Date
24 September 2018
Meituan Dianping, which now has over 290 million active users, reported 5.8 billion transactions and a revenue of 33.9 billion yuan (US$4.95 billion) last year. But it has yet to turn a profit. Photo: China Daily
Meituan Dianping, which now has over 290 million active users, reported 5.8 billion transactions and a revenue of 33.9 billion yuan (US$4.95 billion) last year. But it has yet to turn a profit. Photo: China Daily

Why is this food delivery startup worth so much?

Hong Kong’s equity market has been going through a rough patch lately.

The initial public offering of Meituan Dianping (03690.HK), an online food delivery service platform, did not see as much demand from retail investors as other recent IPOs from the mainland technology sector. Still, the company is valued at more than HK$400 billion.

In 2015, Meituan, a Groupon-like website, merged with Dianping, a restaurant review mobile app, to form Meituan Dianping.

The company soon expanded into the food delivery service, and has grown rapidly since. As of the first quarter of this year, it has a market share of 59.1 percent, compared with the 36 percent share of its closest rival, Alibaba-backed Ele.me.

In addition to its first-mover advantage, Meituan Dianping enjoys the backing of its major shareholder Tencent Holdings (00700.HK), which provided not only funding support but also internet traffic through its popular social media app WeChat, which has over 1 billion users.

Tencent owns a 20 percent stake in Meituan Dianping, and has spent another US$400 million on the platform through the IPO.

The founding team led by chairman and chief executive Wang Xing controls over half of the voting rights thanks to the company’s dual-class share structure.

Meituan Dianping serves more than 1,300 cities and counties across China. Customers place orders through the mobile app and the company’s half a million delivery men ride motorbikes to fill the orders.

Most restaurants won’t be able to offer such service as they cannot afford to have their own delivery team. Meituan Dianping makes it possible for them to expand their customer reach through its food delivery service.

The platform, which now has over 290 million active users, reported 5.8 billion transactions and a revenue of 33.9 billion yuan (US$4.95 billion) last year.

Despite the impressive numbers, the company has yet to turn a profit. Last year it booked a loss of 3.8 billion yuan.

One major factor is the intense rivalry between Meituan Dianping and Ele.me. The two firms have to keep delivery charges at super low levels and offer special promotions from time to time.

If things continue in this direction, it’s hard to see how the operation can make money in the near term.

But if the company can expand its business scope to offer delivery services for a wider range of products, the outlook could improve.

Currently, top e-commerce players Taobao and JD.com can only provide next-day delivery. By comparison, Meituan Dianping can make a delivery within one hour or even less.

Using this edge, the company could reshape the entire retail industry and even challenge the dominance of e-commerce giants.

The platform has expanded into non-food delivery services in certain regions, the success of which would determine whether the startup is really worth its lofty valuation.

This article appeared in the Hong Kong Economic Journal on Sept 13

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Hong Kong Economic Journal columnist

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