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Chinese food-to-flights app Meituan-Dianping offers half-baked IPO

Startup has 2 big problems: it has not been consistently profitable, and operates in a mishmash of sectors

Hong Kong

MEITUAN-DIANPING needs more time in the oven before it is fit for public consumption. The Chinese takeaways-to-taxis startup has selected banks to help it prepare for a Hong Kong listing, Reuters says. At this stage in the group's life, prospective investors could suffer indigestion.

The Tencent-backed group, last valued at US$30 billion, is growing fast: revenue more than doubled to US$5.4 billion last year. But it has two big problems: it has not been consistently profitable, according to investors, and operates in a mishmash of sectors such as food delivery, taxis and travel booking.

Companies such as Amazon and Tesla show stock-market investors are willing to back loss-making or barely profitable technology outfits they believe will dominate clear niches. But in trying to become a super app, Meituan-Dianping is waging numerous battles at once, and will not necessarily win any of them.

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To make things worse, Chinese tech firms often heavily subsidise customers and suppliers in their eagerness to dominate a market. Uber lost US$1 billion a year connecting cabs and passengers in the People's Republic, before it conceded defeat to rival Didi Chuxing.

In this case, Meituan-Dianping's food-delivery business was loss-making as of February, following a subsidy war with Alibaba's Ele.me. And Didi is also entering the sector, a person familiar with the matter says. Meanwhile, Meituan-Dianping is moving the other way, into ride-hailing.

These fights could make Meituan-Dianping's stock volatile, especially if it starts with a high valuation, only for heavy investment or stiff competition to cause drastic swings in earnings estimates. There could also be clashes between management and investors about when to cut and run in underperforming areas. So the transition to public markets could be distracting for chief executive Wang Xing and his team.

Meituan-Dianping is flush with cash: it just raised US$4.1 billion, and has a roster of loyal investors who would probably inject more capital if needed. Staying private until it has a clearer edge over competitors would make for a more straightforward market debut.

Meituan-Dianping has tapped Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley to work on an initial public offering that could happen as early as this year, Reuters reported on March 27, citing people with knowledge of the move. The Chinese firm has yet to award formal mandates, Reuters added.

Meituan-Dianping wants to benefit from a bull run in technology stocks, and picked Hong Kong because the city's exchange will soon allow tech listings with super-voting stock, the report added. A valuation has yet to be determined.

The Beijing-based company offers various services via a single app, including food delivery, restaurant reservations, ride-hailing, and hotel and travel bookings.

Meituan-Dianping was valued at US$30 billion after a US$4.1 billion fundraising announced in October. Long-term backer Tencent led that round, which also included funding from US online travel company Priceline. REUTERS

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