Meituan reportedly targets $55B valuation for Hong Kong IPO, leading to concerns that may be too high

Meituan-Dianping is reportedly aiming for a $55 billion valuation in its upcoming initial public offering in Hong Kong, but the company’s net losses and increasing competition from Alibaba are already raising questions about whether that is too ambitious, despite the company’s market leadership in China. Meituan-Dianping, which bills itself as a “one-stop super app” that offers everything from food delivery to travel bookings, has set an IPO price range of HK$60 to HK$72 (about $7.64 to $9.17), with a valuation of $46 billion to $55 billion, according to Reuters.

That is still less, however, than the valuation of about $60 million it targeted earlier, according to a June 25 report from the Wall Street Journal. Meituan-Dianping runs the leading online marketplace for services in China by gross transaction volume and also acquired bike-sharing startup Mobike earlier this year.

Meituan-Dianping was said to be valued at as much as $30 billion when it raised a $4 billion Series C round led by Tencent in October 2017.

But the company’s tight margins and losses, much of which were incurred on marketing and user acquisition, are raising concerns about Meituan-Dianping’s valuation, especially after Xiaomi’s underwhelming debut on the Hong Kong Stock Exchange in July. Despite reports that it sought a valuation of $100 billion, Xiaomi ended up with a $54 billion valuation after raising $4.7 billion.

A document filed today with the Hong Kong Stock Exchange didn’t provide more information about IPO pricing or valuation, but it did give some insights into the company’s financials. It said that Meituan-Dianping’s total revenues increased by 161.2% to RMB 33.9 billion in 2017, and by an additional 94.9% from RMB 8.1 billion in the four months ending in April 30, 2017 to RMB 15.8 billion in the same period of 2018.

In 2017, the platform generated over 5.8 billion transactions, totalling RMB 357 billion in gross transaction volume. It served 310 million transacting users and 4.4 million active merchants, with each transacting user making an average of 20.3 transactions in the 12 months ending April 30, 2018.

Meituan-Dianping recorded a gross margin of 9.3% for food delivery in the four months ending on April 30, 2018, while its second-largest business segment, in-store, hotel and travel services, recorded gross margin of 88% in the same period. Overall, the company had gross margin of 25.5% in that time frame.

In the same periods, however, it also recorded high net losses. In 2017, the company said it recorded net losses of RMB 19 billion, as well as net losses of RMB 8.2 billion and RMB 22.8 billion for the four months ending on April 30 2017 and 2018, respectively. Meituan-Dianping said the losses were due in changes to the fair value of its preferred shares, user acquisition expenses, including incentives to attract users and delivery riders, and new product launches.

The pressure of acquiring new users and marketing expenses probably won’t ease up anytime soon, as Meituan-Dianping faces down rivalry from Alibaba. The e-commerce giant used to be an investor in Meituan-Dianping, but offloaded its shares to focus on building its own online-to-offline services, including a combination of Ele.me and Koubei which recently raised $3 billion from investors including SoftBank.

TechCrunch has contacted Meituan-Dianping for comment.