Meituan Deep Dive

In the early days of the Internet, when there was a flurry of successful U.S. tech firms absent from China, would you have been above being the one to bring them there? 

Wang Xing wasn’t – creating businesses “inspired” by not just Friendster, but Groupon, Facebook and Twitter too, coming to epitomize the term “Chinese copy-cat”. His clones were so precise that you almost sensed pride when he added “a Mark Zuckerberg Creation” at the bottom of his Facebook clone. 

But ironically, it’s actually for his innovative prowess and creating something the world has never seen before, that we know him. 

In 2010, after middling success with his other clones, Wang Xing set out to copy Groupon, but what resulted was one of the world’s most innovative Apps. 

First though, Wang Xing would have to win the “War of 1,000 Groupons”, which was actually a misnomer because there were closer to 5,000 (!). Knowing there would be no 2nd player in short-order, anything but absolute domination would mean being relegated to oblivion. When others fought by plastering buses and buildings with ads, they were among the first to target with online ads and their granular analytics allowed them to quickly curtail resources, leaving them with a longer run-way than peers who swiftly flamed out.

When close to winning the war, they had the “privilege” of learning Groupon is a terrible business. With a product that often disappointed merchants and had limited use cases for users, he needed a better product to build the foundation of the company’s future off of. 

Looking to the West provided no answers as the original Groupon started to fall apart, Wang Xing knew it was time to start leading. He split up his employees to investigate new potential business lines. He zeroed in on one in particular that leveraged his large restaurant base, but it lacked a dominant global counterpart to model it off.

Nevertheless, he stormed ahead and made food delivery priority #1. 

Learning to provision their resources prepared them well to slug it out against another group of well-funded competitors. In time they would merge with “the Yelp of China” and the market structure shifted in their favor. This merger gave them a huge traffic advantage where they could funnel consumers looking up restaurant ratings to their food delivery operation. At this point an even competition began tilting in their favor and they quickly took a majority share of the food delivery market. 

But Wang Xing didn’t just create a food delivery app, he created one of the first Super Apps.  After exploring new initiatives, they came up with other ideas besides delivery. Once acquiring a user through food delivery, they could cross-sell them on their other services like movie tickets, travel, bike-share, local services and much much more. This effectively increased the LTV of each customer by increasing their total spend and reducing their churn, while allowing them to amortize the CAC over more businesses. 

If you haven’t guessed, this is the story of Meituan. 

Now serving almost 700mn Chinese consumers, they were the first to make food delivery profitable and followed that up with a Travel business that boasts 40%+ margins. 

However, with almost 2x as much spent on new businesses than they generate in their core business, this story is far from over.  Unprofitable on a consolidated basis today, the question now has shifted from “Why does Wang Xing lack creativity” to “Should they curtail his innovation spending?” 

The stock now trades more than 50% below its high, yet usage and revenues are as high as they’ve ever been.  In our 18,000+ word deep-dive we explain exactly how Wang Xing created a Chinese tech giant, behind only Alibaba and Tencent. We also go in depth on their business model, subsidies, Superapp strategy, competitive positioning, and financials, among much more. 

Not interested in stocks? Either way there is a ton to learn from how Wang Xing built his business that entrepreneurs globally could appreciate. Perhaps, the strategic rationale could be the playbook for another start-up to copy… 

You can find the following (and more) in this report:

  1. Founding History.
  2. Background.
  3. Business.
    • Food Delivery.
    • In-store, Hotel & Travel.
    • New Initiatives.
  4. Regulation.
  5. Revenue Build and Valuation.
  6. Risks.
  7. Summary Model.
  8. Conclusion.

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