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SEA/Chinese tech IPOs: Masayoshi’s sons Premium


AN HOUR AGO
Who would want to miss the chance of backing the next Masayoshi Son? Investors have this week welcomed the plans of Chinese tech groups to float in the US. They hope to replicate the SoftBank founder’s savvy early investment in Alibaba. But the new generation of listings are clients of the huge Chinese tech group and Tencent, its rival, not challengers themselves.

Consider SEA Limited. Focused on Taiwan and Southeast Asia, it aims to raise more than 1bn dollars when it begins trading on Friday, having set a price above the indicated range. It already has a problem. A third of revenues come from Taiwan, where the government is suspicious of companies with more than 30 per cent mainland ownership. Yet Tencent owns nearly 40 per cent. The Taiwan Investment Commission has launched an investigation.

The roadshow to promote the initial public offering emphasises e-commerce and payments. But 95 per cent of sales come from “digital entertainment”. Pushing into ecommerce would pit SEA against Lazada, majority owned by Alibaba, igniting a proxy war in Southeast Asia between two tech giants already fighting for market share in Chinese electronic payments.

Amazon and other western technology groups are competing too, outside China. SEA’s losses are already two-thirds of revenues, in part due to ballooning marketing costs.

The group aims to mimic Alibaba’s e-commerce model, where merchants advertise and pay for attractive website placement. Ownership of expensive logistics assets is generally left to less profitable “partners”. But the region’s greater fragmentation and less developed infrastructure may yet force substantial investments there, too.

Alibaba and Tencent own much of the infrastructure that recently listed Asian tech groups need to thrive. Moving into online shopping will be expensive. It is the ambitions of IPO investors, rather than the market positions of incumbents, that are exposed to disruption.