Why Meituan-Dianping is the current TMD standout

FinanceAsia looks at why the O2O giant is leading China's two other high-flying startups as it prepares to make its way to the public market.

A trio of high-flying Chinese startups are poised to challenge the country’s technology triumvirate by altering the way people live and interact with each other.

Toutiao, Meituan-Dianping and Didi Chuxing – collectively known as TMD – have irresistible momentum behind them as they bring fundamental changes to entertainment, consumption and travel, respectively.

There are high hopes that TMD can become the next BAT – Baidu, Alibaba and Tencent – which have dominated China’s internet industry for years.

For now, Meituan-Dianping appears to be leading the race.

Its profile is huge; if you live in China, it is very unlikely you have never heard of Meituan-Dianping.

Meituan-Dianping's footprint is also massive. As of April, the online-to-offline platform had 290 million monthly active users – roughly the size of the US population. Nearly one in every four Chinese have signed up as a member.

And with those credentials, the eight-year-old startup is coming to market, targeting a valuation of as much as $55 billion as it began selling shares to institutional investors this week as part of a HK$28.8 billion to HK$34.6 billion ($3.7 billion to $4.4 billion) initial public offering in Hong Kong.


First started as a Groupon-like group purchasing site, Meituan has emerged as the go-to platform for food ordering after merging with restaurant review app Dianping in late 2015.

That was the same year Didi Dache merged with Kuaidi Dache to form China’s biggest home-grown car-hailing app, and when Toutiao reached its milestone of having 300 million total users.

But since then, Meituan-Dianping has expanded in a way more extensively than Toutiao and Didi Chuxing. While the news aggregator and car-hailing platform continue to build up scale in their respective markets, Meituan-Dianping has followed a more aggressive expansion path by taking on new businesses in different sectors.

For instance, the food ordering site launched air ticketing and hotel booking services in late 2015 and went head-to-head with travel booking giants like Ctrip and Qunar.

As if to underline the Beijing-headquartered firm's successful push into the travel booking business, US travel giant Priceline Group invested in Meituan-Dianping's $4 billion series-C round of private funding last year.

It has continued to break into new territories and is now China’s largest service-booking site, covering everything in the consumer sector – from food ordering and car-hailing to world travel and property rental.

As such, Meituan-Dianping appears to be following the trails of the BAT, which have all expanded aggressively outside their core businesses and built up exposure across multiple nascent hyper-growth markets.

For instance, Alibaba has built on its e-commerce success to establish what is now China’s largest electronic payment system, Alipay. Tencent, which started by running China’s largest messaging app, is now the world’s main computer and mobile games developer.

And Baidu, the operator of the country’s largest internet search engine, is perhaps better known now as a leader in artificial intelligence and electric cars.


However, some analysts have voiced concern over Meituan-Dianping’s over-expansion into new businesses that have little synergy with its core food-delivery services.

In February last year, Meituan-Dianping made a surprising move by launching a car-hailing service in Nanjing. By the end of the year, the service had expanded into seven first- and second-tier Chinese cities including Beijing, Shanghai, Hangzhou and Chengdu.

The move was seen as a direct challenge to Didi Chuxing because Meituan-Duanping chose to launch the service in major cities instead of smaller cities where Didi has less exposure. At the same time, Meituan-Dianping offered more than double Didi’s discounts to drivers using its app, underscoring its intention to take on Didi directly.

And then in April, the company paid a whopping $2.7 billion to acquire Mobike, a leading bike-sharing platform that has never been profitable since its inception.

Despite the clear synergies between food ordering and bike-sharing, some equity analysts are sceptical about the business rationale behind the acquisition, particularly in view of the high price paid for the asset.

Also worth noting is how Meituan-Dianping's food delivery service looks set to come under increasing threat from Ele.me and Koubei. The two Alibaba-backed platforms announced a merger last month that could lead to a duopoly with Meituan-Dianping in the on-demand food ordering market. 


In any case, Meituan-Dianping’s upcoming IPO will be a gauge of whether public investors endorse its business model.

The company, the world’s third-most valuable privately held technology startup, has already scored huge successes in the private market. Existing shareholders in this so-called unicorn include a long list of prominent names like Tencent, GIC Private, Temasek, Canada Pension Plan Investment Board, Tiger Global Management, Sequoia Capital, Coatue Management and China-UAE Investment Cooperation Fund.

And after the listing, Meituan-Dianping is set to add four major new institutional investors. US investment firm Oppenheimer, British hedge fund Lansdowne Partners, New York-based Darsana and China Structural Reform Fund have each agreed to invest $500 million, $300 million, $200 million and $100 million, respectively, as cornerstone investors in the IPO.

Top shareholder Tencent is another cornerstone investor and will inject a further $400 million into the company.

Meituan-Dianping’s 480 million-share deal will be sold at HK$60 to HK$72 per share. It is set to be the second company in Hong Kong after Xiaomi to list with a weighted voting rights share structure.

The company is expected to make its debut on September 20.

The joint sponsors on Meituan-Dianping's IPO are Goldman SachsMorgan Stanley and Bank of America Merrill LynchChina Renaissance is the sole financial advisor. 

¬ Haymarket Media Limited. All rights reserved.
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