Meizu should be listed for valuation or over 60 billion, how should Xiaomi respond?

In recent years, Huang Zhang, the founder of Meizu Technology, made a special appearance at the company’s annual meeting to deliver an inspiring speech. He highlighted that in 2015, Meizu sold over 20 million units, and wished all employees a happy New Year. During the event, he also set a clear goal for 2016: “stable growth, profit creation, and moving toward an IPO.” While Li Nan, Meizu’s vice president, had previously mentioned the intention to go public as soon as possible, the timeline was considered too ambitious. It's important to note that 2015 marked a turning point for Meizu, as it began to recover from its previous struggles. With the launch of models like Charm Blue and Metal, the brand saw a significant increase in sales, reaching 20 million units and becoming one of the strongest players in the market. However, compared to companies like Huawei and Xiaomi, Meizu still lagged behind in terms of valuation and market influence. This time, though, Meizu seems more strategic. As an internet-based mobile phone brand, it has consistently ranked among the top performers. The upcoming IPO is not just a milestone but also a story that appeals to investors. By taking this step, Meizu is positioning itself to capture market attention and gain early access to capital. What’s interesting is that Meizu’s current marketing strategies and product launches closely mirror those of Xiaomi from a few years ago. At the time, Lei Jun had repeatedly stated that Xiaomi would not go public within five years, yet now it’s Meizu leading the way. Meanwhile, Xiaomi, which now sells over 70 million units annually, has faced some challenges in meeting investor expectations. Meizu’s journey over the past few years has been anything but smooth. In early 2014, a report by Chinese Entrepreneur revealed how tense things were. One evening before the Spring Festival, several senior executives, including Laobai, Li Mei, and Yang Yan, met with Huang Zhang at his home. They discussed the internal and external issues facing the company, pushing him to take action. At that time, Huang Zhang had been less involved in daily operations, focusing more on product development than business management. The situation became critical when Meizu struggled to boost sales, remaining stuck in a "small and beautiful" phase. Key talent left the company, including Ma Zi, former UI design director, who joined LeTV along with other senior managers. This period was a major challenge for the company. Under pressure from the executives, Huang Zhang finally acknowledged the need for change. He admitted that he had been slow to understand the evolving market. To address this, Meizu implemented three major transformations: expanding its product line, bringing in outside investment, and launching an employee stock ownership plan (ESOP). These changes helped shift Meizu from a family-run business into a more professional internet-driven company. Alibaba’s investment came in early 2014, with the first round of financing valued at around 2 billion yuan, giving Meizu a valuation of 20 billion yuan. Later in 2015, Meizu raised another 650 million USD. On the product side, the company moved away from its single-price strategy and introduced new models such as Charm Blue, Charm Blue Note, Charm Blue Metal, and high-end Pro series, incorporating features like fingerprint recognition. Sales numbers skyrocketed. In 2014, Meizu sold no more than 5 million units, but by the first quarter of 2015, it already exceeded the entire 2014 volume, hitting over 20 million units for the year. This marked a turning point, allowing Meizu to escape its difficult phase and enter a period of rapid growth. So, what is Meizu’s current valuation? In the first round of financing, it was valued at 20 billion yuan (about 3.3 billion USD), selling 10% of shares. If we estimate based on the 2015 fundraising of 650 million USD, it could be worth around 6.5 billion USD. Comparing it to Xiaomi, which sold over 70 million units in 2015 and was valued at 40 billion USD, if Meizu sells 25 million units in 2016, its valuation could surpass 10 billion USD based on sales alone. According to Forbes' 2023 list of China’s richest people, Huang Zhang was listed with a net worth of 8.57 billion yuan, suggesting a potential valuation of 10 billion USD for Meizu. Adding to that, if Meizu chooses to list on the A-share market, where valuations are often inflated, it could easily reach over 10 billion USD post-listing. However, compared to Xiaomi, Meizu still lags behind in terms of valuation. Xiaomi has a broader ecosystem, including smart TVs and various internet services. Even though its hardware isn’t always profitable, the value of its software and ecosystem plays a big role in its valuation. Compared to Lenovo, which generates about 40 billion USD in annual revenue and 1 billion USD in profit, its market value is still lower than 20 billion USD. So, Meizu might be overvalued. It’s possible that Meizu’s IPO could create another bubble. Investors may get caught up in the hype, but for Meizu, a safe and stable landing should be the priority.

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