Monthly Active Users Growth Trend: A Must-Check Metric for Internet IPOs

The recent HKEX consultation paper on GEM reform (published September 2024) and the subsequent amendments to the GEM Listing Rules effective 1 January 2025 have sharpened the focus on revenue and user growth metrics for new economy applicants. While the removal of the mandatory quarterly reporting requirement for GEM issuers provides some operational relief, the Listing Committee has simultaneously signalled a heightened expectation for quantitative disclosures around user engagement and retention in prospectuses. This shift is not merely procedural; it reflects a direct response to the volatility seen in post-IPO trading of several mainland Chinese internet companies listed in Hong Kong between 2021 and 2024, where initial valuations premised on aggressive user acquisition were later repriced sharply downwards as churn rates exceeded disclosed ranges. For sponsors and reporting accountants, the diligence burden has now moved beyond verifying raw user counts to stress-testing the underlying growth trend assumptions. For investors, the Monthly Active Users (MAU) growth trajectory has become the single most important leading indicator of an internet issuer’s ability to convert a user base into sustainable, rule-compliant revenue under HKEX Main Board Chapter 18C or the revised GEM Chapter 15. This article dissects why MAU growth trend analysis is now a mandatory checklist item for any internet IPO in Hong Kong, providing the regulatory context, valuation mechanics, and disclosure standards that practitioners must apply.

Regulatory Context: The HKEX Mandate for User-Based Metrics

The HKEX has incrementally tightened its guidance on the disclosure of non-financial performance indicators, particularly for issuers relying on user-generated revenue. The 2024 Guidance Letter (GL94-24) explicitly identifies “user growth rate and retention” as a key performance indicator (KPI) that must be discussed in the “Business” section of the prospectus, with a requirement for a minimum three-year trend analysis. This is not a suggestion; it is a condition for a completeness letter under the Listing Rules.

Rule 11.07 and the “Materiality of User Data”

Under HKEX Main Board Listing Rule 11.07, an issuer must disclose “all information necessary to enable a reasonable investor to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the issuer and its group.” For an internet company whose primary asset is a user base, MAU data falls squarely within this disclosure obligation. The SFC’s 2023 thematic review of IPO prospectuses found that 34% of new economy issuers failed to provide a clear definition of “active user,” leading to subsequent enforcement actions against sponsors for inadequate due diligence. The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (paragraph 17.6) requires sponsors to ensure that all KPIs in a prospectus are “verifiable, consistent, and not misleading.” This means that the MAU definition—whether it counts unique devices, registered accounts, or logged-in sessions—must be stated explicitly and applied consistently across all periods presented.

The GEM Reform Impact on Growth Trend Disclosures

The 2025 GEM Listing Rules amendments introduced a new Chapter 15 for “high growth enterprises,” replacing the previous “Growth Enterprise Market” classification. Under Rule 15.04, an applicant must demonstrate “a clear trajectory of user or customer growth over the most recent two financial years.” The HKEX has published a non-exhaustive list of acceptable evidence: monthly active user data, daily active user data, or transaction volume data, each audited by the reporting accountant with a specific emphasis on the “growth trend” rather than the absolute number. This is a critical distinction: a company with 10 million MAU but a flat or declining growth rate will now face a higher bar for listing suitability than one with 2 million MAU but a 50% quarter-on-quarter growth rate. The HKEX’s rationale, stated in the consultation conclusion paper, is that trend data provides a more reliable indicator of future cash flow generation than a static snapshot.

Valuation Mechanics: How MAU Growth Drives IPO Pricing

The transition from a static MAU figure to a growth trend analysis has direct implications for IPO pricing. The standard valuation methodology for internet platforms in Hong Kong—the EV/MAU multiple—has been refined by sell-side analysts to incorporate a “growth premium” or “growth discount” based on the slope of the MAU growth curve. A company with a steep, sustained growth trajectory commands a multiple of 2.5x to 4.0x its trailing twelve-month (TTM) revenue per MAU, while a company with decelerating growth trades at 1.0x to 1.5x. This was evident in the 2023-2024 pricing of several Main Board consumer internet listings, where the final offer price was set at a discount of 15-25% to the initial indicative range when the sponsor’s due diligence revealed a sequential MAU decline in the final quarter before filing.

