Since 2017, Chinese technology companies have seen the third wave of getting listed .According to a report by PricewaterhouseCoopers, because of the increase in the number of Chinese companies listed in overseas and Hong Kong, the number of IPOs in China's TMT companies in the second half of 2017 totaled 49 IPOs, totaling approximately RMB 50.2 billion. The China Literature Group with a financing sum of approximately RMB 7.4 billion, Qudian Inc. with approximately RMB 6 billion and the Yixin Group with approximately RMB 5.7 billion in financing; all of them were listed in the fourth quarter of 2017, and they were the largest Chinese TMT enterprise IPO in the second half of 2017.
In the first half of 2018, China's TMT enterprises had a total of 26 IPOs, down 56% from the same period in 2017, which was 59, yet the financing amount had reached RMB 57.8 billion, a sharp increase of 124%. For specific industries, software and service industry companies have a total of 14 IPOs, accounting for 54%; technical hardware and equipment industry companies IPO 12, accounting for 46%. Among them, the IPO of Foxconn, iQiyi, and Bilibili were listed in the top three of all listed TMT companies in the first half of this year, and the three IPO financings accounted 77% of total TMT corporate finance for the first half of the year in China. Specifically, Foxconn was listed on the A-share main board in the second quarter of this year, with financing amount of approximately RMB 27.1 billion. The video sites iQiyi and Bilibili were listed on NASDAQ in the first quarter, and the financing amount was approximately RMB 14.2 billion and about RMB 3 billion respectively. In terms of the choice of listing sites, more Chinese TMT companies choose to go public in Hong Kong and overseas markets. In the first half of this year, the number of TMT companies listed in Hong Kong and overseas markets has reached 12, compared with only one in the same period last year.
As the speed of IPO in China showed signs of slowing down in the first half of the year, the Hong Kong market attracted a number of TMT companies to go public due to the introduction of new regulations and relatively loose listing conditions. This is a major year for the Hong Kong stock market to get listed. In the second half of the year, driven by heavyweight IPOs such as China Tower and Xiaomi, the trend is expected to continue.
Corresponding to the IPO blowout of Chinese companies seems to be the boom in the development of the technology industry, but if one looks closely, this round of IPO boom is more like a "huge escape" before the crisis; one reason is that the reform of the weighted voting right of the Hong Kong Stock Exchange is a factor that attracts the listing of technology companies. Although the overall current market environment in Hong Kong is pessimistic, and that the U.S. stocks have reached new highs under the leadership of technology stocks, Chinese technology companies are still plunging into Hong Kong with low valuations, reflecting the rush of their IPOs and their desire to follow the trend before the opportunity disappears. On the other hand, many companies have suffered falling after their debut in the listing. Win.d's statistics show that 13 Chinese companies listed in Hong Kong in the first half of this year fell below the issue price on the first day of listing; while the statistics compiled by Bloomberg indicate two-thirds of the 21 Chinese technology companies that had gone to the U.S. IPO in the past year have fallen below the issue price. Correspondingly, technology stocks as the "unicorns" of the U.S. stock market are almost the only source of U.S. stocks' upward momentum. In the first half of the year, technology stocks contributed 98% to the S&P 500 index. The decline in this environment shows that investors have doubts about the profitability and creativity of Chinese technology listed companies.
On the surface, the market environment factors, IPO "blowout" caused pressure on the capital market, capital pressure, and other factors, but fundamentally, Chinese technology companies ignored the low valuation of the listing, while encountering large-scale breaks, reflecting the problem that technology companies are stepping on the IPO and catching the last bandwagon of the wave of technology investment.
Why are these "new economy" companies so urgently getting listed? One reason is that the innovative model of the mobile internet is difficult to sustain and can no longer achieve expected growth. This current "unicorn" companies that have been listed overseas are almost all based on the development of mobile Internet. Under the premise of no changes in the business model, it is difficult to rely on "traffic" to gain market size and profitability. Another concern is that many venture funds have entered the "liquidation period" in 2018 and need to cash out. In 2013-2015, under the guidance of the "double innovation" boom, the number of Chinese investment institutions and the number of funds raised had blown out. In 2014 and 2015, the number of funds and the number of funds raised reached 448 units and 721 units with US$ 63.1 billion and US$ 220 billion respectively. Under the situation of "asset shortage," many funds do not consider the issue of making more profit, but rather how to recover the funds as soon as possible. Under the pressure of the capital cashing out, companies must be listed as soon as possible, which also promotes the trampling of corporate IPO.
At the same time, there are more and more indications that the global technology industry is facing the threat of "serious winter". If the companies do not get listed, they will miss the third wave of technology. The first IPO wave of technology companies was in 2000; the first batch of internet companies in China that were listed was Baidu, Shanda, Sohu, and Netease listed in the U.S., and Tencent in Hong Kong. The second time was around 2010, Youku, Dangdang, Qihoo 360, Renren, Kaixin, Thunder, and others set off a new round of overseas listings. The third time has continued since 2017. The U.S. stocks that experienced nine long bullish years have continued to refresh their historical highs this year. Now, there are more and more institutions starting to discuss the inflection point of U.S. stocks. The first and foremost is the technology stocks that lead U.S. stocks to rise, or if they will drag down U.S. stocks. The semi-annual report shows that the performance of U.S. technology companies is not as expected, indicating that the value of technology stocks needs to be revalued. Market data also shows that technology stocks currently account for 26% of the S&P 500 index, which is 29% of the year 2000. If Amazon is included, the technology industry's weight in the S&P 500 has exceeded the peak of the internet bubble. Therefore, although technology stocks still occupy the main positions of hedge funds, accounting for about 25% of the portfolio, there is a gradual decline. In the process of forming the inflection point, Chinese technology companies are taking the time to seize the IPO before the market gets down.
This urgency reflects many common problems of such companies. Many technology companies generally make bigger valuations, rush to get listed even under a losing state, instead of focusing on gaining market share and improving product profitability. It also shows that under the catalysis of various venture capital investments, the Chinese internet industry whether it is investor or entrepreneur lacks the time and patience in real business value creation model, but strives to be in the bandwagon in front of the fools in public investment who still believe in the internet technology.
Final Analysis Conclusion:
This kind of "PPT" model, which relies on spending money to expand the scale, lacks core technology innovation, and does not value creation ability, should not be the direction of China's science and technology enterprises. When capital surplus begins to shrink and the capital market begins to close the door, companies and venture capital that cannot be "freed" through IPOs are likely to be "suffocated" in new market adjustments.
