Breakingviews - Chinese tech stars are MAXD out beyond FANG stocks

A man takes a selfie in front of the logo of Xiaomi at a venue for the launch ceremony of Xiaomi's new smart phone Mi Max in Beijing, May 10, 2016. REUTERS/Kim Kyung-Hoon/File Photo

HONG KONG (Reuters Breakingviews) - The global investment community may not be gagging for yet another acronym, but four Chinese tech mega-startups are serving up a ready-made one: MAXD. It even spells out a cautionary message.

Meituan-Dianping, Ant Financial, Xiaomi and Didi Chuxing are four of the most richly valued private companies in the world. Collectively, they could be worth more than $400 billion when they make their market debuts, possibly this year.

Xiaomi, a Beijing-based smartphone maker that aspires to be some sort of technological hypermarket, just unveiled its initial public offering documents in Hong Kong. Ahead of Xiaomi’s financial disclosures, a valuation of $100 billion circulated in media reports, though that may be a stretch at more than five times last year’s revenue.

Meantime, a current private funding round for Ant Financial, a payments outfit affiliated with Alibaba, could impute a valuation of $150 billion, according to the Wall Street Journal.

Ride-hailing service Didi is eyeing a potential $80 billion price tag as it gears up for an IPO. And Meituan, a food reviews and delivery operation backed by Tencent, raised money last year at a $30 billion valuation. It’s preparing to go public as soon as this year at twice that sum, or more, Bloomberg reported.

Such large numbers may not faze public investors, who have become accustomed to 11- and 12-figure tech valuations. China’s BAT – Baidu, Alibaba and Tencent – clocks in at over $1.1 trillion of combined market value. And America’s FANG stocks – Facebook, Amazon, Netflix and Google (whose parent renamed itself Alphabet) – add up to nearly twice as much, at some $2.2 trillion.

The difference is that all those companies were notably smaller when they listed. Large pools of money sloshing around in venture-capital funds and beyond have enabled entrepreneurs to bulk up long before they tap public markets. The risk is that new investors in these latest pioneers will have far less to gain.

Consider the returns at Netflix. At the time of its May 2002 debut, Netflix was worth about $300 million. It is now valued at $140 billion. For Xiaomi to deliver a similar return, by 2034 it would have to command a market capitalization of over $40 trillion. Odds are that the company, and its three companions, will be MAXD out long before they achieve that sort of milestone.


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