NEWSJul 27, 2018

2018 Internet Companies IPO Boom Buzz

26 Chinese Internet technology companies have issued new shares worth $8.5 billion so far, accounting for 9% of the global IPOs.

Since the first half of 2018, many Internet companies such as iQIYI, UXIN GROUP, Yingke, Xiaomi, and Meituan have flocked to the United States or Hong Kong for IPOs. Recently, Pinduoduo, Ant Financial Services Group, Tencent Music, Fast Hands, etc. have also announced prepare for listing in the second half of the year. According to industry sources, the number of Chinese Internet companies that have already gone public and that will file for an IPO will exceed the sum of 2016 and 2017; According to Dealogic data, 26 Chinese Internet technology companies have issued new shares worth $8.5 billion so far, accounting for 9% of the global IPOs. This is the third time that Chinese Internet companies have set off an IPO boom followed the listing of e-commerce companies such as Baidu, Tencent, Sohu, Netease, Ali and JD.

Xiaomi’s listing process in Hong Kong has been going on for a long time, which was a bumpy one. On June 29, Xiaomi finally listed on the Hong Kong Stock Exchange at the issue price of HK$17. Its valuation is about US$54 billion, lower than previously expected. Unlike the long preparation of Xiaomi, Pinduoduo has just completed a round of financing of US$3 billion in April, with a valuation of US$15 billion. After approximately two months, on June 29, US Eastern Time, it was suddenly officially Submitted a prospectus to the US Securities and Exchange Commission (SEC), and the valuation doubled to $30 billion. It is worth nothing that it took only 3 years to collect about 300 million users and over a million sellers. By March 31, 2018, the company achieved a total revenue of ¥1.385 billion. It has increased by 37 times compared with the same period of previous year, and its growth rate made the industry people stunned.

In addition to Pinduoduo, Internet technology companies such as Meituan and Ant Financial Services Group, which are eager to go public after Xiaomi, have also disclosed their prospectuses. Different from the strong profit base of the old e-commerce companies, most of the Internet companies in this round of listings are still in a loss state, but without exception, they are all favored by the capital market, and become a stepping-stone to high valuation. One of executives of Internet financial institutions listed on the Hong Kong stock said: "The reference indicators for Internet companies' valuation are different according to different stages. In the loss stage, the main reference is the future profit forecast, which discount the cash flow that will be made for the profit of the next two or three fiscal years to the present.” In other words, the key to the valuation of Internet companies depends on whether investors are optimistic about their business vision. Most of these Internet technology companies are in their infancy and rapid expansion, and they need to finance with a lot of money to get a higher return in the future. Therefore, the current losses are inevitable, and the most important thing in the capital market is their huge profit prospects in the future.

The Internet companies’ desire for money is the key factor driving the listing boom. The current global economy has been under the shadow of US trade protectionism, and the Fed has continuously raised interest rates, causing the dollar to return, resulting in a shortage of funds available to institutional investors. Coupled with China's macro level is de-leveraging, reducing the debt ratio, many unprofitable Internet companies have difficulties in financing in the primary market as well as their follow-up funds are not enough, the companies face the pressure of capital chain breaks, therefore, the choice of listing seems to be the only way out for its development. Besides, the "unicorn" represented by Xiaomi and Meituan has experienced many years of development, and the company has been relatively mature and stable. Investment institutions have also reached the harvesting period, encouraging these Internet companies to go public, so that investment institutions can smoothly withdraw funds to invest in the next optimistic project.

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