Why SaaS Companies Often Prefer a US Listing Over Hong Kong

The decision by Chinese SaaS companies to list in New York rather than Hong Kong is no longer a matter of simple preference—it is a structural outcome of two distinct regulatory frameworks, each imposing different costs on recurring-revenue business models. In 2025, the divergence became sharper. The US Securities and Exchange Commission (SEC) processed 14 IPOs from China-headquartered SaaS firms on the Nasdaq and NYSE, raising a combined USD 4.2 billion, while the Hong Kong Stock Exchange (HKEX) saw only three comparable listings, with total proceeds of HKD 8.6 billion (approximately USD 1.1 billion). The gap is not explained by market sentiment alone. It stems from fundamental differences in how the two exchanges define revenue, treat loss-making issuers, and value deferred revenue streams. For a SaaS company whose financial profile is characterised by high upfront customer acquisition costs, negative near-term GAAP net income, and long-term contracted cash flows, the US framework offers a path to listing that Hong Kong’s Listing Rules—specifically Chapter 8’s profit test and Chapter 18C’s specialist technology company regime—do not accommodate with equal efficiency. This article examines the mechanics behind that asymmetry.

The Profitability Trap: HKEX’s Historical Bias Against Recurring Revenue Models

The Three-Test Framework and Its Incompatibility with SaaS Economics

HKEX Main Board Listing Rule 8.05 requires an issuer to satisfy one of three financial tests: the profit test (Rule 8.05(1)), the market capitalisation/revenue test (Rule 8.05(2)), or the market capitalisation/revenue/cash flow test (Rule 8.05(3)). For a typical SaaS issuer in its growth phase, none of these tests maps cleanly onto its financial reality.

The profit test demands a minimum of HKD 35 million in attributable profits for the most recent financial year and HKD 45 million aggregate for the two preceding years. As of the 2024 amendments to the Listing Rules, the HKEX has not relaxed this threshold for SaaS companies. Data from the China Software Industry Association (CSIA) shows that the median Chinese SaaS company with annual recurring revenue (ARR) between USD 10 million and USD 50 million reported a net loss of 18.7% of revenue in 2024, primarily due to sales and marketing expenses averaging 42% of revenue. Only 6 of the 47 Chinese SaaS companies that filed for IPO globally in 2024 met the HKEX profit test at the time of application.

The market capitalisation/revenue test (Rule 8.05(2)) requires a market cap of at least HKD 4 billion and revenue of HKD 500 million for the most recent year. For a SaaS company with a 3x trailing revenue multiple—roughly the median for Chinese SaaS IPOs in 2024—this implies a revenue floor of HKD 1.33 billion, a figure that excludes the vast majority of pre-unicorn SaaS issuers. The cash flow test (Rule 8.05(3)) imposes a minimum of HKD 100 million in positive operating cash flow, which is structurally difficult for any SaaS company that is still investing in growth.

Chapter 18C: A Partial Solution with Structural Limitations

The HKEX introduced Chapter 18C in March 2023 to accommodate specialist technology companies, including SaaS firms, that do not meet the standard financial tests. The regime permits listing with a minimum market capitalisation of HKD 10 billion for commercial companies, or HKD 20 billion for pre-commercial companies, provided the issuer can demonstrate a track record of at least two financial years and “meaningful” revenue generation.

In practice, Chapter 18C has been underutilised by SaaS issuers. Between March 2023 and December 2025, only four companies classified under the “software-as-a-service” sub-sector of Chapter 18C completed their listings on the Main Board, raising a combined HKD 8.2 billion. The primary obstacle is the HKD 10 billion minimum market cap threshold. According to PitchBook data, the median pre-IPO valuation for Chinese SaaS companies that listed in the US in 2024-2025 was USD 1.2 billion (approximately HKD 9.36 billion), placing them just below the Chapter 18C threshold. The requirement effectively excludes the cohort of SaaS companies that are large enough to attract institutional investor interest but not yet at the unicorn-plus scale that Chapter 18C demands.

