Meituan rises 7% in Hong Kong debut, becomes 4th largest Chinese internet company

The Hong Kong debut makes Meituan the fourth largest Chinese internet company.

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Meituan rises 7% in Hong Kong debut, becomes 4th largest Chinese internet company

Meituan shares climbed as much as over 7% in Hong Kong debut.

The solid debut dismissed earlier concerns over Meituan’s business model and ability to fend off competition.

A market cap of US$50 billion makes Meituan the fourth largest Chinese internet giant after BAT.

Meituan-Dianping, China’s on-demand services mammoth, saw its shares climb as much as over 7% in its Hong Kong debut today, dismissing earlier concerns amongst investors over the company’s business model viability in front of Alibaba’s aggressive plan to prep up Ele.me as a serious challenger.

Meituan’s current market cap is around US$50 billion or HK$400 billion, making it the fourth largest Chinese internet company after only the BAT – Baidu, Alibaba, and Tencent.

Meituan shares jump as much as 7% in IPO debut. Source: WIND

Founded in 2010 by Wang Xing, a Chinese serial entrepreneur, Meituan began by simply offering Groupon inspired daily deals. Since its merger with Shanghai-based Dianping (similar to Yelp) in 2015, Wang’s mashup of Groupon + Yelp has been on an expanding spree, from food delivery, hotel booking, movie ticketing, and bike-sharing to the latest ride-hailing.

That said, the company’s core business is still food delivery, which dominates the Chinese market according to some research reports. In its prospectus, Meituan claims it has a unique mission and that is to help people eat better, and live better.

Its growth was phenomenal. Increase in overall user numbers across its platform grew by 20% year-on-year in 2017 and by 2017 year-end, Meituan already has 310 million transacting users, with 289 million being monthly active users. Importantly, these numbers are on par with the likes of other giants including Alibaba, JD.com, and Didi Chuxing.

It took Meituan just three short years to grow its market share in food delivery from around 32% to 59% in the first quarter of 2018. Ele.me’s acquisition of Baidu Waimai didn’t seem to help.

The company’s CFO recently disclosed at one of the pre-IPO investors’ roadshow that its food delivery business is on the verge of break even.

 

A silent giant

In addition to food delivery, the company also offers a bunch of other online-to-offline services that concertedly make Meituan a comprehensive and China’s largest life services e-commerce platform. However, an overstretched frontline earned it both consumer recognition and a large swathe of competitors, from Ele.me and Didi, to Ctrip and Xiaozhu, spanning across a number of different sectors.

Meituan meets its rivals in many sectors.

It’s lesser-known that Meituan actually, by the measure of hotel room nights, is also the largest Chinese OTA in terms of hotels booking, outcompeting well-established local OTA Ctrip, which is also the largest OTA in general in the middle kingdom. By March 2018, Meituan has efficiently acquired 45.5% of China’s hotel booking markets, according to Trust Data.

There is also an extremely high cost that comes with such a stellar and rapid growth story. The company posted losses of RMB 10.5 billion, 5.8 billion, and 19 billion over the past 3 years respectively.

And the blood-bleeding battle in Meituan’s food delivery business segment – the part that accounts for 62% of its total revenue – is only set to escalate alongside the newly formed entity – a merger of Ele.me and Koubei – who is looking to acquire 50% market share in China’s food delivery space in the short to medium term.

China’s 7 times higher urban population density when compared to the US is ideal for the food delivery industry. And with such huge opportunities in the still-nascent market, this all-out battle has probably only just started.

The public float will give Meituan the much-needed ammunition to fight a costly battle with its competitors. And the sharp rise in share price during Meituan’s debut day indicates that Meituan’s investors do believe that it will rise victoriously above all the challenges to become one of China’s dominant super apps.

Editor: Ben Jiang