Meituan Dianping Is Delivering an Overpriced IPO

By Anonymous

Hong Kong’s bumper year of initial public offerings hasn’t turned out to be the joyous celebration of China’s tech sector many hoped for at the start of the year. Can Meituan Dianping deliver a late pick-me-up?

The online-services company has set a pricing range for its IPO that means it could raise up to $4.5 billion and value the company at close to $55 billion. Meituan—a cross between GrubHub , Yelp and Expedia , with a ride-hailing service like Uber added in—has more than 300 million users in China and about 60% of the food-delivery market.

All of which sounds exciting—except Meituan has so far lacked any profits: Last year alone it made a $560 million operating loss on $5 billion of revenue. Its absence of earnings makes valuation tricky, but what’s known makes the pricing look a stretch: At the top end of the range, Meituan would be worth 11 times trailing sales, above more proven Chinese tech stocks such as Alibaba, which trades at 10.4 times, and Tencent at 9.3 times. Moreover, Meituan faces cutthroat competition within China from the likes of Alibaba-backed Ele.me, which could eat into its already razor-thin margins for a while yet.

For sure, Meituan’s IPO ought not prove to be a repeat of the recent Xiaomi fiasco: That company had initially hoped for a $100 billion price tag but ended up floating at closer to half as much. Xiaomi’s airy talk of winning big from the ‘Internet of Things’ never convinced. By contrast, Meituan’s aim to cross-sell services on its app already seems to be working.

Even so, expectations are rightly being dialed back. Meituan’s backers had previously mooted a $60 billion valuation for the company. If it eventually prices at the bottom end of the range, the IPO could end up close to 25% lower.

The backdrop is pretty awful, with Chinese stocks falling all around—Tencent, a sector giant, has dropped 18.7% in 2018. Xiaomi is already trading below its July IPO price, while other notable tech flotations in Hong Kong in the past year—such as China Literature and Razer—have been disastrous for investors. Alibaba’s affiliate Ant Financial, which some hoped could IPO this year at a $150 billion value, now seems unlikely to come to market this year.

Meituan’s IPO has a lot to do to lift the mood. On the evidence to date, that’s too big a burden for it to bear.

Write to Andrew Peaple at [email protected]