Category: lenS & thoughtS

Meituan: Fighting Every War

The current Meituan (MeituanDianping) came from a merger between Meituan and Dianping in December 2015.

Once a company invested by Alibaba, Meituan has become more closer with Tencent after the merger.

At the beginning of 2016, MeituanDianping raised $3.3 billion from Tencent, DST Global and Temasek at a $15 billion pre-money valuation; meanwhile, Alibaba sold its stake for ~$900 million in the same month.

Later that year, in April 2016, Alibaba invested the $900 million in Ele.me and Ant Financial invested $350 million.

The war has already changed from Yelp and Groupon to more comprehensive areas – restaurants and other local services.

[Note – in 2014, Priceline (now Booking.com) agreed to buy restaurant booking service OpenTable for about $2.6 billion in cash. But in China, dining is not exactly scheduled by time but by getting a number into the line, determined by how many people are ahead of you.]

However, US and China are similar in the world of food delivery. Meituan and Ele.me are fighting in China while Uber Eats, DoorDash, GrubHub, PostMates are fighting in the US. The difference – China uses e-bikes and US uses cars.

And for other services like movies, Meituan spun-off Maoyan in 2016. Maoyan is competing with Tao Piaopiao, which raised ¥1.7 billion in 2016.

In the US, the market is led by Fandango and Atom Tickets. But the market is not limited to movies – it’s about all kinds of shows, concerts and exhibitions.

Meituan is also offering hotel & travel bookings, fighting in the war with Ctrip.

Going back to Meituan, it raised $4 billion in October 2017 from Tencent, Sequoia, GIC and Tiger Global.

Meituan Dianping introduced its ride-hailing operation Meituan Dache in February 2018.

In April 2018, Alibaba acquired Ele.me for $9.5 billion.

Same week , Meituan acquired mobike for $2.7 billion.

Later that month, Ant Financials led a round of $700 million for Hellobike.

Meituan went for IPO in Hong Kong in September 2018, raising $4.2 billion.

Another OTA, Tongcheng-Elong, with Tencent and Ctrip as major shareholders, went IPO in Hong Kong in November 2018, raising $180 million.

Summing up the wars Meituan is in:

  • Food delivery: with Alibaba’s Ele.me; same-day delivery: Dada-JD Daojia
  • Movie tickets: with Alibaba’s Tao Piaopiao
  • Ride-hailing: with Didi
  • Bike-sharing: with Hellobike and Didi Bike (Qingju)
  • Hotel and travel booking: with Ctrip
  • Payment & wallet
  • …

Consumers Now Can Choose 5G Plans in China (2)

In the last post, we look at the city coverage by three carriers.

Here is another comparison of the plans they provide, in terms of price and data.

Before looking at the table, another data point is useful – in September 2019, an average user consumed 8.39GB in data, up ~60% from 5.14GB September 2018, which grew ~2.6x from ~2GB in September 2017.

China Mobile’s plan has two version Personal & Family (the latter includes fixed broadband services).

There is not much difference between carriers, except that –

  • China Unicom & China Telecom trying to make a sales at 40GB level with China Unicom being more aggressive.
  • Consumers can experience higher speed with a smaller data plan for China Unicom & China Telecom
  • Initial discount availability is a little different; all provide discounts between 20-30% for the first 6 month
  • Additional data usage (outside of the plan) is priced at ¥3/GB, with first 3GB priced at ¥5/GB for China Mobile
Data Plan (GB) China Mobile China Unicom China Telecom avg. costs per GB Speed
30 128 129 129 4.3
500 Mbps
40 159 169 4.1
60 198 199 199 3.3
80 239 239 3.0
1 Gbps
100 298 299 299 3.0
150 398 399 399 2.7
300 598 599 599 2.0

Consumers Now Can Choose 5G Plans in China (1)

On the last day of October, three carriers in China unveiled their 5G plans and supported cities to the public.

