18 September 2019
To cement its position as the market leader, Meituan needs to strike a partnership with a major internet firm, such as Alibaba. Photo: Bloomberg
To cement its position as the market leader, Meituan needs to strike a partnership with a major internet firm, such as Alibaba. Photo: Bloomberg

Meituan feels pressure from Baidu, Tencent tie-ups

Leading group-buying site is finally responding to a flurry of reports involving its own finances and a new challenge from top search engine firm Baidu Inc.

Meituan has released data that reflects its strong growth and market dominance.

At the same time, chief executive Wang Xing is also shooting down rumors that his company is in the process of raising US$1 billion in new funds.

He is reiterating that the firm isn’t in any hurry to make an initial public offering.

The sudden release of information raises the bigger question of what’s the motivation behind this flurry of activity for the normally low-profile Meituan.

I personally believe the company isn’t gearing up for an IPO, especially in the wake of all the market turbulence in China right now and the flood of US-listed Chinese companies that have announced plans to privatize and return home to relist.

It’s possible Meituan could be gearing up to raise more funds, even though Wang has specifically denied such a plan.

But that plan looks unlikely, since Meituan just raised US$700 million at the beginning of the year, which should be more than enough to fund its growth for the rest of the year and probably well into next year.

Instead, Meituan may suddenly be feeling a bit vulnerable, following Baidu’s high-profile announcement earlier this month that it will invest 20 billion yuan (US$3.2 billion) over the next few years to build up its rival group-buying service, Nuomi.

At the same time, Meituan is coming under growing pressure from its traditional rival Dianping, which has found a strong backer after selling 20 percent of itself last year to internet titan Tencent Holdings Ltd. (00700.HK).

Meituan counts Alibaba Group Holding Ltd. among its earliest backers, though the e-commerce giant received only a small stake of the firm in an early investment round and the two companies have never announced any major tie-ups.

That contrasts with Dianping, which has an equity tie-up with Tencent and is working closely to integrate its popular restaurant-related services onto the wildly popular WeChat mobile messaging service.

That kind of tie-up is undoubtedly putting pressure on Meituan, especially in the mobile space where it now dominates.

That pressure may have prompted Wang to disclose new information that shows his company is still the clear leader in China’s group-buying arena, with 62 percent of the broad market and 95 percent of the mobile market.

He also released a series of financial data, including 47 billion yuan in transaction volume in the first half of this year, nearly triple that a year earlier.

There are quite a few other figures in the report, including the fact that Meituan has an impressive 130 million active buyers.

Two things that aren’t mentioned are Meituan’s revenues and whether or not the firm is profitable.

The company had previously said it broke even in 2013, and it’s quite possible it’s still barely breaking even, because of the strong competition.

China’s group-buying space was once extremely crowded, and Meituan was one of hundreds of sites that were launched at the height of a boom in 2010 and 2011.

The sector later underwent a major consolidation in which most major sites closed, leaving Meituan and Dianping as the clear industry leaders.

One of the other few remaining players, Wowo Ltd., which operates the website, made headlines earlier this year when it became China’s first group-buying site to carry out an IPO.

All of this brings us back to what’s next for Meituan, and whether we can expect any more major moves in the bigger group-buying space in the near to medium term.

In answer to the first question, I suspect Meituan is feeling pressure to form a stronger alliance with another major internet company, and Alibaba looks like the most logical choice.

In answer to the second question, I expect that most of the sector’s consolidation is now complete, though I also wouldn’t be surprised if a few smaller acquisitions occur, including a possible purchase of Wowo in the next few years.

At the end of the day, Meituan is clearly well positioned to maintain its market-leading position, and Wang points out that simply raising lots of money isn’t that useful if you don’t know how to spend it.

But the company could also find itself increasingly isolated if it fails to find a major internet partner, and I predict we’ll probably see Meituan forced to form an alliance with a wealthy backer by the end of next year at the latest.

Bottom line: Meituan is feeling increasing isolation as its two chief rivals strengthen partnerships with Baidu and Tencent and is likely to be forced into a similar tie-up by the end of next year to maintain its industry-leading position.

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A commentator on China company news and associate professor in the journalism department of Fudan University in Shanghai. Follow him on his blog at