As it becomes a $53b public company, Meituan should give up on ride-hailing altogether

A Meituan-Dianping driver picks up food-delivery orders in Shenzhen. / Photo credit: Capwiuejooh

Meituan-Dianping has kicked off its much anticipated IPO, with the multi-segment, on-demand services app reportedly raising US$4.2 billion from its Hong Kong float. Another US$650 million could be winging its way if underwriters decide demand is high enough to sell more shares, valuing the company at as much as US$53 billion.

But in the run-up to the listing, the company indicated in a regulatory filing that it will not expand its ride-hailing business – in the near term, at least – following pilots in Nanjing and Shanghai.

Meituan’s updated prospectus filed with the Hong Kong Stock Exchange (HKEX) last week said: “We regularly evaluate the synergistic value car-hailing services could bring to our platform […] Based on current market dynamics, we do not expect to further expand this service.”

We do not expect to further expand this service.

The company’s move into ride-hailing was widely seen as a strategic gamble, given Didi Chuxing’s dominance in the domestic Chinese market. It was the action of a well-funded, fast-growing startup with plenty of confidence on its side.

But Chinese authorities are now dialling up scrutiny of the ride-hailing sector after two cases of passenger killings by drivers and multiple complaints of sexual harassment. Its decision to freeze any expansion suggests that Meituan has concerns about the longer-term viability of the business.

Jack of all trades

Meituan Dianping delivery drivers / Photo credit: Meituan-Dianping

Becoming a publicly traded company means that Meituan will be subject to much more stringent regulatory oversight. It will have to regularly report its financial performance, in detail. And it will be at the mercy of the public markets – with a much bigger and broader set of shareholders to appease.

The upshot of all this is that Meituan will no longer be able to take the kind of strategic risks it could as a privately held startup.

This includes its willingness to make forays into what can sometimes seem like incongruous markets. Meituan started out as a portal for group-buying deals, where merchants offer discounts on products if a minimum number of buyers come on board.

From there, it expanded into travel-related ecommerce, restaurant reviews and discovery, on-demand food delivery, and – most recently – public transportation, in a drive to become an everyday “super-app” for Chinese consumers. With regards to the latter category, Meituan has made several big moves.

‘Current market dynamics’

It began testing a ride-hailing app in Nanjing last year, before extending the trial to Shanghai this March.

Safety concerns