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Billion Dollar Unicorns: Meituan Leads China’s Group Buying Market

Posted on Friday, Mar 6th 2015

The phenomenon of Billion Dollar Unicorn companies is not restricted to the American markets. There are several companies in emerging markets as well that are joining the club. One such company is China-based group buying site Meituan. According to Chinese research firm EnfoDesk, the group buying market in China was estimated to have grown 44% q-o-q to RMB 22.96 billion (~$3.74 billion) for the quarter ended September 2014.

Meituan’s Offerings

Meituan.com was founded in 2010 by founder and current CEO Xing Wang. It is a Chinese group buying site for local products and services. The site operates on principles of Groupon. The website offers vouchers that offer heavy discounts on products and services subject to a minimum number of buyers who wish to purchase these vouchers. Additionally, Meituan offers a database of consumer-generated reviews.

Meituan launched their pilot service in Shanghai and Beijing, but since then have expanded to both second and third tier cities in the country. Today, Meituan boasts a 60% share in the group buying market of China. They are present in more than 1,000 cities in China. As of December 2014, Meituan recorded over 200 million active users, 90 million mobile users, and 800,000 vendor partners.

Meituan’s Financials

Meituan earns revenues by charging a commission on the transactions completed on their site. In December 2014, they recorded RMB 6.3 billion (~$1.02 billion) in transaction values with 90% of the transactions completed using mobile devices. Meituan ended the year with total transaction value of RMB 46 billion (~$7.4 billion). They plan to grow this number to over RMB 100 billion (~$16.2 billion) in 2015. For the current year, Meituan is forecasting revenues of RMB 1.9 billion (~$300 million). Their profitability figures are not disclosed, but reports reveal that they reported a break-even year in 2013.

Meituan is able to report profitability by keeping a tight control on their marketing spend. Unlike other players, they do not believe in excessive marketing spending and instead rely on their products and services to speak for themselves to drive growth “organically“. This is in sharp contrast to what players like Groupon and LivingSocial have done. Poor financial management that led to weak margins and inappropriate revenue and user growth led to the firing of Groupon’s founder and CEO. But that did not help much as two years later, the company continues to struggle. Things haven’t been better at LivingSocial either, which has been experimenting with their offerings as it struggles to find a sustainable business model.

Meituan is well respected in the Chinese markets. Chinese e-tail giant Alibaba has a 10% stake in the company. They have raised $1 billion in funding so far from investors including Alibaba, Sequoia Capital, General Atlantic, Northern Light Venture Capital, and Funding Global Innovation. Their last round of funding was held in January this year when they raised $700 million from undisclosed investors at a valuation of $7 billion. Meituan is planning to list on the US stock exchange. But they are in no hurry and are eyeing a 2017 listing. For now, they are convinced that due to their profitability, they do not face any short-term cash crunch and are focused on staying independent and does not wish to become an acquisition target.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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