Describing itself as "the Amazon of services," Beijing-based, Tencent-backed Meituan-Dianping is a technology startup like no other –China’s answer to Groupon, Uber Eats, and Yelp, all rolled into one platform. The company has filed for a Hong Kong IPO
and has priced 480.27 million Class B shares at HK$69, the top end of marketed range, raising US$4.2bn and valuing the company at US$52.5bn.
Meituan's pricing at top top end of the range (unlike recently listed Xiaomi
, which priced at the bottom of the range) is a signal that while sentiment in the Hong Kong market might be struggling, there is still demand for stocks with exposure to the rapidly growing long-term trajectory of China’s internet economy. Meituan will start trading on September 20.
The retail portion of the IPO was 1.5x oversubscribed, lagging both the Xiaomi IPO (9.5x oversubscribed) and Ping An Healthcare (more than 600x oversubscribed). This trepidation from retail investors may be a reflection of the lacklustre year-to-date performance of Hong Kong IPOs; they have fallen an average of 22% from listing price, and the overall sentiment in the Hong Kong market is depressed with the Hang Seng index down 17.5% this year.
Of particular importance for a tech startup such as Meituan is the sentiment in Chinese tech. The valuation of Chinese tech has previously been extreme relative to the US due to the sector's stellar growth. Now that actual growth is no longer meeting expectations, we are seeing a repricing across the sector as a whole. It is our belief this is based on a slowing growth trajectory rather than a structural problem within the sector given long-term opportunities, but the sentiment is undoubtedly negative which has affected retail demand for Meituan.
Meituan is China’s leader in O2O (offline-to-online) services, creating a one-stop "super app" for a range of services from haircuts, manicures, and massages, to movie tickets, food delivery, and hotel bookings.
Meituan has delivered impressive revenue growth at 744% from 2015 through to 2017, but despite growing revenue at a startling pace the company is still unprofitable. In 2017 revenue increased to 33.9bn yuan ($5.2bn), up 161% from a year earlier. Last year the company still posted a loss of 18.99bn yuan per the prospectus, although after adjusting for changes in the value of convertible redeemable preference shares, share-based compensation expenses and other items, adjusted net loss was recorded as 2.85bn yuan; this is approximately half the net loss recorded in 2016.
Operating loss is trending down and if the top line growth accelerates on the same trend along with the rapid acquisition of new users, the potential to turn a profit is there... if
Meituan manages to successfully stave off its competition.