Meituan-Dianping gains on debut after $4.2b Hong Kong IPO

The company sold approximately 480.3 million shares at HK$69 apiece, towards the top of the indicative range, according to a filing. There is an overallotment option of 72 million class B shares, representing no more than 15% of the total offering. Like smart phone maker Xiaomi, Meituan-Dianping is employing a dual share class structure that allows founders to maintain voting control even if they don’t have a majority equity stake.

The stock peaked at HK$73.85 during morning trading on September 20 before falling back to close at HK$72.65. It gave the company a market value of around $50 billion. Meituan-Dianping’s most recent private funding round, completed in October 2017, was at a valuation of $30 billion.

The product of a 2015 merger between rival O2O players Meituan and Dianping, the company describes itself as China’s preeminent e-commerce platform for services. The business initially concentrated on group-buying services, restaurant and travel bookings, movie ticketing, and food delivery. In the last couple of years, it has added ride-hailing, bike-sharing and on-demand grocery delivery, as well as venturing overseas with investments in Indonesia’s Go-Jek and India’s Swiggy.

Ahead of the IPO, the company faced questions about the sustainability of its expansion plans, resulting in an assertion that it would focus on its core domestic business – as a “food plus platform” – rather than pushing aggressively into new geographies and verticals. The line of questioning not only reflects the losses incurred by the new divisions and the intense competition from the likes of Alibaba Group’s Ele.me in food delivery, but also weakening sentiment in China’s broader internet technology space.

Meituan-Dianping has seen a substantial increase in revenue – it came to RMB33.9 billion in 2017, up from RMB12.9 billion a year earlier, and reached RMB15.8 billion in the first four months of 2018 – but mounting costs mean the company remains unprofitable. Its net loss trebled over the course of 2017, hitting RMB18.9 billion. For the first four months of 2018, it was RMB22.8 billion.

Food delivery accounted for 62% of revenue in 2017, while 32% came from in-store vouchers, hotel reservations, and travel bookings. Meituan-Dianping claims to have the world’s largest on-demand delivery network with an average of 531,000 daily active drivers. About 2.9 billion deliveries were completed last year. The whole platform facilitated over 5.8 billion transactions totaling RMB357 billion in gross transaction volume. It served 310 million users and 4.4 million merchants nationwide.

Tencent Holdings is Meituan-Dianping’s largest external shareholder with a 19.2% stake, assuming the overallotment option is not exercised. It was also one of five cornerstone investors that subscribed to approximately 170 million shares in the IPO. The company’s other backers include Sequoia Capital, Trustbridge Partners, Coatue Management, Hillhouse Capital, and Tiger Global Management.

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• Topics
• Greater China
• IPO
• Technology
• Consumer
• China
• Meituan-Dianping
• TMT
• Tencent
• Sequoia Capital
• Hillhouse Capital Management
• Trustbridge
• Tiger Global Management