The Cohort Analysis Requirement

Sponsors are now routinely required to perform cohort-based MAU analysis—tracking the retention and activity of users acquired in each calendar month over a 24-month lookback period. This is not a voluntary best practice; the HKEX’s Listing Division has, in recent deficiency letters, demanded cohort analysis for any issuer where the prospectus claims a “large and growing user base.” The mechanics are straightforward: the reporting accountant must verify that the MAU growth is not driven by a single promotional campaign that generated low-quality, high-churn users. A typical disclosure in a 2025 prospectus now includes a table showing the MAU for each of the last eight quarters, with a separate column for “new user MAU” and “returning user MAU.” If the returning user MAU is declining as a percentage of total MAU, the sponsor must provide a risk factor explaining the potential revenue impact and the issuer’s retention strategy.

The Impact on the Price Range and Bookbuilding

The final offer price is increasingly set by reference to the implied MAU growth rate for the next 12 months. During bookbuilding, institutional investors—particularly global long-only funds—submit bids based on a forward EV/MAU multiple that is adjusted for the issuer’s disclosed growth trend. If the trend is linear and positive, the multiple expands by 0.5x for every 10% incremental growth. If the trend is logarithmic (rapid early growth then deceleration), the multiple contracts by 0.3x for every 10% deceleration. This pricing mechanic was observed in the 2024 IPO of a mainland Chinese short-video platform, where the final price was set at the bottom of the range after the bookrunners’ internal analysis showed a 12% quarter-on-quarter MAU decline in the pre-filing quarter, which the issuer attributed to a “seasonal adjustment” but the sponsor could not verify due to insufficient historical data.

Disclosure Standards: What the Prospectus Must Now Contain

The 2025 disclosure landscape for internet IPOs demands a level of granularity that was uncommon even two years ago. The prospectus must now include a dedicated section titled “Key Operating Metrics,” which is cross-referenced in the “Summary” and “Risk Factors” sections. This section must contain at least the following elements, as derived from HKEX Guidance Letter GL94-24 and the SFC’s 2024 enforcement priorities.

Definition and Calculation Methodology

The issuer must provide a precise, machine-readable definition of MAU. For example: “Monthly Active Users is defined as the number of unique registered user accounts that have logged into the platform and performed at least one content interaction (view, like, comment, or share) within a calendar month, as measured by our internal data analytics platform.” The definition must specify whether it is based on unique user IDs, device IDs, or IP addresses. Any change in the definition during the track record period must be disclosed, quantified, and explained. The SFC has taken enforcement action against sponsors who failed to flag a definition change that inflated MAU by 18% in the year before filing.

Historical Trend Data with Cohort Breakdown

The prospectus must present MAU data for at least the three most recent financial years, broken down by quarter. For each quarter, the issuer must disclose: (a) total MAU, (b) new user MAU acquired during that quarter, (c) returning user MAU from prior quarters, and (d) the dollar-based net revenue retention rate (NRR) for the MAU base. The cohort analysis must show the retention curve for each quarterly cohort over a 12-month period. If the retention curve drops below 20% within six months for any cohort, the sponsor must include a specific risk factor and a management discussion on the sustainability of user acquisition costs.

Forward-Looking Growth Assumptions

Under HKEX Main Board Rule 11.18, profit forecasts must be supported by a detailed basis of preparation. For internet issuers, this includes the implied MAU growth assumptions used in the revenue forecast. The sponsor must verify that these assumptions are consistent with the historical growth trend and with industry benchmarks. If the issuer forecasts a 30% MAU growth in the next year but the historical trend shows a decelerating growth rate of 20% in the most recent year, the sponsor must explain the basis for the acceleration—typically, a new product launch, geographic expansion, or marketing campaign—and provide supporting evidence from the issuer’s business plan. The HKEX has rejected at least two IPO applications in 2024 on the grounds that the forward MAU growth assumptions were “unsupported by historical data and lacked a reasonable basis.”

