Shares of Meituan Dianping, China’s leading food delivery and services platform, have started trading in the Hong Kong Stock Exchange on September 20. The opening price rose as high as HK$ 72.9 ($9.3) per share, up 5.7% of the initial selling price of HK $69 near the top target range of HK$50-60. This has boosted Meituan’s market value to HK$ 400 billion, even higher than that of e-commerce giant JD.com.
Meituan has brought optimism among investors after somewhat disappointing performances of other Chinese tech stock. Tencent had re-purchased its shares for 9 days in a row until September 19 and spent over HK$ 300 million to stabilize prices.
The current Meituan Dianping, also known as Meituan, is the result of the $15 billion merger of Meituan and its rival Dianping in 2015. The two companies were considered China’s Groupon and Yelp respectively. After the completion of the deal, the new O2O platform became started including a variety of services including food delivery, ride-hailing, travel, cinema ticket booking, and other services.
Meituan Dianping disclosed its IPO plan back in June. According to the June filling, the company had 310 million transaction users in 2017. The company reported an unadjusted RMB 2.8 billion net loss and warned that Mobike, the bike rental platform the company purchased, will face regulation and operational challenges in the future.
However, a major concern for Meituan’s long-term performance is the close tie of its services and China’s microeconomic performance. As Meituan wrote in the filling, “a severe or prolonged downturn in China’s economy could materially and adversely affect our business, financial condition and results of operations.”
Meanwhile, the financial sector is showing mixed feelings towards the IPO. Some insiders, including China’s financial information platform The Wall Street CN (paywall, in Chinese) found it hard to calculate an accurate valuation for Meituan as the company’s business model has few parallels and is still experiencing losses. Insiders seem to be cautious and believe that a few more quarters have to pass to make a judgement about the company’s true value. Meituan will have to pay close attention to its funds as the company is still burning money to gain market shares.
Rumors have been circulating that the IPO was not well planned but an effort to fulfill promises for the Valuation Adjustment Mechanism (VAM) Meituan established with previous investors.
Not all are skeptical. Many believe the company will show strong performance under the leadership of its CEO Wang Xing. Considered as a man out of regular business boxes, Wang’s business sense is appreciated by investors including Neil Shen, Managing Partner of Sequoia Capital.
“I want to particularly thank Wang Xing for choosing Sequoia Capital during the very early stage of Meituan’s foundation. To be honest, Meituan had quite a few financing sources, but Wang firmly chose us. (…) Looking back to the old days, our relationship is precious,” Shen said in a high-profile congratulation letter he wrote for Meituan’s IPO (in Chinese).
“Our judgement on the industry and appreciation of Wang Xing are the reasons why we decided to invest in Meituan soon after our meeting with Wang,” the letter states.
Interestingly, Shen also thanked Dianping’s previous head Zhang Tao for giving up the co-chairing CEO opportunity and allowing Wang to be the single leader of the newly-merged company.
After the IPO, Wang will hold the controlling shares of the company, according to Meituan.
Sequoia Capital holds 11.4% of Meituan’s stake. The firm participated in both Meituan and Dianping’s Series A financing round as the only investor. Although Shen’s letter can be viewed as a congratulation to Sequoia Capital itself, an open letter is unusual considering Shen’s low-profile personality.
Meituan’s IPO was jointly sponsored by Goldman Sachs, Morgan Stanley, and Bank of America Merrill Lynch. China Renaissance was the sole financial advisor.