Most of the companies we met consider the entire world as their ultimate market.
It is also giving corporate China an ever more global perspective. Most of the senior executives we met talked not only of expansion within China, but also considered the entire world as their ultimate market.
With China relaxing the rules for listing companies both in Hong Kong and in the domestic A-share market, we expect ever more of these Unicorns to come to market. Indeed, in 2018 alone, Xiaomi (hardware and online services, USD50 billion market cap), CATL (battery producer, USD25 billion market cap), iQiyi (online video, USD20 billion market cap), Huya (game live broadcasting, USD6 billion market cap), and PingDuoDuo (e-commerce, USD 25 billion market cap) have all listed.
Meanwhile, Tencent Music and Meituan both recently filed for IPO. We anticipate Ant Financial will list in 2019 which, based on current market valuations, would be the largest Unicorn in the world valued well in excess of USD 100 billion.
One common denominator in a lot of the internet-related Unicorns is that they are typically owned by one of the BAT (Baidu, Alibaba, Tencent). This provides a structural advantage few American based IPOs can count on – an advantage central to why we believe the returns and the cash generation of these Chinese companies can be superior to their developed-market counterparts.
The largest cost item for an internet company is the process of acquiring and engaging users. Many of these Chinese Unicorns are born into massive accessible markets. The BAT owns large gateways to the internet, through a huge collective user-base. Baidu is China’s largest search engine with 70 percent market share. Alibaba is the largest online retail company with over 550 million active consumers. Tencent owns the largest social networking mobile application in China, WeChat, with over 900 million monthly active users (MAUs). Access to any of these gateways reduces customer acquisition costs drastically through various mechanisms and increases the addressable market from day one. This is a luxury which few American based IPOs can exploit.
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