Xiaomi plans $1.5 billion stock buyback to curb share price slide

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A Mi 8 phone sits on display in a Shanghai Xiaomi store on March 22, 2019. (Image credit: TechNode/Cassidy McDonald)

Chinese smartphone maker Xiaomi announced on Tuesday a plan to repurchase up to HKD 12 billion (around $1.5 billion) worth of stock in an effort to halt a dramatic decline in share value, which have fallen nearly 50% from its July 2018 initial public offering price.

Why it matters: The growth prospects of the Beijing-based company have been dented by a slowing global smartphone market as its efforts to reinvent as an internet company rather than a hardware manufacturer has struggled to take hold.

  • Worldwide smartphone shipments dropped 2.3% year over year in the second quarter in the seventh consecutive quarter of decline, according to market research firm IDC.
  • Hong Kong-listed Xiaomi’s share prices have dropped by nearly a third so far this year despite reporting two consecutive quarters of strong revenue growth.

Details: The board of directors believes that a share repurchase will broadcast the company’s confidence in its own business outlook and prospects, and will benefit the company as well as its shareholders, said Xiaomi in a statement (in Chinese) filed to the Stock Exchange of Hong Kong on Tuesday.

  • Shares of the company climbed nearly 7% following the announcement.
  • The board will also consider further share repurchases depending on market conditions, said the company.

Context: Xiaomi chairman and CEO Lei Jun, as well as chief financial officer Chew Shou Zi, had pledged earlier this year that they wouldn’t sell their Xiaomi shares for another year to stabilize its stock price.

  • Last month, Xiaomi co-founder and president Lin Bin sold 41 million shares of the company with a value of HK$373 million over three straight days in a week. He later made a public promise that he will not dispose of any of his stockholding in the company over the next year, in hopes of restoring market confidence in Xiaomi.