Risk Factors and Red Flags for Investors

For investors evaluating an internet IPO prospectus, the MAU growth trend is the first screen. A decelerating or negative trend is a red flag that warrants a deep dive into the issuer’s business model and competitive position. The following risk factors are commonly identified in prospectuses where the MAU growth is weak.

The “Acquisition Saturation” Risk

When MAU growth decelerates below 10% year-on-year for two consecutive quarters, the issuer faces “acquisition saturation”—the point at which the total addressable market (TAM) of new users has been substantially penetrated, and further growth requires either geographic expansion into lower-ARPU markets or a shift in business model to higher monetisation of existing users. This risk is explicitly flagged in the risk factors section of almost every internet IPO prospectus filed in Hong Kong since 2023. The sponsor must quantify the TAM and the issuer’s current penetration rate. If the penetration rate exceeds 60%, the risk factor must state that “future MAU growth may be limited, and the issuer’s ability to grow revenue may depend on increasing average revenue per user (ARPU) rather than user base expansion.”

The “Churn and Cohort Quality” Risk

A high churn rate—where a significant percentage of newly acquired users do not return within 90 days—is a structural weakness. The prospectus must disclose the 90-day and 180-day retention rates for the most recent three cohorts. If the 90-day retention rate is below 30%, the sponsor must include a risk factor explaining that “a substantial portion of user acquisition expenditure may not generate recurring revenue, and the issuer may need to increase marketing spend to maintain MAU levels, which could negatively impact profitability.” This is a direct consequence of the SFC’s 2023 enforcement action against a sponsor that failed to disclose a 45% 90-day churn rate in a prospectus for a social commerce platform.

The “Definition Drift” Risk

A change in the MAU definition during the track record period—such as moving from “unique device ID” to “unique registered account”—can artificially inflate the growth trend. Investors should compare the disclosed MAU figures with third-party data sources, such as App Annie or Sensor Tower estimates, which are often cited in the “Industry Overview” section of the prospectus. If the issuer’s disclosed MAU is consistently 20-30% higher than the third-party estimate, the sponsor must provide a reconciliation. The HKEX has required at least two issuers in 2024 to restate their MAU figures after the Listing Division identified a definition drift that overstated growth by an average of 15% per quarter.

Actionable Takeaways for Practitioners

1. Verify the MAU definition against the SFC’s Code of Conduct paragraph 17.6: Ensure the definition is consistent across all periods, auditable by the reporting accountant, and reconcilable to third-party data sources; any drift must be disclosed and quantified in the prospectus.

2. Perform a cohort-based retention analysis for at least 24 months: The sponsor must present the 90-day and 180-day retention rates for each quarterly cohort, and if any cohort shows a retention rate below 30%, a specific risk factor and management mitigation plan must be included.

3. Stress-test forward MAU growth assumptions against the historical trend: Under HKEX Main Board Rule 11.18, the profit forecast must be supported by a reasonable basis for any acceleration in MAU growth, including specific product, market, or marketing catalysts with supporting evidence from the issuer’s business plan.

4. Compare disclosed MAU with independent third-party estimates: A discrepancy of more than 15% between the issuer’s internal MAU and industry data from App Annie, Sensor Tower, or similar sources requires a reconciliation footnote in the prospectus and a risk factor if the discrepancy is material.

5. Monitor the MAU growth trend as a post-listing covenant trigger: For issuers listed under GEM Chapter 15, a decline in MAU growth below the disclosed trajectory for two consecutive quarters may trigger a requirement for additional disclosure or a profit warning under Rule 15.08, and institutional investors should include a MAU growth covenant in their subscription agreements.