How Meituan has been affected by government restrictions
China’s largest online food delivery service, Meituan, has sold its stock for $10 billion. It plans to use the proceeds to invest in improving its food delivery processes with drones and other autonomous devices.
Meituan is valued at $220 billion, and its valuation hasn’t fallen after pressure from the Chinese government. The country’s authorities have approved a number of laws that restrict the activities and development of technology giants, which includes the food delivery service. However, the amount of proceeds from the sale of shares indicates that such changes do not scare investors and they believe in the prospects of the segment. According to analysts, Meituan will further strengthen its position in the market when it expands the use of functionality for wholesale purchases, which is designed for different categories of people. As evidenced by the results of the share sale, at least 300 investors wanted to buy securities of the service, with about 60% of the placed orders accounted for 20 large purchases. The greatest interest in the shares of the Chinese company was shown by international funds that specialize in long positions. Experts assume that high demand is due to innovations from the Chinese government. The country is now scrutinizing large technology companies for various violations, and the latter may concern both monopoly schemes and non-compliance with data processing requirements. Such violations are severely punished by regulators. As a result, an investigation was opened into Meituan, and before that, Internet giant Alibaba was hit. The latter had to pay $2.8 billion for accusations of imposing its services on consumers without a choice. More than 35 major local corporations were investigated in China.
According to data from iResearch, since 2016, demand for food delivery in China has grown about fivefold to more than $100 billion. Meituan, which has been operating since 2010, accounts for more than half of this huge market. In addition to its food delivery service, the company has restaurant review sites, hotel and catering reservation platforms, and bicycle rental services. In 2020, Meituan reported revenues of $17.7 billion. Technology corporation Tencent is a key investor in the company. A total of 187 million shares of the service were sold, the price per paper was about HK$274. This was one of the largest sales on the stock exchange in Hong Kong.