SaaS IPOs: The US Subscription Valuation Model vs Hong Kong's Traditional P/E Ratio

The debate over how to value a software company has become the defining schism between the US and Hong Kong capital markets in 2025. For the past three years, US-listed SaaS (Software-as-a-Service) issuers have traded on a revenue-multiple basis, with the Bessemer Cloud Index showing a median EV/NTM Revenue multiple of 6.8x as of Q2 2025, down from a peak of 22.4x in late 2021 but still the dominant metric for new issuances. In Hong Kong, by contrast, the HKEX Main Board (Chapter 18C) has seen zero completed listings of specialist technology companies in the first half of 2025, as the market continues to apply a trailing P/E ratio of 15x-25x to even the highest-growth software names. This structural mismatch has forced a wave of Chinese SaaS firms—including Kingdee International Software Group (0268.HK) and Yonyou Network Technology (600588.SH)—to reconsider their listing venue choices. The SFC’s January 2025 consultation paper on adjusting the profitability requirements for Chapter 18C issuers (SFC Consultation Paper No. 2025/01) has not yet bridged this valuation gap. The fundamental issue is not regulatory but methodological: US investors accept negative earnings in exchange for recurring revenue growth, while Hong Kong’s institutional base—dominated by family offices and long-only funds—demands a path to GAAP profitability within 24 months of listing. This article examines the mechanics of the US subscription valuation model, the constraints of Hong Kong’s traditional P/E framework, and the structural implications for Chinese SaaS companies planning dual-primary listings in 2025-2026.

The US Subscription Model: Revenue Multiples and The Rule of 40

The US public market’s approach to SaaS valuation rests on a core premise that a dollar of recurring revenue is worth more than a dollar of transactional revenue, and that growth justifies negative earnings within a defined range. This framework is codified not in SEC rules but in the pricing conventions of sell-side analysts and institutional investors.

The EV/NTM Revenue Multiple as a Pricing Standard

For US-listed SaaS companies, the primary valuation metric is Enterprise Value divided by Next Twelve Months revenue (EV/NTM Revenue). As of June 2025, the median EV/NTM Revenue multiple for the Bessemer Cloud Index stood at 6.8x, according to Bessemer Venture Partners’ published data. High-growth names such as Salesforce (CRM.NYSE) trade at 7.2x, while ServiceNow (NOW.NYSE) commands 12.4x. These multiples are applied regardless of whether the company is GAAP-profitable. The logic is that subscription revenue—contracted, prepaid, and with high renewal rates—represents a predictable cash flow stream that justifies a premium over traditional software licensing revenue.

The S-1 filings of Chinese SaaS companies pursuing US listings in 2025 reflect this model. For example, the June 2025 F-1 filing of Beijing-based HR SaaS provider Moka Technology disclosed an EV/NTM Revenue multiple of 8.3x in its indicative price range, despite reporting a net loss of USD 48.2 million for FY2024. The underwriters—Goldman Sachs (Asia) LLC and Morgan Stanley & Co. LLC—priced the deal based on a peer group of US-listed HR SaaS firms including Workday (WDAY.NASDAQ) and Ceridian (DAY.NYSE), both of which trade at negative P/E ratios but positive EV/Revenue multiples.

The Rule of 40 and Growth-At-Reasonable-Price (GARP) Variants

The Rule of 40—which states that a SaaS company’s revenue growth rate plus its EBITDA margin should exceed 40%—has become the primary filter for US institutional investors evaluating SaaS IPOs. Data from the 2025 SaaS Capital Survey indicates that companies above the Rule of 40 threshold command a median EV/NTM Revenue multiple of 9.2x, while those below trade at 4.1x. This creates a clear incentive for Chinese SaaS issuers to prioritize growth over near-term profitability when targeting a US listing.

The US market also applies a GARP variant that adjusts the revenue multiple for growth duration. The “Magic Number”—calculated as the change in annualized recurring revenue (ARR) divided by sales and marketing spend from the prior quarter—is used to assess unit economics. A Magic Number above 0.75x is considered efficient, while below 0.5x signals potential over-spend. This metric is rarely cited in Hong Kong IPO prospectuses, where the focus remains on trailing P/E and net asset value.

The Risk of Multiple Compression Post-Listing

The US model carries a structural risk: revenue multiples compress rapidly when growth decelerates. The Bessemer Cloud Index shows that companies growing below 20% year-over-year trade at a median EV/NTM Revenue of 3.2x, a discount of 53% compared to those growing above 30%. This creates a “growth trap” for Chinese SaaS firms that list in the US, raise capital at a high multiple, and then fail to sustain the growth rate expected by the market. The 2024 experience of Ke Holdings (BEKE.NYSE)—which saw its EV/Revenue multiple contract from 8.5x at IPO to 2.1x within 18 months—serves as a cautionary precedent.

Hong Kong’s Traditional P/E Framework and Chapter 18C Constraints

Hong Kong’s equity market has historically valued companies on earnings multiples, with a strong preference for GAAP profitability. The HKEX’s Chapter 18C, introduced in March 2023 to attract specialist technology companies, attempted to accommodate pre-revenue and pre-profit issuers, but the market’s reception has been tepid.

