Chinese Internet companies that can go public have flocked to the stock market in the past few months. Those who make a lot of money are there, so are those who have no hope of making a profit; those who have started a business for more than ten years and those who have been established for less than three years; those who have been scrambled for and no one is interested in; and those who have been exposed to policy dividends and strengthened supervision.

No one knows when the carnival of US and Hong Kong stocks will end, but there seems to be a consensus that this capital bubble, which is far hotter than the real economy, will burst. Everyone wants to finish IPO before the window closes. At this time, the brightest entrepreneurs announce that they will step down and do something that has nothing to do with the day-to-day operation of the company.

Deja vu happened once in 2018. Only after three years, the listed companies have changed from Meituan, Pinduoduo and Bilibili Inc. to KE Holdings Inc., Kuaishou Technology and DiDi Global Inc., and the business leaders who announced their retirement have changed from Jack Ma to Huang Zheng and Zhang Yiming.

Similar macro background, similar charge listing, but Chinese Internet companies have different judgments on what to do next.

On the day of China Renaissance Holdings Ltd. 's listing in Hong Kong in September 2018, Bao Fan, chairman of Huaxing, thanked many people. Finally, he said, "what you should be most grateful for is this era."

As the company with the most financing for China's Internet industry, Huaxing's listing is seen as a signal. Some people think that Chinese Internet companies have gone public, and now the companies that help them raise funds have also gone public, indicating that an industry has peaked. There were similar comments when American private equity giant Blackstone Group Inc (Blackstone) went public in 2007, and the financial crisis broke out a few months later.

Two weeks after Huaxing's listing, NIO Inc. went to list on the New York Stock Exchange, which caught up with the trade conflict between China and the United States, raising nearly half as much as planned. After ringing the bell, Li Bin, founder of NIO Inc., lamented to his wife in the hotel: "an era is over."

In 2018, entrepreneurs generally became more cautious. Li Bin immediately stopped the NIO Inc. Shanghai factory under construction when he returned home. Wang Xingzi said in Meituan's annual report after going public that he should treat new business cautiously and make the company profitable for the first time the following year. Cheng Wei, who led DiDi Global Inc. to raise nearly $20 billion through subsidy expansion, announced in that year that he would reduce subsidies and recuperate.

2021 is a different landscape. While preparing for the listing of the main body of DiDi Global Inc., he continued to invest in independent financing with new businesses such as community group buying and self-driving. Meituan announced that he would expand his business boundary to become a retail company and invest heavily in community group buying, thus increasing capital by nearly US $10 billion in April, setting a record for Hong Kong stocks. A month later, Meituan released a quarterly report with a net loss of 4.8 billion yuan.

Even the already lucrative BABA decided to change course and announced in May that he would no longer chase profits and put more money into expansion.

The most successful companies are reluctant to stop there, their businesses become more borderless, there is no limit to investment, and the struggle required has no end. The war has been involved in all Internet companies, infiltrating more industries and mobilizing unlimited capital.

IPO is no longer the turning point.Ensuring profits has become a stupid thing.

On May 13, 2021, BABA announced that he would spend more money in the future on strategic areas such as acquiring customers, strengthening supply chain capacity, and reducing business operating costs. An analyst for JPMorgan Chase & Co then asked management to clarify whether this meant zero profit growth for BABA in the new fiscal year.

BABA CFO Wu Wei responded: "if we ensure that profit growth is either flat or does not decline today." Real long-term investors will think BABA is stupid. As you can see, so many competitors are making huge investments. "

This is a big change after BABA went public. BABA was once a pioneer in the expansion of China's Internet economy, promising that Taobao would not charge merchants a penny for five years. But with the listing in 2014, BABA began to focus on profitability and return to shareholders.

BABA's operating profit was less than $200m in 2011 and has exceeded $13.6 billion in the latest fiscal year, a nearly 70-fold increase in ten-year profits.

Listing was once seen as a turning point in the development of technology companies: start-ups burn a lot of money through venture capital and strive for as fast growth as possible in the shortest possible time; after listing, companies shift from unlimited pursuit of growth to emphasis on profits, from growth to maturity. The founding team and their employees also slowed down and invested the money they earned in the next batch of entrepreneurs.

Silicon Valley technology companies such as Google and Facebook Inc, and Chinese science and technology companies such as Tencent, BABA and Baidu, Inc. have all taken the same path.

