China’s $43b online giant
Business ‘built on the stomachs of 1.4 billion people’ is attracting serious money
China’s Meituan Dianping just became the world’s fourth most valuable start-up, reaching a US$30 billion ($43.4b) valuation that puts it ahead of high-fliers like Airbnb and Space X.
Never heard of Meituan? You’re not alone. The Beijing-based company, led by Wang Xing, is almost unknown beyond its home country. It delivers food to people’s homes, sells groceries and movie tickets, provides reviews of restaurants, and markets discounts to consumers who buy in groups.
Meituan’s appeal for investors is its dominant position in a market of more than a billion people. It was formed through the 2015 merger of Meituan.com and Dianping.com, creating the leading player for internet-based services ordered via smartphone apps.
Meituan raised US$4b in the latest round from Chinese investor Tencent Holdings, US venture capital firm Sequoia Capital and another American company, travel giant Priceline Group.
“It’s a quasi-monopoly built on the stomachs of 1.4 billion people,” says Keith Pogson, global assurance leader for banking and capital markets in Hong Kong at consultancy EY.
Wang started Meituan.com in 2010 as a group-buying site similar to Groupon, where people can get discounts by buying electronics or restaurant meals together. Dianping was founded in 2003 in Shanghai with reviews of restaurants and other local businesses, then diversified into group discounts. The companies were valued at US$15b when they merged two years ago.
The combined companies have far surpassed their US peers. Chicagobased Groupon, once a sensation in the US, has dropped to a market value of less than US$3b. Yelp, based in San Francisco, has tumbled from its peak in 2014 to US$3.6b.
Meituan Dianping has expanded well beyond its original businesses. With a few taps to navigate its smartphone apps, Chinese customers can order up hot meals, groceries, massages, haircuts and manicures at home or in the office. Or you can get your car washed while you’re at work and it’s parked on the street — the service sends a photo to your phone to verify the job.
Meituan says it now has 280 million annual active users and works with 5 million merchants.
The offerings — collectively known as online-to-offline, or O2O services — may ultimately prove more successful in China than in the US. Labour costs are lower in China, cities are more densely populated and there are more people.
“China’s market is big enough for a company this size,” says Wang Ling, an analyst with IResearch. “After years of consolidation, Meituan is one of the few contenders in areas with gigantic revenue.”
Meituan is facing increasingly stiff competition from China’s technology giants and their proxies. In particular, Alibaba Group has backed a rival service called Ele.me, which recently acquired Baidu’s business, Waimai. Alibaba, Tencent’s primary rival, is boosting its investment to bankroll expansions into more cities and businesses.
“Meituan faces so many competitors because of its wide range of business,” says Cao Lei, director of the China E-Commerce Research Centre in Hangzhou. “Lifestyle e-commerce, which includes online travel and dining reservations, is one of the fastest growing sectors in the country.”
Travel is becoming the latest competitive ground. With the recent fundraising, Meituan plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. It’s also exploring opportunities to collaborate with Priceline as part of the investment. That may present a challenge to China’s biggest online travel site, Ctrip.com International, which is backed by Baidu.
In the latest funding, Meituan also received money from Canada Pension Plan Investment Board, Trustbridge Partners, Tiger Global Management, Coatue Management and the Singaporean sovereign wealth fund GIC. Meituan said it would use the cash to expand in artificial intelligence and drone-delivery technology.
Meituan is one of the new generation of Chinese technology companies that has rapidly gained popularity thanks to the rise of smartphones.
Where Baidu, Alibaba and Tencent have come to be collectively known as BAT, new media upstart Jinri Toutiao, Meituan Dianping and ride-sharing king Didi Chuxing have now earned their own acronym: TMD.
The US$30b valuation ranks the company fourth in the world among start-ups, according to CB Insights. The first three are Uber Technologies, Didi and Chinese smartphone maker Xiaomi.
Pogson of EY, however, cautions that valuations in China may be getting a bit overheated.
Shares of private companies like Meituan and Uber aren’t traded in liquid markets every day, so valuations change only rarely and typically go up. In addition, many of the fundraisings in China and the US are done with ratchets, or protections so that investors get compensation if the valuations fall later on.
“You have to take these numbers with a grain of salt,” he says.
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