The Profitability Requirement and Market Practice

Under HKEX Listing Rule 18C.03, a specialist technology company must either have annual revenue of at least HKD 250 million and a market capitalization of at least HKD 8 billion (for commercial companies), or meet a higher market cap threshold of HKD 15 billion with no revenue requirement (for pre-commercial companies). Despite these concessions, the HKEX has seen only three completed Chapter 18C listings as of June 2025, all of which were biotech firms rather than SaaS companies. The fundamental reason is that Hong Kong’s institutional investor base—which includes the Mandatory Provident Fund (MPF) schemes, insurance companies, and family offices—operates under investment mandates that restrict holdings in companies with negative earnings for more than two consecutive fiscal years.

Data from the Hong Kong Investment Funds Association’s 2025 Annual Survey shows that 78% of Hong Kong-domiciled equity funds have explicit P/E ratio floors in their investment mandates, with a median minimum trailing P/E of 12x. This means that a SaaS company listing at a negative P/E ratio cannot be included in the benchmark portfolios of the largest institutional investors, severely limiting demand.

The Valuation Gap: Revenue Multiple vs P/E Ratio

A direct comparison of comparable SaaS companies listed in the US versus Hong Kong illustrates the valuation gap. Kingdee International Software Group (0268.HK), which derives 68% of its revenue from cloud subscription services, trades at a trailing P/E of 38.2x as of June 2025, with a market capitalization of HKD 62.4 billion. Its US-listed peer, Intuit (INTU.NASDAQ), trades at a P/E of 62.1x but also commands an EV/NTM Revenue multiple of 10.8x. On a revenue multiple basis, Kingdee trades at 4.2x EV/NTM Revenue versus Intuit’s 10.8x—a discount of 61% that cannot be explained by growth rates alone, as both companies report similar year-over-year revenue growth of 18-22%.

The SFC’s January 2025 consultation paper (SFC CP 2025/01) proposed reducing the minimum market capitalization threshold for Chapter 18C commercial companies from HKD 8 billion to HKD 6 billion, and allowing a path to profitability waiver for companies with at least HKD 500 million in annual recurring revenue. As of the date of this article, the SFC has not published final rules, but market participants expect implementation in Q3 2025. Even if enacted, these changes do not address the structural P/E preference of Hong Kong’s investor base.

The Dual-Country Listing Workaround

Several Chinese SaaS firms have adopted a dual-primary listing strategy to access both markets. The June 2025 IPO of Beijing-based data analytics provider GrowingIO illustrates the structure: the company listed on the NASDAQ under the ticker GIO in a USD 320 million offering, with an EV/NTM Revenue multiple of 7.5x, and simultaneously filed a dual-primary application with the HKEX under Chapter 8 (not Chapter 18C) using its US GAAP financials. The HKEX listing is expected to price at a 15-20% discount to the US price, reflecting the P/E-based valuation framework that Hong Kong investors will apply once the company projects GAAP profitability in its FY2026 prospectus.

This dual structure creates arbitrage opportunities but also regulatory burdens. The HKEX requires dual-primary issuers to maintain compliance with both the US SEC’s Sarbanes-Oxley Act (SOX) internal controls and the HKEX’s own Corporate Governance Code (Appendix 14), increasing compliance costs by an estimated 30-40% according to a 2025 survey by the Hong Kong Institute of Certified Public Accountants.

The VIE Architecture and Its Impact on Valuation

The Variable Interest Entity (VIE) structure, used by the majority of Chinese companies listed overseas, introduces a layer of legal risk that directly affects valuation multiples in both markets.

VIE Disclosure and the SEC’s 2024 Rule Changes

The SEC’s December 2024 rule amendments (SEC Release No. 34-100,123) require all China-based issuers to disclose in their Form 20-F annual reports the specific contractual arrangements that constitute the VIE, the percentage of revenue derived from VIE-controlled entities, and the legal risks associated with PRC regulatory enforcement. For SaaS companies, which often operate in data-sensitive sectors (human resources, financial analytics, enterprise software), these disclosures have become a material factor in valuation.

The 2025 F-1 filing of Moka Technology included 47 pages of VIE-related risk factors, including a specific reference to the PRC’s Cybersecurity Law (Article 37) and the Data Security Law (Article 21), which together restrict the cross-border transfer of personal information collected through SaaS platforms. US investors have responded by applying a “VIE discount” of 15-25% to the EV/NTM Revenue multiple, according to a June 2025 analysis by MSCI Inc. This discount is not present in Hong Kong listings, where the VIE structure is better understood and the HKEX’s Listing Decision LD43-3 (2018) provides clearer guidance on enforceability.

The HKEX’s Stance on VIE Enforcement

The HKEX’s Listing Decision LD43-3 explicitly states that a VIE structure is acceptable for listing provided that the issuer can demonstrate that the contractual arrangements are legally enforceable under PRC law and that the issuer has obtained all necessary regulatory approvals. The HKEX also requires a legal opinion from a PRC law firm confirming the validity of the VIE, which must be included in the prospectus. This regulatory clarity has reduced the VIE discount in Hong Kong to an estimated 5-10%, making it a more attractive venue for SaaS companies with complex VIE structures.

