Wanzhong Falls As Group Buying Cleanup Nears End
Some new figures are showing just how dramatically China’s group buying sector has contracted over the past year, with word that another major player Wanzhong has folded due to lack of funds. Wangzhong’s closure comes as the number of group buying casualties finally starts to slow, simply because so many have now left the space. I do expect we’ll see at least one or two more major closures or mergers this year, and previously predicted that former high-flyer LaShou could be one of those. But that said, the year could also see 2 or 3 major players finally emerge that have the potential to make IPOs and post strong long-term growth, similar to what we’ve seen recently from global sector leader Groupon (Nasdaq: GRPN).
Group buying hasn’t been a very hot ticket in China for the past year, and Wanzhong’s disappearance probably isn’t surprising to anyone. (Chinese article) The company officially shuttered its site last week, and is promising to repay its debts within the next 3 years. Of course, anyone who is owed money will probably never get it back, as there are probably no funds left at Wanzhong to give away.
Visitors to the site at wangzhongtuan.com are greeted with a message saying the site has closed temporarily for undisclosed reasons that prevent business as usual. (company announcement) There’s even a phone number and email for customers and suppliers to call, though I doubt that very many queries will be answered.
A news report about the closure cites figures that show just how radically the industry contracted last year. The sector peaked at more than 6,200 sites, with some of China’s top Internet players entering the space, as well as Groupon itself and independent site operators like LaShou and Meituan. But the figure began dropping in 2012, and by the middle of last year was down to around 1,500. It has dropped further since then, and was down to about 800 at the beginning of this year.
I’ve chronicled the merger or closure of many of the larger players, including the merger of Gaopeng, a joint venture with between Groupon and Internet leader Tencent (HKEx: 700), with another Tencent unit in 2012. Other names to leave the space include 24quan and groupon.cn, unrelated to the US-based Groupon. Some of the remaining players include LaShou, Meituan, Dianping, 55tuan, and Qianpin.
While it’s hard to say how any of these companies is doing financially since none is public, I suspect that most are still losing money though some could be close to breaking even. Dianping, which rose to fame as China’s leading restaurant rating site, is probably the most profitable, and industry leader Meituan may also be in the black. I’m less certain about the longer term prospects for LaShou and 55tuan, whose websites both look quite barren these days, probably reflecting their drives to conserve cash.
All that said, the recent rebound of Groupon itself certainly could hold out some hope for this battered sector in the year ahead. After making its highly hyped IPO in 2011, Groupon saw its shares tumble from initial highs of more than $25 to around $3 at their lows in late 2012. But they rallied last year and now trade near the $10 level, as the company turned profitable and analysts expect those profits to more than double in 2014.
So all of that said, who are the players to watch as the industry finally emerges from its current downturn? Meituan and Dianping look like my strongest bets, while Tencent’s consolidated Gaopeng site could also be a good bet for long-term survival. I’m less optimistic about LaShou and 55tuan, and think that one or both of these companies could cease to exist as independent entities by the end of this year.
Bottom line: The clean-up of China’s group buying sector is likely to wrap up this year, with Dianping, Meituan and Gaopeng set to emerge as some of the strongest players with long-term profit potential.
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