, Alibaba and Ele.me have been working closely together, with the startup’s foodie offerings available from within Alibaba’s spin-off Alipay mobile wallet app, which has 450 million users.

China’s booming food-delivery market was worth US$31.9 billion in 2017, up 23 percent from the year before.

Alibaba’s Ele.me is locked in a fierce battle for all that takeout food, with archrival Tencent backing two different apps, Meituan and Dianping. Those three apps dominate the market.

Source: Tech in Asia

Grab launches a bike-sharing service in Southeast Asia

After much speculation, Southeast Asian Uber rival Grab has jumped into the bike-sharing space after it launched a service in Singapore.

GrabCycle Beta will offer services from a range of services, including bike-sharing services oBike — which includes Grab as an investor — GBikes and Anywheel, plus electric scooter rental Popscoot. The project is the first to launch under GrabVentures, Grab’s new “innovation arm” which is focused on projects in verticals beyond taxi rides such as payments and transportation.

The project ties into Grab’s payment efforts because GrabPay credits, its virtual currency, are used to pay to rent a cycle.

While dock-less bikes have their fans for making access to bikes easier, they have also adopted criticism for large cycle ‘dumps’ which have become commonplace across China. Grab is looking to mitigate that concern by partnering with Singapore island resort Sentosa, which will feature dedicated parking stations for bikes. The company plans to add other partners to help avoid “polluting public spaces” with cycles.

“In Singapore, approximately one in five car commutes are three kilometers and under. There is huge potential to convert this segment of commuters into bike-sharing users, in support of the country’s car-lite ambition,” Grab wrote in an announcement that was distributed to press today.

In adopting a marketplace-style model from the get-go, Grab is avoiding the issues that Didi — a Grab investor — encountered in China when it invested in bike-sharing company Ofo. As demand for bike-sharing rocketed, Ofo found itself becoming a potential threat to Didi. Throw in some internal politics between investor and investee, and Didi moved to counter the younger company by introducing a marketplace that served bikes of its own, alongside those from Ofo and Bluegogo.

The move was essentially aimed at relegating Ofo to a feature within Didi’s app in a bid to remove the need for consumers — and potential Didi customers — to install Ofo’s own app. That’s important because Mobike, an Ofo rival, has moved into taxi services and there is the potential for Ofo to do the same at some point.

Back to Southeast Asia, Grab’s service is initially operational in Singapore, where the firm is headquartered, but there is the potential to expand it to other markets in Southeast Asia, a spokesperson confirmed. Right now, the core Grab service is present in eight countries across the region with 86 million downloads and 2.6 million drivers.

Rumors persist that Grab is on the brink of agreeing to a deal that will see it acquire Uber’s Southeast Asia business in exchange for equity, according to Bloomberg. Any such deal would make it the dominant player across the region bar Indonesia, where local unicorn Go-Jek remains top of the pile.

Uber has moved into bike-sharing in the U.S. but it has not done the same in Southeast Asia despite its head of the region admitting to TechCrunch that the company is studying space.

Source: TechCrunch

Grab is said to close deal for Uber South-East Asia business

Grab would buy out Uber’s operations in certain markets in South-East Asia and Uber will take a stake in Grab. — Bloomberg

Grab, the dominant ride-hailing service in South-East Asia, is close to finalising a deal to acquire Uber Technologies Inc’s business in the region and may sign a deal this week or next, according to people familiar with the matter.

Under terms of the proposed agreement, Grab would buy out Uber’s operations in certain markets in South-East Asia and Uber will take a stake in Grab, the people said, asking not to be named because the talks are private.

The structure would be similar to the deal Uber struck with Didi Chuxing in China in 2016, when the San Francisco-based company sold its local operation in exchange for equity in the company.

Under a scenario being considered, Uber’s stake in Grab is likely to be in the high teens or 20%, said one of the people. Grab has separately been in discussions with existing backers, including SoftBank Group Corp, and new investors for additional capital, according to people familiar with the talks.

Grab was most recently valued at US$6bil (RM23bil) according to CB Insights. The current talks may still fall apart or the terms and timing may change. Grab and Uber declined to comment.

For Grab co-founder and chief executive officer Anthony Tan, the truce would bring to an end a bruising battle for leadership in South-East Asia’s fast-growing ride-hailing market.

The companies have been locked in a struggle for control of as many cities as possible across South-East Asia, home to 620 million people.

Uber’s new CEO, Dara Khosrowshahi, has been pushing to clean up the company’s financials in preparations for an initial public offering next year. Pulling out of markets like South-East Asia would boost profits at a company that has burned through US$10.7bil (RM41.7bil) since its founding nine years ago.

Khosrowshahi signaled during a trip through Asia last month that he is committed to key markets such as Japan and India.

Japan’s SoftBank became the largest shareholder in Uber in January, setting off speculation that it would encourage ride-hailing startups in its portfolio to cut back on competing with each other. SoftBank also holds stakes in China’s Didi and Ola, the India startup vying with Uber for leadership in that market.

Grab, which has more than 81 million mobile app downloads, currently offers services in 178 cities across Singapore, Indonesia, the Philippines, Malaysia, Thailand, Vietnam, Myanmar and Cambodia. — Bloomberg

Source: The Star Online