Meituan: a risky gamble on the future

Meituan

Super applications such as WeChat –TenCent–, Alipay –Alibaba– and Meituan are very popular in China

 

Although Alibaba and Tencent are now well known to the European general public, the same cannot be said for another Chinese giant, founded in 2010: Meituan. The start-up, which is now a member of the highly exclusive “super apps” club, went public last year. So it must be a flourishing company with rapid growth…? The reality is very different. Here’s an update from Stéphane Joly, Key Account Director at Altavia.

 

Meituan: an introduction

When the start-up was founded by entrepreneur Wang Xing in 2010, its business model was based on online group purchases of products and services, giving customers access to significant discounts, like Groupon. Over the years, Meituan considerably expanded its offering:

 

  • In 2015, the company bought Dianping, a participative restaurant and hotel listing platform with 200 million active users per month.
  • Meituan also set out to conquer the home meal delivery sector, pitting the company against Ele.me, owned by the Alibaba giant.
  • The 2.7-billion-dollar purchase of the Mobike self-service bicycle company – with 320 million customers! – expanded Meituan’s offering still further.
  • Lastly, the start-up recently entered the VTC(chauffeured vehicle) reservation market.

 

Super applications such as WeChat –TenCent–, Alipay –Alibaba– and Meituan are very popular in China; it’s a phenomenon you don’t find anywhere else!”, Stéphane points out. “WeChat has already exceeded one billion users, who spend several hours a day using the messaging services, but also extensively use the WeChat Pay m-wallet. As for Alibaba, more than 600 million Chinese people use it very actively to pay for everything and anything on a daily basis. And then Meituan, with its mere 200 million users, arrives… That’s a big deal!”

 

But unlike its two main rivals, Meituan is used only in the Chinese market. Its reach beyond those borders is considerably smaller.

 

A gamble on the future 

Wang Xing, the founder of Meituan, arranged for his company’s flotation on the Hong Kong stock exchange,” says Stéphane. The event took place in September: Meituan was valued by investors at nearly 53 billion dollars (45 billion euros)! It’s worth putting that figure into perspective by comparing it with something more familiar to us: groups like Accor and Carrefour, whose valuations are much lower.”

 

So are we witnessing the rise of a new “unicorn”? Only time will tell. In 2017, Meituan lost a cool 3 billion dollars. “The start-up is investing enormous sums, and spending colossal amounts of money – hence the need to go public,” explains Stéphane. “Meituan is operating in a booming sector in China; so you can consider this valuation as a gamble on the future. It’s the same thing Amazon did back in the day. But the gap between the valuation and the annual losses is wide enough to make this a genuinely risky gamble for Meituan!

 

Chinese pragmatism

So what will happen in years to come? Will Meituan have a strong enough stomach to continue its commercial fight for market share against the Alibaba group’s Ele.me, which has a war chest and a market valuation for its group which is ten times larger? “As is often the case in China, pragmatism wins out: Alibaba and TenCent have both invested in Meituan’s capital, Stéphane reveals. So if Meituan were to succeed in turning this tale into a real success story, the two giants won’t have lost their shirts entirely.”

 

Keep watching… very closely.