But today BABA's management thinks it's stupid to go down this road. Because this new batch of Internet giants, such as Meituan and Pinduoduo, who also want to do retail business, do not go this way.

In 2018, Pinduoduo, which was founded less than three years ago, went public with 300 million users and sold less than 500 billion yuan of goods a year. Three years later, these two figures became 800 million and 1.6 trillion yuan. As a result, its market capitalization has risen to five times what it was when it went public.

The growth is accompanied by huge investment and sustained losses, especially after starting the community group-buying business. From July last year to March this year, Pinduoduo spent more than 37.6 billion yuan on marketing.

There are also Meituan who are not afraid of losing money and spend a lot of money on community group buying. Meituan's new business lost 6 billion yuan in the fourth quarter of last year, half of which came from community group buying.

Tens of billions of dollars of investment is to use subsidies to make the public quickly accept community group purchases, and then move fresh consumption from vegetable markets and merchants to the Internet platform, opening up a new market of 5 trillion yuan.

Wang Xing, founder and chairman of Meituan, for this "once-in-five-year or even once-in-a-decade opportunity", has changed the company's development expectations from "food + platform" to a retail company, hoping to rely on community group buying to give Meituan three or four billion more users.

BABA's retail position once seemed unshakable. In the past fiscal year, more than 8 trillion yuan (GMV) of goods were sold on BABA's platform, equivalent to more than 5 yuan spent by Chinese people except cars. By contrast, Amazon.Com Inc contracted only about 10 per cent of American consumption.

Competitors who are not afraid of loss are pressing step by step, and even a giant with such a large-scale advantage does not have sense of security, so it is necessary to give up the pursuit of profits and enter new competition.

Changes in consumption habits and the birth of new business models will shake the monopoly position. Subversion is taking place in one smaller market after another, and there is more or less a confrontation between Tencent and byte beating.

Tencent's China Literature went public in 2017 and made a profit of 1 billion yuan that year, allowing nearly 10 million people to pay to read novels on products such as starting Point and Tencent Reading. The company, formed by the merger of Shanda Literature and Tencent Literature, was once regarded as the ceiling of the online novel market.

But free can open up a bigger market, giving newcomers a chance to surpass former industry leaders. In the past three years, Byte, Baidu, Inc. and Qutoutiao have successively launched new products that read books for free and make money from advertising. The online article has become the mass consumption of 500 million people, and the byte tomato novel has become the product with the largest number of users, exceeding the sum of all China Literature's products.

Tencent, who usually does not interfere with the business of the invested company, is also worried. Tencent's airborne team took over China Literature in 2020, launched free novel products and increased marketing expenses by 3.2 billion yuan in two years, resulting in the first loss since listing.

Short videos make a bigger difference.

The long video business of Tencent, Baidu, Inc. and BABA has been engaged in battle for ten years, burning hundreds of billions of yuan. The money war in this industry eased with the listing of iQIYI, Inc. in 2018, and companies no longer bid indefinitely for a show.

But none of them is as profitable as Netflix, because the rise of Douyin and Kuaishou Technology has led to competition between long video platforms and free entertainment.

Statistics by Aurora Mobile Limited and big data show that in the past three years, long videos have occupied the leisure time of Chinese people and have been quickly swallowed up by short videos. 12.5% of the time Chinese spent using mobile phones in 2018 were watching long video programs such as TV and movies, compared with 9.8% at the end of the first quarter of this year, while short videos soared from 9.9% to 29.6% in the same period.

Or live. YY and Momo Inc are companies with a market capitalization of billions of dollars, serving more than 100 million users in China and making hundreds of millions of dollars in profits every year. Now Kuaishou Technology and Douyin are both doing live broadcasts, making the live broadcasts a national consumption, eroding the breathing space of YY and Momo Inc.

No one can stay in a corner when large companies expand their borderless business.

A sleepless companyCatch up with endless capital

Unlimited business competition depends on unlimited financial support. Now, in addition to byte jump, the largest Internet platform companies in China have basically been listed, and more financing also comes from the secondary market.

After the outbreak, the US government released water to support the economy, and money with nowhere to go poured into US and Hong Kong stocks, pushing up share prices and allowing listed companies to exchange fewer shares for capital.

