Recently an army of Chinese tech startups is screaming for “IPO in HongKong”. By army we mean more than 120 tech companies in the pipeline and a total of $25.5 billion to be raised by IPO in Hong Kong in 2018 according to an EY forecasts.
The diversity of these tech startups is also far-stretched, covering sectors such as
- human resources
and so forth…basically everything you can imagine in your life. And just one important thing bear in mind, most of these companies are in fact heavily invested by China’s two biggest titans, Alibaba’s Jack Ma and Tencent’s Pony Ma who are now probably drumming their fingers on the table with their eyes half shut, counting their next investee jump the IPO pool with a splash.
BTW, if you ever wonder why Hong Kong suddenly became the hotspot, well, first let us say it finally changed its rigid listing rule to welcome control freak founders, aka the dual-class shares system that allows founders to own a small portion of a company’s total stock, but still get most of the voting power. Second, the political weather of trade war makes the option of US IPO sounds very stormy. In contrast Hong Kong is sunny; it is part of China, and still an international financial hub. Lastly, domestic investors usually understand Chinese TMT companies’ business model better, hence better appreciation of a Hong Kong-listed company’s value which will reflect in its market cap.
Two super heroes apparently emerged from this IPO army, one is Xiaomi and the other is Meituan.
Xiaomi might be the much-hyped “China’s own version of Apple” to many, but in many ways it’s still steering a leaking boat.
- It just disclosed a USD 1.1 billion loss in the first quarter of 2018.
- It reported a total net loss of USD6.9 billion in 2017, although depending on which accounting standard you are talking about, a different computation suggests Xiaomi was actually making USD 818 million profit in 2017.
These put Xiaomi’s prospect under equivocacy. But Xiaomi firmly believes sometimes things have to get worse before they can get better. Its grand vision is: one day it is going to conquer the world by its affordable hardware, which already expanded to over 100 categories; and it will eventually build a unique omnichannel retail ecosystem.
On the other hand Meituan is a copy king, started as a Groupon clone, and after series of merger and acquisition, it keeps copying and stamping rivals’ feet in
- food delivery
- hotel booking
- short-term rental
Critics said Meituan is biting off more than it can chew while burning money like turning its ass on fire, a combined USD 2 billion hemorrhage in the past 3 years. Nevertheless Meituan imposed a devil-may-care attitude. Its IPO pretext said one day it will be a phoenix flying out of fire and take over all market share of online to offline life service. (So entrepreneurs, bristle up your ear and here might be a trick for you to learn: you can sell shit, you can lose money, but you always need a convincing and inspiring story to back you up.)
Anyhow the pendulum of public sentiment swings from left to right, right to left, and no one feels certain regarding the IPO performance of the two blockbusters, which will also directly impact the temperature of the IPO water for the small players later on.
Many beg the question of why the sudden rush of IPO for Chinese tech startups in 2018 and the answers usually boiled down into:
- Economic outlook: it might not look so optimistic in the next few years and VCs are getting tired of raising rounds of money to bake these startups, and now should be a good time to get these hot potatoes out.
- Herd behavior and psychology: if IPO is a party, then you should join in after it started and leave before it’s finish.
For better or for worse, there is still heck of choices for stock investors to weigh in and the thrill of chasing China tech money should be no less than watching the scores of World Cup!