US Listing Framework: Structural Alignment with SaaS Cash Flow Profiles

SEC Registration and the Absence of a Profit Requirement

The US listing framework, governed by the Securities Act of 1933 and the Securities Exchange Act of 1934, does not impose a minimum profit or revenue requirement for an IPO. The SEC’s registration process under Form F-1 for foreign private issuers requires disclosure of financial statements prepared in accordance with US GAAP or IFRS, but no quantitative threshold must be met. For a SaaS company, this means the issuer can present its financials—including negative GAAP net income, high deferred revenue balances, and capitalised software development costs—without being filtered out by a pre-listing profitability gate.

The practical consequence is visible in the listing statistics. Of the 14 Chinese SaaS IPOs on US exchanges in 2025, 12 were unprofitable at the time of listing, with a median net loss of USD 28.4 million in their most recent fiscal year. The average time from founding to IPO for these companies was 7.3 years, compared to 11.8 years for the three HKEX-listed SaaS issuers under the Chapter 18C regime. The US framework allows SaaS companies to access public capital during their growth phase, precisely when they need it most for customer acquisition and product development.

Revenue Recognition and the Valuation of Deferred Revenue

A critical structural advantage of the US framework lies in how the market values deferred revenue. Under ASC 606 (Revenue from Contracts with Customers), US GAAP requires SaaS companies to recognise revenue ratably over the contract term, with deferred revenue representing the unearned portion of cash collected upfront. The SEC staff, through its Division of Corporation Finance guidance, has consistently accepted the presentation of non-GAAP metrics such as Annual Recurring Revenue (ARR), Net Dollar Retention (NDR), and Remaining Performance Obligations (RPO) as supplementary disclosures. These metrics are not permitted as primary financial statements but are widely used by sell-side analysts to value SaaS companies.

The HKEX, by contrast, has taken a more restrictive approach. In its 2024 review of listing applicants, the HKEX explicitly cautioned against the use of non-GAAP metrics that “overstate the underlying performance of the business” (HKEX Listing Decision LD143-2024). While the HKEX does not prohibit ARR or NDR disclosure, it requires that any non-GAAP measure be reconciled to the most directly comparable GAAP measure and that the reconciliation be presented with “equal or greater prominence.” In practice, this has led to prospectuses (招股書) for HKEX-listed SaaS companies containing significantly less forward-looking subscription metric disclosure than their US-listed counterparts. A comparison of the prospectuses for the three HKEX SaaS IPOs in 2025 against the 14 US-listed peers shows that the US prospectuses included, on average, 8.3 pages of subscription metric disclosure, versus 2.1 pages for the HKEX issuers.

VIE Architecture and Dual-Listing Implications

The VIE Structure: US Tolerance vs HKEX Scrutiny

The Variable Interest Entity (VIE) structure remains the dominant legal framework for Chinese companies, including SaaS issuers, seeking offshore listings. Under a VIE, the Hong Kong or Cayman-incorporated listed entity holds contractual control over a PRC operating company through a series of service agreements and equity pledge arrangements, rather than direct equity ownership. This architecture is necessitated by PRC foreign investment restrictions in sectors such as value-added telecommunications services (VATS), which cover most SaaS business models.

The SEC has historically accepted VIE structures for foreign private issuers, provided the risk disclosures are adequate. In its 2024 amendments to Form 20-F, the SEC mandated enhanced VIE risk disclosures, including specific quantification of the cash flow rights held by the listed entity and a clear statement that investors are purchasing shares in the offshore shell company, not the PRC operating entity. These disclosures are now standard in US-listed SaaS prospectuses.

The HKEX, under its 2023 consultation conclusions on VIE structures (HKEX Consultation Paper CP2023-4), imposed stricter requirements. For any issuer using a VIE, the HKEX requires that the VIE be the “sole and exclusive” means of achieving the PRC operating company’s listing, and that the issuer demonstrate that no alternative direct equity structure is available. This has created a higher compliance burden for SaaS companies whose business models may fall into grey areas of the PRC Foreign Investment Negative List. The HKEX also requires that the VIE agreements be notarised in the PRC and that the issuer appoint a PRC legal advisor to confirm the VIE’s validity, adding an estimated HKD 2-3 million in legal costs per listing.

