Author: Rick Chow
Among Chinese Internet companies, there is such a company. According to its financial report, the company’s total revenue in 2017 reached 33.9 billion yuan, but in the past three years, the company continued to lose money, but its valuation was as high as 53.4 billion US dollars. And it has earned thrunanimous recognition of the capital market.
How did the company do it?
The evaluation logic of Meituan
Obviously, many people have guessed that this company is the mobile Internet company Meituan-Dianping, a super platform for life services.
On September 13, Meituan-Dianping set a price of HK$69 per share for its scheduled IPO, which was at the upper limit of the previous pricing range of HK$60~72. with a. The company planned $4.9 billion in financing and is estimated to be worth about US$ 53.4 billion.
As a super platform for life services, why is its valuation as high as 53.4 billion US dollars? What’s the reason for its rapid development in the past few years?
This is related to the unique operating model of the Meituan.
In this regard, in the introduction of Meituan-Dianping, its founder Wang Xing has publicly stated:
“Our mission is to help everyone eat better and live better. We believe that eating is at the core of Chinese culture and most popular demand. Chinese hold a passion for eating. On the one hand, we are providing the most traditional business that meets everyone’s basic needs. On the other hand, we make everyone eat better with the help of the latest technology, such as mobile Internet, big data, artificial intelligence .”
In short, the Meituan-Dianping is an Internet platform for life services, and today it has been integrated into the public life.
The latest prospectus of Meituan-Dianping shows that as of April 30, 2018, the majority of the company’s revenue comes from food and beverage takeaway, offline consumption and the accommodation , new business and other three parts, the proportion of each business in total revenue were 61.2%, 27.5%, and 11.3%, respectively.
Its specific business statistics are:
As of the first four months of 2018, a number of data on food and beverage take-outs showed remarkable results: revenue reached 9.686 billion yuan, an increase of 107.78% over the same period of last year, and doubled; gross profit was 903 million yuan, doubled year-on-year, an increase of 112.47%. The number of transactions was 1.69 billion, a year-on-year increase of 95.16%; the transaction amount was 75.1 billion yuan, an increase of 112.15%. In the same period, the revenue and gross profit of offline consumption and the accommodation business reached 4.351 billion yuan and 3.829 billion yuan respectively, an increase of 43.08% and 43.41%.
Among them, food and beverage take-out, offline consumption and the accommodation business are the two most important core business segments of the Meituan, whose business development is stable, and the operating conditions are continuously optimized, and the losses continue to narrow. Even if it loses in the short term, what is the valuation of such a platform with hundreds of millions of users and huge consumption needed?
It is an inevitable trend to connect your business with your customers through various bonds at the same time you have already connected through basic services.
Therefore, when Meituan satisfied the needs of the users to eat, they began to consider expanding among other categories, and then all the categories pulled each other and cross-sell.
Maybe all of the capital has perceived this operating logic.
It is consensus that eating is among our top daily priorities, let alone the investors.
Therefore, the Meituan won the active subscription of investors. In addition to the major shareholder Tencent led the investment of 400 million US dollars, the four fund institutions of Oppenheimer, Lansdowne, Darsana and Structural Adjustment Fund were also included in the list of cornerstones. The above-mentioned institutions are expected to allocate a total of about 1.5 billion US dollars, accounting for about one-third of the total size of the issuance.
As a stockholder, choosing investment value stocks or growing stocks may vary. But the Meituan is a growth stock and is the consensus of all.
The annual trade over 400 billion: how did this platform company survived the capital winter
In the economic downturn, how to open source is a top priority for every company. The Meituan-Dianping is no exception. To combat the economic cycle, the strategy of the company is to open source and reduce expenditure. However, it is worth mentioning that even at this moment, Meituan still maintained rapid growth. GPLP noticed that in the first four months of 2018, its transaction volume continued to grow rapidly.
The updated prospectus shows that from May 2017 to April 2018, Meituan’s transaction volume exceeded 400 billion yuan in the year, reaching 411 billion yuan, an increase of 15.1% compared with that of 357 billion yuan for 2017.
Meituan maintains a good and efficient ability to acquire customers, and the active users are highly sticky. The updated prospectus shows that from May 2017 to April 2018, its annual transaction users reached 340 million; each users transact 20.3 times per year on average, which was 40.97% higher than the 14.4 times in the same period of 2017. According to the prospectus, there are 289 million active in December 2017 , and the proportion of active users exceeded 90%.
How did Meituan achieve open source and cut costs at the same time?
This is not complicated.
In other words, this is related to the mode of Meituan-Dianping. It has achieved the ultimate in operational efficiency and company innovation . This operational efficiency is mainly achieved through innovative technology. In Meituan, the entire company’s innovative technology is worth mentioning that in the history of China’s Internet, Meituan-Dianping is the first service e-commerce platform that provide multi-category services. In order to provide this service, Meituan-Dianping has built a comprehensive “online + offline” Mode. It has more than 50,000 employees, of which more than 10,000 are software engineers who do online research and development. The other 30,000 employees are distributed in hundreds of cities across the country, providing off-line service to merchants. On the merchant side, they also use technology to continuously develop systems to improve efficiency and improve the experience.
It is worth noting that the financial management data of Meituan continued to improve, sales and marketing expenses continued to narrow, and operational efficiency continued to increase. From January to April 2018, the sales and marketing expenses of Meituan Group accounted for 25.9% of the revenue, and in 2015, this figure was 177.7%, which was mainly due to the decreasing cost of the Meituan platform and the growing customer base. As the services and merchants provided by the Meituan platform continue to increase, the choices available to consumers will also increase, thus forming a virtuous circle of mutual benefit between users and businesses, that is, the more consumers, the more likely the merchants to conduct transactions. The marketing efficiency brought Meituan to the business has been continuously improved.
At the same time, the stable cash reserve capacity of the Meituan has been continuously strengthened. The updated prospectus shows that as of April 2018, the group’s cash and cash equivalents were 26.27 billion yuan. At the end of 2017, the value was 19.41 billion yuan, an increase of 6.86 billion yuan, providing a strong backing for its development.
Behind the strategic losses: high and low frequency synergies are intertwined and significant
In terms of business, Meituan has been focusing on the mass, everyday-needed and high-frequency service categories, and has established multiple contacts in the consumer life, enabling itself to launch and cross-sell various other services. With its high-frequency activities for take-out and off-line consumption, Meituan-Dianping has started to promote low-frequency activities such as hotels and flash sales, and introduced user traffic of high-frequency activities into the consumption of various new businesses, gradually realizing the consumption scene all covered.
This can also explain the current loss problems faced by Meituan. According to the reasons disclosed in the prospectus, the first is the large sales and marketing expenses for acquiring more trading users and stabilizing market leadership. Second, it focuses on the company’s long-term development and strategy, the introduction of new products and service categories. This can also be understood as a strategic loss.
According to the prospectus, in 2017, more than 80% of new hotel booking consumers and about 74% of new life service consumers were converted from the two core categories of food and beverage take-away and off-line consumption. In the field of travel, it acquired the “Mobike”, a leading company in the sharing economy early this year, which helped it further expand its high-frequency traffic.
Through a large scale effect and network effect, Meituan will form a good synergy effect, quickly and efficiently expand the reach of the consumer groups, and achieve a complete ecological closed loop of “food, accommodation, travel and entertainment”.
Perhaps whether it is a short-term investment or a long-term investment, what Meituan need are investors who can understand.
