Meituan updated prospectus reveals huge losses in Mobike ahead of HK IPO

Did Meituan make the right move to acquire Mobike?

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Meituan-Dianping, China’s largest on-demand services platform, updated its filed prospectus ahead of its 20th September HK initial public offering (IPO) debut, revealing huge losses in Mobike the bike sharing business it acquired earlier this year.

The company is set to price its shares at a price range of 60 to 72 HKD (US$7.64 to US$9.17), according to the updated prospectus.

It posted RMB 15.8 billion ($2.3 billion) in revenue for the four months ending April 2018. Its net losses, on the other hand, tripled over the same period to RMB 22.8 billion ($3.3 billion).

Simultaneously fighting huge tech giants across different verticals in China to achieve the dream of becoming the super app has resulted in highly excessive burn rates and the cash-strapped firm is now looking to raise up to $4 billion at a valuation of $55 billion on the Hong Kong Stock Exchange (HKEx). 

Meituan’s loss-making course is now set to get worse.

Recently, Alibaba received SoftBank’s help in a targetted attack on the fight for China’s food delivery space – the biggest revenue driver for Meituan’s revenues – via the merger of Ele.me and Koubei. An additional US$3 billion was pledged for the new entity for an imminent uphill battle.

This makes its harder for Meituan to continue its highly competitive play. Its push for an IPO become more of a necessity than an option, just to fuel its bold ambitions.

In its updated prospectus, Meituan attributed its increasing net losses to the US$2.7 acquisition of Mobike, a Chinese bike-sharing firm, and other investments made in the name of its ecosystem play.

Meituan saw the then loss-making Mobike as an opportunity to acquire and retain users, increase brand awareness, and strengthen its other services at a lower price. The bike-sharing startup then was losing RMB 4.8 billion just to make RMB 147 million in revenue.

The loss-making trend in China’s bike sharing space, however, did not stop. Over the past few months, we saw Mobike’s archrival Ofo pull out of many of its international markets in countries such as Australia, Israel, and even in North America amongst others.

And Meituan’s bicycle sharing business is no exception. Since Meituan’s takeover, in the latest quarter, it made a total of 260 million rides, incurring  RMB 258 million in operating costs that saw an overall loss of RMB 480 million.

That is a risk that Meituan highlighted in its updated filings. It even went as far as hinting of the possibility that Meituan might stay unprofitable, effectively putting a dent on its imminent IPO.

 

Takeaways

– This is the second Chinese super app that is slated for a HK public debut. Its success or failure will set a precedence whether the Chinese market can house 2 everyday apps, like the case of having both an Alibaba & JD.com in the e-commerce space.

– The revelation of Meituan’s bike-sharing arm might fuel investors’ concerns that could see another disappointing IPO, after the likes of Xiaomi and Pinduoduo.

Editor: Ben Jiang