Each carriers covers 50 cities. And doing a simple coverage overlap check, we could find 44 cities having three operators, 4 cities having two and 10 cities having one.

In total, 57 cities are covered with 5G plan(s).

Here are 45 cities with coverage by three carriers:

  1. 上海
  2. 东莞
  3. 乌鲁木齐
  4. 佛山
  5. 兰州
  6. 北京
  7. 南京
  8. 南宁
  9. 南昌
  10. 厦门
  11. 合肥
  12. 呼和浩特
  13. 哈尔滨
  14. 嘉兴
  15. 大连
  16. 天津
  17. 太原
  18. 宁波
  19. 广州
  20. 成都
  21. 无锡
  22. 昆明
  23. 杭州
  24. 柳州
  25. 武汉
  26. 沈阳
  27. 泉州
  28. 济南
  29. 海口
  30. 深圳
  31. 温州
  32. 石家庄
  33. 福州
  34. 苏州
  35. 西宁
  36. 西安
  37. 贵阳
  38. 郑州
  39. 重庆
  40. 银川
  41. 长春
  42. 长沙
  43. 雄安
  44. 青岛
  45. 鹰潭

3 cities covered by two carriers:

  1. 琼海 China Mobile & China Telecom
  2. 珠海 China Unicom & China Telecom
  3. 芜湖 China Mobile & China Telecom

9 cities covered by one carrier:

  1. 中山 China Unicom
  2. 南通 China Unicom
  3. 南阳 China Mobile
  4. 常州 China Unicom
  5. 晋城 China Mobile
  6. 株洲 China Mobile
  7. 绍兴 China Unicom
  8. 绵阳 China Telecom
  9. 金华 China Telecom

New Rankings For Chinese Internet Companies (Nov 1, 2019)

The word BAT seems to be the past, as AT (Alibaba & Tencent) have evolved into bigger ecosystems and entered into the league of $400 billion market cap club.

  • Alibaba market cap $459.43 billion
    • CYQ2 – Revenue was RMB114,924 million, an increase of 42% year-over-year (just reported CYQ3 revenue RMB119,017 million)
  • Tencent market cap $396.57 billion
    • CYQ2 – Total revenues were RMB88,821 million, an increase of 21% year-over-year.

Other internet companies, including Baidu, are in another league. Ranked by market cap:

  • Meituan market cap HK$543.24 billion, ~$69 billion
    • CYQ2 – Total revenues increased by 50.6% year-over-year to RMB22.7 billion (Total Gross Transaction Volume (GTV) on our platform grew by 28.7% to RMB 159.2 billion)
  • Pinduoduo market cap $48.23 billion
    • CYQ2 – Total revenues in the quarter were RMB7,290.0 million, an increase of 169%
  • JD.com market cap $45.78 billion
    • Net revenues for the second quarter of 2019 were RMB150.3 billion, an increase of 22.9% from the second quarter of 2018 (JD uses traditional retail model that takes inventory, so revenue includes value of goods sold)
  • Baidu market cap $36.47 billion
    • CYQ2 – Total revenues reached RMB 26.3 billion, increasing 1% year over year, or 6% year over year, excluding the impact of announced divestures

Also, private companies such as ByteDance is also in this league.

New Uber Credit Card… Not Sexy

In another post weeks before, I wrote how Uber Card can beat Chase Sapphire Reserve (CSR) in many ways.

But things change fast.

Two of my favorite perks are removed/reduced in this new Uber Credit Card – $50 annul credit in subscription is removed (a huge drop in NPV when comparing with other cards), and 4% dining is changed to 3% (a 25% reduction!)

Uber is definitely trying to save some costs and increase cardholder’s usage of Uber here. There will be no cash back – rewards are redeemed in the form of Uber Cash.

After the changes, Uber Credit Card will earn 5% on Uber related purchases (like Amazon Prime Rewards Visa Signature Card has 5% on amazon purchases). So when comparing costs of Lyft and Uber, technically you need to do a 5% adjustment to see which is better (too much of a hassle!).

