China's unicorns still at the initial stage of development

Mar. 7 (NBD) -- As Foxconn gained the approval for its IPO in the A-share market, unicorn companies have become the focus of china's capital market.

According to the business information service provider ITJUZI, there are a total of 124 unicorn companies in 2017, compared to 60 in 2015 and 71 in 2016. 

In 2017, the number of unicorns in enterprise service field saw the biggest growth, the e-commerce, education and healthcare industry respectively took the second, third and fourth place in the ranking of new unicorn number.

China has unique advantages in the innovation of business mode in the internet plus field, Li Zhijian, service industry consultant from National Development and Reform Commission and chairman of Asia-pacific Innovation Economic Research Institute, told NBD. Most of the country's unicorns are in the internet and e-commerce sectors due to China's large market size as well as high population density, Li added.


The opportunities arising from the fast-growing fields have hastened the birth of new unicorns. For example, last year, many new unicorns in enterprise service field are in artificial intelligence and cloud service technology sector, the two sectors that are favored by capitals in 2017. Besides, among all firms in the list, 2 companies in the healthcare field have been involved in big data analysis and application which is also the favorite of investors. In the transportation industry, the leading bike-sharing company Ofo and Hellobike were listed last year.

Despite the increasing new unicorns, some firms also are out of the list in the past 3 years. 

NBD noticed that 19 companies disappeared from the list in 2017, down from 22 in 2016. Some of those firms have been listed and some have outlined time for listing.Finance technology unicorn China Rapid Finance, for example, went public in New York Stock Exchange in 2016. 

The competition and merger among firms in the same sector caused the change of the list as well. For instance, the car hailing firm Uber, which was one of the top ten in the list of 2015, disappeared from the 2016 because it was acquired by its major rival Didi Chuxing.

Though unicorns have become the new trend of investment, Chinese unicorns are still at their initial stage, said Wan Yan, general manager of Zhuhai Wutong Linghang Investment management Co,. Ltd.

Most of the newly-emerged unicorns haven't turned profitable so far, and their valuation is largely determined by the financing results. Those firms in the niche sectors will be highly valued and the investment trend could be variable every year, an analyst in the healthcare industry said to NBD.

With regard to this, Yang Guang, investment director of Innovation Department at Cybernaut Investment Group, commented that unicorns will face the risk of valuation bubbles as well as lacking capitals and they may miss the opportunities in the booming industry. 

Yang further explained that, the development of unicorns entails capital support, but sometimes investors quitted the industry before its boom. Those companies that don't have enough money to burn can barely survive.

Moreover, the valuation for unicorns in the internet field is based on user volume instead of net profits or P/E ratios, so the decline of user amount could lead to the shrinkage of valuation.

The rapid development of unicorn firms is influenced by government's policies, great environment under the new economy, talents in the first-tier cities and other factors, added Wang.

It is difficult for a firm to become a unicorn, and after being one of the unicorns, the company should consider about how to make profits. 

When the leading unicorns completed its valuation and securitization, the further development of the whole industry need more supports from all parties, he said.