Aug 20, 2019 07:20 PM

A Year After IPO, Meituan Works to Unify Its Message

A year after its blockbuster IPO in Hong Kong, words like “cautious” and “disciplined” are showing up more often in comments and announcements from Meituan Dianping and its executives.

The cautious tack comes as the company, China’s largest provider of online-to-offline (O2O) services like app-based takeout dining, tries to convince investors it can join its big internet brethren in the realm of profitability.

“Importantly, we are disciplined when allocating capital for our new initiatives,” founder and CEO Wang Xing said on a June conference call after Meituan announced its second quarterly earnings results since its IPO last September.

Such new initiatives refer mostly to the company’s fledging transportation services beyond its core takeout dining delivery. The company may ultimately be trying to integrate those offerings in a broad platform with food-related services at its center and transport at its edges, analysts said.

Aggressive expansions

As part of a bigger plan to become a major force in China’s transportation sector, Meituan paid $2.7 billion in April 2018 to acquire bike-sharing startup Mobike — a move criticized by many as “radical” for a startup that was losing major money at the time.

Around the same time as the Mobike deal, Meituan launched a ride-hailing service in Shanghai with plans to expand nationwide, in a direct challenge industry heavyweight Didi Chuxing.

Such aggressive expansion into competitive areas set off alarm bells for many investors, and Meituan has since changed its tune by largely halting expansion of its transport ambitions. Its ride-hailing service never expanded beyond two Chinese cities, while the once-freewheeling bike-sharing business has become the subject of strict cost control.

“The company’s strategy adjustment in new businesses is in line with the shifting attitude of investors in the public markets,” said Ella Ji, a U.S.-based technology, media and telecoms researcher at China Renaissance Securities. “Markets are now more focused on a company’s business model and profitability prospects rather than the ability to always expand.”

Meituan’s one-year stock performance appears to show that investors like the cautious messages coming from the company more recently. Since hitting a low in December when its shares lost more than a third of their value, Meituan is currently trading at around HK$70 ($8.9) — near its IPO price of HK$69. That rally has propelled it to the spot as China’s third most valuable internet company, behind only Alibaba and Tencent.

The $2.7 billion Mobike deal significantly weighed on the company’s financial performance for all of last year. Meituan reported a net loss of 8.5 billion yuan ($1.26 billion) that year, triple the 2.85 billion yuan loss in 2017.

Though the company didn’t reveal its loss from the Mobike business, it said in its annual report that gross loss from the category of “new initiatives and others” was as high as 4.3 billion yuan. A major part of that loss was due to “depreciation of property, plant and equipment primarily as a result of our acquisition of Mobike,” according to its annual report.


A Meituan food-delivery man drives on a road in Qingdao, East China's Shandong province, on March 23. Photo: VCG

Mobike overhaul

To put the brakes on swelling costs, Meituan has said it will restructure its international business by the end of 2019, a move many believe means it will shutter all of its international operations for Mobike. Such a move would come after Mobike said in March it would shut down service in some Asian countries.

Meituan is also working on a plan to rebrand the bike-sharing service to better integrate with its other offerings. The company has said it will gradually retire the original Mobike app, making its own-branded Meituan app the sole entry point for its bike-sharing service.

The company’s willingness to ultimately abandon the better-known Mobike name in favor of a more unified Meituan brand shows transportation services may play an ancillary role in its bigger plans to build a food-centered platform, said Xue Yu, a Beijing-based analyst at IDC.

In that kind of framework, Meituan could be trying to tap Mobike’s millions of subscribers as potential new users for its Meituan app, which has many other services. Meituan doesn’t reveal traffic data for its bike-sharing service, but third-party data provider QuestMobile estimated the Mobike mobile app boasted 18.5 million monthly active users at the end of 2018.

Ride aggregator

This focus on building its user traffic base also plays out in Meituan’s current ride-hailing strategy, which focuses on directing subscribers to third-party ride-booking services rather than a self-developed one like Didi’s.

Such a model also benefits Meituan by allowing it to increase “our users’ transaction frequency, enhance user stickiness and provide more opportunities for the cross-selling of other services categories,” Wang said on the company’s earning call to investors in June.

While Meituan has its own drivers in two of its original ride-hailing cities, Nanjing and Shanghai, it now offers aggregated third-party services there as well. It uses a pure aggregated model in 15 other cities, including the southern metropolises of Shenzhen and Guangzhou.

The need to build up and maintain a big traffic base makes sense for the company, as such big volume could finally bring the profits that Meituan is searching for. Though it now makes the majority of its revenue from food delivery, that core business is not making an operating profit. In 2018, nearly 60% of its total 65 billion yuan in revenue was generated from the service.

Due to fierce competition with Alibaba’s, Meituan doesn’t expect to make much money from the food delivery business, said Li Chengdong of Dolphin Think Tank, a tech consultancy. Instead, that service would function more as a core feature that could be used to attract more paying advertisers and merchants to its platforms, he added.

As of March, Meituan boasted 5.8 million merchants and an active annual user base of 411 million, according to its first quarter financial report. The company will report its second quarter earnings on Friday.

Contact reporter Mo Yelin (

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