By Eamon Barrett
September 11, 2018

Meituan Dianping, China’s multiservice “online-to-offline” (O2O) platform that provides everything from food delivery to flight tickets, has confirmed it is seeking a $55 billion valuation from a Hong Kong IPO, setting the date for Sept. 20. But with China’s already overcrowded tech sector facing a downward turn, Meituan is competing not only against rival companies but also diminished investor enthusiasm.

Meituan will be the second company to take advantage of new regulations that allow companies to offer weighted voting rights in Hong Kong. The so-called superapp hopes to raise $4.4 billion by issuing over 480 million Class B shares, each of which entitles the shareholder to one vote. The company’s Class A shares, which are good for 10 votes, will be held by CEO Wang Xing and two other top executives.

Xiaomi was the first company to list dual class shares in Hong Kong, doing so earlier this year, but the smartphone maker’s weak debut was a poor advertisement for the new system. Mainland regulators excluded Xiaomi from the Hong Kong stock connect, a scheme that allows investors in mainland China to buy up Hong Kong stock, because they thought the weighted voting structure was too complicated for mainland investors to understand.

More recently, the arrest of JD.com CEO Richard Liu has highlighted the dangers of allowing weighted-voting-structure companies to consolidate power in the hands of just a few executives.

There are also signs that investors are losing their appetite for Chinese tech stocks as promises of bountiful profits go unmet. Shares in Tencent and Alibaba have plummeted this summer after both posted weak earnings, while Meituan has yet to even reach profitability.

In April, Meituan bought loss-making bike share operator Mobike for $2.7 billion, pushing company finances further into arrears. Meituan recorded losses of $3.3 billion for the first four months of the year, nearly three times its deficit for the same period in 2017.

Betting on winning a food fight

To assure investors that it can turn a profit, Meituan has pulled back from other expansion efforts to focus on its core sector: food delivery. Meituan commands 59% of China’s $40 billion food delivery market, and CFO Chen Shaohui has said he is “very confident in [Meituan’s] food delivery business turning profitable.”

But here Meituan must compete with the might of Alibaba. Alibaba was an early investor in Meituan but sold most of its stock when the start-up merged with Tencent-backed Dianping in 2015 to form the combined entity it is today. After ditching Meituan, Alibaba invested in Ele.me, China’s second largest food delivery company; it took full ownership of the company in April.

As rumors of Meituan’s imminent IPO intensified, Alibaba merged Ele.me with its own lifestyle services app, Koubei, creating a discernible rival to Meituan Dianping’s multiservice platform.

Already confronting the challenge of going toe-to-toe with Alibaba in a war for food delivery dominance, Meituan has retreated from other areas, such as ride-hailing. The platform began trialling a ride-hailing service last October and hoped to roll out the feature to seven major cities this year. That plan was put on hold last week, partially because of the harsher regulatory environment that has come from the scandal embroiling industry leader Didi, but also because Meituan can’t afford to fight for space in multiple sectors.

To that end, Meituan claims it will not be racing to expand overseas, unlike its bike-sharing rival Ofo, for example, which had to beat a hasty retreat this summer when it faced a cash crunch at home. “There are plenty of opportunities in the overseas markets, but we have a very good customer base in China,” Meituan CEO Wang Xing said during a press conference. “We would like to be rooted in China and focus on the domestic market first.”

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