The changes are coming for February 2020 billing period according to the email I received.

The new card design looks better tho.

Uber Credit Card
Source: cards.barclaycardus.com

Twitter Banned Political Ads

Years ago, we have entered into a world where communication with one another is instant and nearly cost-free. For broadcasters, this is the golden age that they could spread their messages easier than ever.

But that time seems to the last, as tech firms supporting those platforms are taking or required to take more actions in limiting messages/ads allowed to broadcast.

The underlying thesis – people realized that the nature of information will change depending on the number of audience.

Twitter’s recent action is to ban political ad purchases – to reach a large audience just by spending money. We could easily see that in a world such thing is allowed, it would just become a competition for war-chest, candidates bidding higher prices to reach the audience.

Some actions are for general accounts/messages – a Facebook account or post for example. Most are justified actions now. But this is a slippery slope. More messages could have been banned for the sake of overall well-being.

On the other hand, tech firms don’t want to spend too much on screening messages/ads. After all, they are not speaking those languages. But the challenges they are facing are more real than ever, while implementing more rules will also draw more critics.

There is a balance and trade-off here.

Tech firms need to balance between the percentage of communications allowed and the overall “healthiness” of the platform. The latter would impact long-term ads sales, users growth/engagement and political pressure/costs.

Beijing-Shanghai High Speed Railway Co.,Ltd. IPO Filing

The most lucrative segment of China’s high speed railway system filed it IPO application with CSRC.

It announced its preparation of IPO back in February.

The 1,318km railway began construction in April 2008 and started operation in June 2011.

2019 (Jan – Sep) 2018 2017 2016
Passenger Revenue (‘0000 ¥) 1,204,204.99 1,579,069.55 1,556,737.53 1,418,926.44
PassengerMiles (billion km) 25.86 34.46 34.24 31.83
Unit Price (¥ per km) 0.466 0.458 0.455 0.446
Occupancy % 79.91% 81.64% 80.18% 73.38%

Unit price is consistent with experiences, e.g. Nanjing South to Shanghai Hongqiao is ~295km and costs ¥134.5, which translates to ¥0.456 per km in unit price.

For occupancy rate, there is some seasonality fluctuation (Jan – Sep vs. Oct – Dec).

Total revenue breakdown:

Income Statement:

Profitability is insane.

Total Revenue (‘0000) 2,500,191.65 3,115,842.16 2,955,540.94 2,625,761.72
COGS (‘0000) 1,185,571.50 1,629,918.30 1,593,526.42 1,514,366.73
Gross Margin 53% 48% 46% 42%
Net Income (‘0000) 1,269,335.26 1,366,419.72 1,207,143.13 902,434.75
NI Margin 51% 44% 41% 34%

Creating Value And Capture 95% Of It

By just looking at the title, I don’t even know what I am trying to say.

But here is an example. We are know targeted ads (by Facebook or others). By purchasing ads for a more precisely defined population, sellers are wasting less time for other audience. The overall efficiency of transmitting messages (ads in this case) increases. This is value creation.

However, as Facebook gaining more insights and pricing power, it can charge higher prices for more effective ads to the extend that targeted ads are just a little better than traditional (mass) ads. I put 95% in the title but that is just to give a feeling. The sellers will be better off but the marketing costs will continue to increase and in the end they will find it very hard to earn a lucrative net profit margin.

This might be the ultimate price discrimination and Facebook is capturing nearly all the value down the chain.

Some time in the future, we will find old-school ways are much more friendly.

Corporate Acquisitions in Cybersecurity Space

Cyber-security has been a hot space for investments and acquisitions. With Thoma Bravo buying Sophos Group for $3.8 billion this week, here is a roundup of selected corporate M&As happened since 2018.

