INTERNET: Meituan Feels Pressure From Baidu, Tencent Tie-Ups
Bottom line: Meituan is feeling increasing isolation as its 2 chief rivals strengthen partnerships with Baidu and Tencent, and is likely to be forced into a similar tie-up by the end of next year to maintain its industry-leading position.
Leading group buying site Meituan is finally responding to a flurry of reports involving its own finances and a new challenge coming from top search engine Baidu (Nasdaq: BIDU), releasing data that reflect its own strong growth and market dominance. At the same time, CEO Wang Xing is also shooting down rumors that his company is in the process raising $1 billion in new funds, and is repeating his previous position that his company isn’t in any hurry to make an IPO.
The sudden release of information by this low-profile company raises the bigger question of what’s the motivation behind this flurry of activity for the normally low-profile Meituan. I personally believe the company isn’t gearing up for an IPO, especially in the wake of all the market turbulence in China right now and the flood of US-listed Chinese companies that have announced plans to privatize and return home to re-list.
It’s possible Meituan could be gearing up to raise more funds, even though Wang has specifically denied such a plan. But in this case even that plan looks unlikely, since Meituan just raised $700 million at the beginning of this year, which should be more than enough to fund its growth for the rest of 2015 and probably well into 2016.
Instead, Meituan may suddenly be feeling a bit vulnerable, following Baidu’s high-profile announcement earlier this month that it will invest 20 billion yuan ($3.2 billion) over the next few years to build up its rival service Nuomi. (previous post) At the same time, Meituan is coming under growing pressure from its older traditional rival Dianping, which has found a strong backer after selling 20 percent of itself last year to Internet titan Tencent (HKEx: 700).
Meituan counts Alibaba (NYSE: BABA) among its earliest backers, though the e-commerce giant received only a small stake of Meituan in an early investment round and the 2 companies have never announced any major tie-ups. That contrasts with Dianping, which has an equity tie-up with Tencent and is working closely to integrate its popular restaurant-related services onto the wildly popular WeChat mobile messaging service. That kind of tie-up is undoubtedly putting pressure on Meituan, especially in the mobile space where it now dominates.
Still Growing Strong
That pressure may have prompted Wang to disclose new information that shows his company is still the clear leader on China’s group buying stage, with 62 percent of the broader market and an event larger 95 percent of the mobile market. (Chinese article) He also released a series of financial data, including the company’s posting of 47 billion yuan in transaction volume in the first half of this year, nearly triple a year earlier.
There are quite a few other figures in the report, including the fact that Meituan has an impressive 130 million active buyers. Two things that aren’t mentioned are Meituan’s actual revenues, and whether or not the company is profitable. The company had previously said it broke even in 2013, though it’s quite possible it’s still barely breaking even due to strong competition.
China’s group buying space was once extremely crowded, and Meituan was one of hundreds of sites that were launched at the height of a boom in 2010 and 2011. The sector later underwent a major consolidation that saw most major sites close, leaving Meituan and Dianping as the clear industry leaders. One of the other few remaining players, Wowo (Nasdaq: WOWO), also known as 55Tuan, made headlines earlier this year when it because China’s first group-buying site to make an IPO. (previous post)
All of this brings us back to what’s next for Meituan, and whether we can expect any more major moves in the bigger group buying space in the near- to medium-term. In answer to the first question, I suspect Meituan is feeling pressure to form a stronger alliance with another major Internet company, and Alibaba looks like the most logical choice. In answer to the second question, I expect that most of the sector’s consolidation is now complete, though I also wouldn’t be surprised if a few smaller acquisitions occur, including a possible purchase of Wowo in the next few years.
At the end of the day, Meituan is clearly well positioned to maintain its market leading position, and Wang points out that simply raising lots of money isn’t that useful if you don’t know how to spend it. But the company could also find itself increasingly isolated if it fails to find a major Internet partner, and I do predict we’ll probably see Meituan forced to form an alliance with a wealthy backer by the end of next year at the latest.
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