Since going public in 2018, Pinduoduo, including IPO financing, has raised nearly $12 billion from the capital market through additional issues and convertible bonds. Its fund-raising costs are low, with up to 3 per cent diluted by $6 billion of convertible bonds, according to Dolphin Research.

Meituan, who also challenges BABA, is also siphoning funds in the open market. In April this year, Meituan announced the issuance of US $2.983 billion of convertible bonds and an additional US $7 billion of shares.

The total amount of financing raised by the two companies in the public market over the past three years has exceeded the combined investment in the ride-hailing war for more than a decade.

In addition to issuing additional shares and convertible bonds to raise capital, a large number of Chinese companies that have been listed in the United States have raised funds in Hong Kong's second IPO.

According to China International Capital Corporation's statistics, by the end of March this year, 13 listed stocks, including BABA, Baidu, Inc. and Bilibili Inc., had returned to Hong Kong to raise 280.2 billion Hong Kong dollars (US $36.1 billion)-DiDi Global Inc., the largest fundraiser in China's private equity market. more than 20 rounds of financing in nine years totaled more than 20 billion US dollars.

It has also become the norm for giants to break up new businesses and go public in exchange for capital. JD.com has brought JD Health and JD Logistics, Inc. to Hong Kong in the past six months. DiDi Global Inc., who has just handed in the prospectus, has planned to let Orange Heart Optimization, autopilot and other businesses continue to raise funds in the private market and seek independent listing.

According to the incomplete statistics of later LatePost, the ten Chinese Internet and technology companies with the most financing in the overseas secondary market have raised nearly 150 billion US dollars through various methods since 2018, equivalent to more than half of the entire private equity market.

Abundant capital flows to only a very small number of companies. The number of people who start Internet companies is decreasing year by year, and the number of successful ones is even less. But people who have been successful in this industry are seeping into other industries with experience and capital.

After the subsidies are removed, the three fastest-growing electric car brands are all managed by former Internet entrepreneurs. Yuanqi Forest Group develops new drinks, makes quick comparative tests to judge the prospects of products, and continues the way its founder, Tang Binsen, worked as a game company. Chuang Chenchao, the founder of Qunar, has a set of algorithms to determine the work of store clerks, replenishment and placement of goods. At present, more than 2000 stores have been opened and spread across the country.

Venture capital firms are trying to replicate similar successes, bringing the internet's valuation system to other industries.

Companies that need to open offline stores can also raise money every six months or three months and multiply their valuations several times. The average valuation of a number of chain Chinese pastry shops and coffee shops has reached hundreds of millions of yuan per store, several times the value of Starbucks Corp's single store.

From chips, real estate, manufacturing, consumer goods to education, the only boundary for people and capital coming out of the Internet industry to transform all open markets is regulation.

The choice that entrepreneurs make.

Economist Gu Chaoming believes that Japan's economic depression in the 1990s was the result of entrepreneurs losing confidence and no longer investing.

At that time, Japan's economic bubble burst, stocks plummeted and corporate assets depreciated. In order to avoid insolvency, Japanese entrepreneurs no longer borrow money even if interest rates are zero. They try their best to cut wages and expenses and give priority to paying their debts.

But one person's consumption is another person's income. Enterprises do not invest, do not recruit people, a large amount of money is stranded in banks, can no longer flow into economic life, further leading to asset shrinkage, a vicious circle.

Japanese enterprises have slammed on the brakes from pursuing growth to minimizing debt, which has prevented the Japanese economy from falling into a greater disaster, but it has also led to a long-term depression in a country, which has completely changed the attitude of a generation of young Japanese towards the world. suppressed the positive and desire of a generation.

With geopolitical deterioration, slowing economic growth, peak demographic dividends and even rapid aging, it is time to choose one of the most dynamic forces in China's economy over the past 40 years.

Due to the unique historical background, today's private enterprises in China are young start-up companies. The Internet giants, in particular, are the oldest in their early 20s, and most of their controllers are still those who founded these companies, rather than professional managers or family offspring.

Their choice is to expand and transform larger markets rather than shrink and improve financial performance; they choose to open up unlimited competition, relying on financial institutions and global capital that also have no limits on themselves. spend more money, hire more people, and use the accumulated technology and management experience to try to rewrite the success of the past 20 years in a larger market.

Returns go hand in hand with risk, and no one can predict whether this is a better choice. To be sure, this is indeed a choice that can only be made by the generation with the highest density of entrepreneurs.