Chinese Ex-Unicorns are Providing Poor Returns to Share Holders
Only 8 of 25 Chinese-Ex Unicorns have had higher share price increases than did the Nasdaq between their IPO and January 7, 2020. The Nasdaq is used for comparison because many Chinese startups have done their IPOs in the U.S., and the Nasdaq is America’s most representative index for high-tech startups. January 7, 2020 is used to avoid the impacts from the lockdown, which has created extreme volatility in global stock markets. This also means that Unicorn IPOs done in 2020 are not included in the table.
These figures are roughly consistent with the results for U.S. ex-Unicorns, results that are reported in the second article in this series on startups and technology. In that article, share price changes were also compared with the Nasdaq changes between IPO time and March 9, 2020, a bit later than that for the Chinese ex-Unicorns because America’s lockdown was instituted after China’s was. Of the 45 Unicorns who had done IPOs before that date, 14 of them (31%) had share price increases larger than those of the Nasdaq, a percentage roughly similar to the percentage (32%) of Chinese ex-Unicorns that had share price increases greater than the Nasdaq.
Even if we look at more recent share price changes, the results only change a little. Only 10 of the 25 ex-Unicorns shown in the tables have larger increases than has the Nasdaq, only 40%. Nevertheless, some of the increases are quite dramatic. Pinduodo, Meituan, Weimob, Niu.com, and BilliBilli have share price increases that are more than twice as large as those for the Nasdaq.
Overall, these results are surprising to me. I expected that Chinese ex-Unicorns would have done better in terms of share price increases than their American counterparts because a smaller percentage of them have losses. About 60% are unprofitable in China vs. 85% in the U.S., and the U.S. (also European, Indian, and other Asian) figures are consistently high across many industries. In a previous article I argued that the fewer unprofitable Unicorn startups in China is because they were competing against weaker incumbents when they were founded. With similar founding dates, but with much higher economic growth, China’s ex-Unicorns faced weak incumbents back in the 2000s when they were founded.
On the other hand, the share price increases reflect recent changes in value, with early changes in value reflected in private valuations while they were Unicorns. Like America’s ex-Unicorns, China’s ex-Unicorns did IPOs many years after they were founded and thus most of their increases in value occurred before they did IPOs. From this perspective, the small number of ex-Unicorns with large share price increases is not surprising.
One difference between China and the U.S. is that more Unicorns have become members of China’s top market capitalized companies. As of January 1, 2020, Ant was #14 (based on private valuation), Bytedance #16, Meituan-Dianping #17, and JD.com #20. In contrast, only one of American’s ex-Unicorns or Unicorns (Uber) had a market capitalization as large as China’s JD.com, and Uber has about $25 Billion in cumulative losses, not a sign of success. Even if we remove Ant because it is a spinoff from Alibaba and Bytedance because it is still privately held (as is Ant), two are left, Meituan-Dianping and JD.com, albeit two Unicorns that were founded in 2003 and 1998 respectively.
The bottom line is that Chinese, American, or other startups are not doing as well as American ones did who were founded between 1970 and 2004. My earlier articles in this series addressed American Unicorns and ex-Unicorns in much detail and my fifth article argued that the source of the problem is fewer breakthrough technologies. This argument can also be applied to China’s Unicorns, and others. It is true that technology is a global business and the lack of breakthrough technologies in the U.S. is a global problem, one that will impact on startups throughout the world, from Korea to Singapore.