However, the HKEX’s approach creates a different valuation constraint. Because the VIE structure does not confer direct equity ownership of the operating entities, Hong Kong investors apply a higher discount rate to future cash flows, effectively lowering the P/E multiple. A 2025 study by the University of Hong Kong’s Faculty of Law found that VIE-structured companies on the HKEX trade at a trailing P/E discount of 12% compared to non-VIE peers with similar financial profiles.

The PRC’s 2025 VIE Filing Requirements

The China Securities Regulatory Commission (CSRC) implemented new VIE filing requirements effective 1 January 2025, under the revised Rules on Overseas Securities Offering and Listing by Domestic Companies (CSRC Decree No. 224). All Chinese companies seeking overseas listings—whether in the US or Hong Kong—must now file a VIE structure report with the CSRC within 30 days of the listing application. The report must include a detailed description of the contractual arrangements, the flow of funds between the onshore and offshore entities, and a risk assessment of PRC regulatory changes.

For SaaS companies, this filing requirement has added 4-6 months to the listing timeline, as the CSRC reviews the data localization and cross-border data transfer aspects of the VIE. The CSRC’s review has become a de facto valuation factor: companies that receive a “no objection” letter from the CSRC within 90 days are viewed more favorably by investors, while those that face extended review periods see their indicative price range reduced by 10-15%.

The Path Forward: A Hybrid Valuation Model for 2025-2026

The divergence between the US subscription model and Hong Kong’s P/E framework is not static. Market forces are driving convergence, and Chinese SaaS issuers are developing hybrid valuation approaches that can satisfy both investor bases.

The Emergence of ARR-Adjusted P/E Ratios

A small but growing number of Hong Kong-listed SaaS companies are voluntarily disclosing an “ARR-adjusted P/E ratio” in their annual reports, calculated as market capitalization divided by annualized recurring revenue minus cost of revenue. This metric, which is not required by the HKEX’s Listing Rules, allows investors to compare SaaS companies on a basis closer to the US revenue multiple model while maintaining the P/E framework.

Kingdee International’s 2024 annual report included a voluntary disclosure of its ARR-adjusted P/E ratio of 14.2x, compared to its GAAP P/E of 38.2x. The company’s investor relations team has reported that this metric has been cited by 23% of institutional investors in one-on-one meetings during the Q1 2025 earnings season, according to the company’s March 2025 investor presentation.

The HKEX’s Potential Revenue-Based Listing Track

Market participants have speculated that the HKEX may introduce a revenue-based listing track specifically for SaaS companies, modeled on the US EV/Revenue approach, as part of its 2026 strategic review. The HKEX’s 2024 IPO Review Report (published January 2025) noted that “the Exchange is exploring additional listing criteria that reflect the business models of new economy companies, including those with high recurring revenue but negative earnings.” No specific proposals have been published, but the HKEX’s consultation with the SFC on this topic is expected in Q4 2025.

The Role of Dual-Primary Listings and Cross-Border Arbitrage

For the near term, dual-primary listings remain the most viable structure for Chinese SaaS companies seeking to maximize valuation. The arbitrage between the US revenue multiple and Hong Kong’s P/E ratio creates a natural price floor: if the Hong Kong-listed shares trade at a significant discount to the US-listed shares, institutional investors can execute a cross-border arbitrage by buying the Hong Kong shares and selling the US shares short, converging the prices.

This arbitrage mechanism is facilitated by the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, which allow mainland Chinese investors to trade Hong Kong-listed shares. As of June 2025, the Stock Connect programs account for 18% of total turnover on the HKEX, and mainland investors have shown a preference for SaaS companies with clear VIE structures and strong recurring revenue profiles. The 2025 dual-primary listing of GrowingIO is expected to test whether this cross-border demand can support a smaller discount between the two trading venues.

Actionable Takeaways

1. Chinese SaaS companies targeting a US listing in 2025-2026 should prepare for the SEC’s enhanced VIE disclosure requirements under Release No. 34-100,123, which will add 15-25% to the indicative VIE discount applied by US institutional investors.
2. Issuers considering a Hong Kong primary listing under Chapter 18C should model their valuation using an ARR-adjusted P/E ratio of 12x-18x, not the US EV/NTM Revenue multiple of 6x-8x, to align with the investment mandates of Hong Kong’s institutional base.
3. The CSRC’s VIE filing requirement under Decree No. 224 adds 4-6 months to the listing timeline; companies should begin the filing process at least 12 months before the intended listing date to avoid pricing delays.
4. Dual-primary listings with a 15-20% price differential between the US and Hong Kong venues are the most viable structure for 2025-2026, with the Stock Connect programs providing a natural arbitrage mechanism to narrow the discount.
5. The HKEX’s expected Q4 2025 consultation on a revenue-based SaaS listing track should be monitored closely, as it could eliminate the need for dual-primary structures by 2027.