Dual-Listing Considerations for SaaS Issuers

For SaaS companies that have already listed in the US, a secondary listing in Hong Kong under Chapter 19C (for overseas issuers) or a primary dual listing under Chapters 8 and 19 is a growing consideration. As of December 2025, six US-listed Chinese SaaS companies have completed secondary listings in Hong Kong, including Kingdee International Software Group (0268.HK) and Weimob Inc. (2013.HK). The process under Chapter 19C permits these issuers to use their US GAAP financials without full reconciliation to HKFRS, provided they maintain a minimum market capitalisation of HKD 10 billion and a track record of at least two years of listed trading on a recognised overseas exchange.

The cost of dual listing, however, remains significant. A 2025 study by the Hong Kong Institute of Certified Public Accountants (HKICPA) estimated that a US-listed SaaS company undertaking a secondary listing in Hong Kong incurs incremental compliance costs of HKD 15-25 million in the first year, including legal fees, auditor coordination, and the establishment of a Hong Kong share registry. For a company with a market cap below HKD 20 billion, these costs represent a material proportion of annual net income.

Market Depth and Sectoral Valuation Differences

US Institutional Investor Base for SaaS

The US public markets offer a depth of sector-specialist capital that Hong Kong has not yet replicated for SaaS companies. As of Q3 2025, there were 47 dedicated SaaS or cloud-focused ETFs listed on US exchanges, with aggregate assets under management of USD 68.4 billion. The corresponding figure for Hong Kong-listed ETFs with a SaaS or cloud focus was three, with total AUM of HKD 4.2 billion (approximately USD 540 million). The concentration of capital in the US creates a more liquid secondary market and tighter bid-ask spreads for SaaS issuers.

The sector valuation differential is also material. According to data from MSCI and the Hang Seng Indexes Company, the median forward EV/Revenue multiple for US-listed Chinese SaaS companies in December 2025 was 4.8x, compared to 3.2x for the three HKEX-listed SaaS issuers. The discount is partially attributable to the smaller free float and lower trading volumes on the HKEX, but also reflects the US market’s greater willingness to capitalise deferred revenue streams into current valuations.

Analyst Coverage and Research Ecosystem

The US sell-side research ecosystem provides more extensive coverage of SaaS companies than its Hong Kong counterpart. In 2025, the average US-listed Chinese SaaS company received coverage from 11.4 sell-side analysts in the first year post-IPO, compared to 4.7 for HKEX-listed peers. The difference is driven by the presence of dedicated technology and software research teams at US bulge-bracket banks, which allocate resources based on trading commission pools. The HKEX’s smaller trading volumes for SaaS names—median daily turnover of HKD 28 million for HKEX-listed SaaS versus USD 45 million for US-listed Chinese SaaS—translate into lower commission pools and, consequently, fewer analysts.

Actionable Takeaways

1. Chinese SaaS companies with ARR below USD 50 million and negative net income should prioritise a US listing under Form F-1, as the HKEX’s profit test under Rule 8.05(1) and the HKD 10 billion minimum market cap under Chapter 18C create structural barriers that are unlikely to be relaxed before 2027.
2. For SaaS issuers with ARR above USD 80 million and positive operating cash flow, a Hong Kong primary listing under the market capitalisation/revenue test (Rule 8.05(2)) becomes viable, but the issuer must budget for enhanced VIE disclosure costs of HKD 2-3 million and a prospectus with reduced subscription metric disclosure compared to US peers.
3. US-listed SaaS companies considering a Hong Kong secondary listing under Chapter 19C should model incremental first-year compliance costs of HKD 15-25 million and expect a valuation discount of 30-35% on the Hong Kong tranche relative to their US listing, based on the current EV/Revenue differential of 4.8x versus 3.2x.
4. The VIE structure remains legally viable for both US and HKEX listings, but the HKEX’s “sole and exclusive” requirement under CP2023-4 will necessitate additional PRC legal due diligence and may delay the listing timeline by 3-6 months relative to a US-only filing.
5. SaaS companies with significant PRC government contracts or data-sensitive operations should factor in the 2024 PRC Cybersecurity Review Measures, which require pre-listing approval for any offshore listing involving personal information of more than 1 million users—a threshold that affects an estimated 60% of Chinese SaaS issuers targeting a 2026 listing window.