Corporate acquisitions

cloud services infrastructure protection – Palo Alto Networks to acquire Evident for $300 million (2018.3)

Endpoint Detection and Response (EDR) – Palo Alto Networks to Acquire Secdo for $100 million (2018.4)

unified access security and multi-factor authentication – Cisco to acquire Duo System for $2.35 billion (2018.8)

Cloud Security – Check Point to Acquire Dome9 for $175 million (2018.10)

Operational Technology (OT) network security – Forescout to acquire SecurityMatters for $113 million (2018.11)

AI based endpoint cybersecurity – Blackberry to acquire Cylance for $1.4 billion (2018.11)

network and endpoints protections – Carbonite to acquire Webroot for $618.5 million (2019.2)

security orchestration, automation and response (SOAR) – Palo Alto Networks to acquire Demisto for $560 million (2019.2)

enterprise security –  Broadcom to acquire Symantec’s enterprise business for $10.7 billion (2019.8)

The Companies To Watch After WeWork

Following WeWork’s unsuccessful IPO (so far), people became more concerned with valuations similar companies – as Morgan Stanley says WeWork’s failed IPO marks the end of an era for unprofitable unicorns and its struggles share eerie similarities to three other market tops throughout history.

Source: Nasdaq

In public, the chairman of Softbank, Masayoshi Son commented that WeWork and Uber may be losing money now, but they will be substantially profitable in 10 years’ time.

Meanwhile, there are a bunch of other similar companies of watch and we can see what other investors are thinking.

City Storage Systems (CSS)

formerly called CloudKitchens, or “WeWork for Food”, led by Uber ex-CEO Travis Kalanick, with $150 million funding announced in March 2018.

Travis announced that he would be starting a new fund with his windfall from Uber shares sold in its most recent major secondary round. At the time, Kalanick said the new fund — called 10100, or “ten one hundred” — would be geared toward “large-scale job creation,” with investments in real estate, ecommerce, and “emerging innovation in India and China.” CSS has two businesses, CloudKitchens and CloudRetail (controlled with one entity I assume), which focus on redevelopment of distressed assets in those two areas. [Crunchbase]

And in Feb 2019, Travis Kalanick said to plot China comeback with ‘shared kitchen’ business – CloudKitchens in China, partnering with Zhang Yanqi, former COO of ofo.

OYO

also backed by SoftBank, started from assembling hotel rooms under its brand and management system in India.

Source: oyorooms

OYO CEO purchased $2 billion shares of its company this summer at a valuation of $10 billion. After the deal, Mr. Agarwal’s stake in Oyo will rise to 30% from around 10%. Of the $2bn, Mr Agarwal spent $1.3bn on a secondary purchase that saw US backers Lightspeed Venture Partners and Sequoia Capital partly cash out.

And this week, OYO raised another $1.5 billion. The remaining $700m from the previous $2 billion is included in this round.

It also recently announced a $300m investment in the US, where it has 50 hotels.

Besides it core business, OYO expanded into businesses like cloud kitchen (through acquisition of  FreshMenu for about $60 million) and co-working as well (through acquisition of  Innov8 for $30 million)

The Office Group (“TOG”)

acquired by Blackstone, the traditional and one of the largest real estate players in the work, back in June 2017 for approximately £500m.

Source: The Office Group

But with a different type of investor, TOG might be on the path of growing profits.

Its financial results for 2015 reported its EBITDA up 33% to £15.4m (2014: £11.6m), and revenues up 62% to £54.3m (2014: £33.6m). TOG is London’s largest privately-owned occupier of office space (at least by that time). [leadersleague]

Airbnb

In September, Airbnb announces it will go public in 2020, after WeWork’ delayed IPO.

It reported “substantially” more than $1 billion in revenue in Q3 2018.

Earlier this year, Airbnb sold common shares at a price that values the home-rental startup at roughly $35 billion. The company priced its equity at about $120 per share when it purchased the last-minute room provider HotelTonight for $450 million. [recode]

And in August, Airbnb announced the acquisition of Urbandoor, a platform that offers extended stays to corporate clients.

In June, it launched Airbnb Luxe, another tier besides Airbnb Plus introduced in February 2018.

Source: Airbnb