Meituan-Dianping, a Chinese startup that considers itself to be an Amazon for lifestyle services, will debut as a public company Thursday on Hong Kong’s stock exchange. It’s expected to launch with a valuation as high as $55 billion.

In 2017, the company drew about two-thirds of its income from carry-out food delivery and other restaurant-related services for its 320 million transacting users.

But Meituan’s hotel-booking business is its second-largest business.

In full-year 2017, consumers booked 200 million domestic hotel room nights through Meituan, the company said. In the four months ended April 30, 2018, it sold an additional 30 million domestic hotel room nights, according to an updated prospectus issued this month for its initial public offering.

“Meituan is trying to become China’s super app — an application where consumers can conduct many of life’s transactions,” said Paul Gillis, a professor at the business school at Peking University in Beijing. “But none of its businesses are profitable, and the big challenge for Meituan will be to justify its roughly $50 billion valuation.”

Some rivals claim that Meituan has an unsustainable business model of wooing customers with cash rebates and similar incentives.

“The question will be, when you stop subsidizing these items, how many people can afford it?” said Ctrip CEO Jane Sun in an interview with Reuters this week. “That’s the challenge for any company who is using cash rebates to gain customers.”

Meituan has maintained in public statements that it could be profitable overall but is incurring losses to drive growth.

Last year, Meituan booked total income of $5.4 billion, with a loss of $2.9 billion.
In contrast, the comfortably profitable Ctrip Group reported that revenues from its accommodation reservation business were $1.5 billion, or 9.5 billion renminbi, last year.

Booking Holdings will watch Thursday’s initial public offering carefully, as it stands to gain financially — having invested $450 million in the company last year. Hedging its bets, the U.S.-based conglomerate has also invested more than $2 billion in Ctrip, the incumbent leader in online travel booking in China. Booking’s brands, such as Agoda, have been offering international lodging supply to both Meituan and Ctrip.

HOW BIG IS IT, REALLY?

Experts debate how big Meituan — which only entered travel in 2013 — really is in hotel bookings. The answer depends partly on what you measure. But it’s growth certainly seems meteoric.

As of 2016, according to data reviewed by Skift Research, Meituan was not even a contender in the travel booking space, while Ctrip was capturing more than half of online bookings.

In a June 2017 interview, CEO Wang Xing claimed that “the number of nights that have been booked surpasses those of Ctrip.”

In the first quarter of 2018, Meituan said it was responsible for 33.6 percent of domestic hotel room nights booked online in China, compared to what it claimed was a 33 percent share by Ctrip — apparently defined as the Ctrip brand separate from sister brand Qunar.

Booking Holdings was at about 15 percent, and Expedia Group was at about 12 percent, according to Meitun’s calculations — which are impossible to verify.

In the second quarter of 2018, Meituan ranked tops by both order volume and room night volume — exceeding the combined room nights registered on Ctrip, Qunar, and Tongcheng-eLong, according to consultancy Trust Data. Meituan didn’t reveal official figures, however.

A DIP INTO LUXURY

Ctrip Group, which remains China’s largest online travel company by reported revenue, appears to be feeling pressure from Meituan.

Investment analysts at Wells Fargo tapped Yipit, a third-party data services provider, to estimate the overlap in inventory between Meituan and Ctrip. The data suggested that Meituan now surpasses Ctrip, excluding inventory from its sister brand Qunar, in domestic hotel properties and rooms and gross reservation numbers.

Some Ctrip representatives once dismissed Meituan as being primarily catering to budget hotels for a budget audience.

This summer Meituan countered this line of critique, however. It has said it lists more than 15,000 hotels, representing what it says is more than 90 percent of luxury hotels in China. About 59 percent of Meituan’s recent new users have been 30 years old or younger, and about 60 percent of the users accessed the app via iPhones, suggesting that many of its shoppers have significant disposable income.

CTRIP’S NEW RIVAL

Ctrip may have to hope that Meituan will be too distracted to execute on its travel aspirations effectively over the long run.

Meituan has been wading into providing services for 200 various goods and services as well as rail ticketing. For instance, it claims that its brand Maoyan Weying is China’s largest online seller of movie tickets and restaurant reservations. The company calls itself China’s third-largest online consumer marketplace after Alibaba and JD, but the broad array of efforts may come at the cost of having to juggle too many things.

Ctrip may face a rival in Meituan that doesn’t have to spend as much on marketing to woo customers as it does. In the first three months of the year, Ctrip’s sales and marketing expenses equaled 30 percent of its revenues. But in the first four months of the year, Meituan’s sales and marketing amounted to 25.9 percent as a share of revenue.

“The breadth of our service offerings allows us to enjoy low user acquisition cost, enhance user stickiness, and grow user lifetime value,” said Meituan in its prospectus.

Ctrip needs to be wary as Meituan targets a youthful audience. About 90 percent of hotel bookings made on Meituan-Dianping are by consumers under the age of 35, according to Dragon Trail, a consultancy.

Ctrip has also had a long lead in selling outbound travel, while Meituan has mostly targeted domestic travel. But that dynamic is also in flux, as Meituan looks to grow abroad. For example, this year the German National Tourist Board is promoting German cuisine and leisure travel destinations among Meituan’s users in a campaign. Meituan claims to cover more than 185,000 restaurants, shops, and scenic spots in Germany.

A LARGER BATTLE

Of note, Tencent, the tech giant and operator of the popular WeChat messaging service, owns about 19 percent of Meituan. Tencent’s rival Alibaba has been a smaller investor in Meituan. Some suspect that Tencent would ultimately, post-IPO, like to use Meituan to help kneecap Alibaba’s travel service effort, Fliggy.

China’s online search giant Baidu is the largest shareholder of Ctrip, with about a 20 percent stake. So Baidu rival Tencent may also like to foil Ctrip and Ctrip-backed tourism enterprises Tongcheng and ELong.

The goal is to help German travelers use the Dianping brand to choose restaurants while traveling overseas, not just at home.

Looking ahead, Meituan may ramp up its sales of airfare, having acquired booking service Flightroutes24 in November 2016.

Meanwhile, competition is growing elsewhere. Tujia appears to be making gains in home-sharing, while Mafengwo, which is like a TripAdvisor for Chinese tourists and is backed by Singaporean state investor Temasek also continues to grow.

This article was originally published on Skift, a Jing Travel content partner.

Additional links from Skift:

How Hotels Need to Balance the Amenities We Want Versus Those We Actually Use

Lessons for Reviving Caribbean Tourism One Year After Hurricanes’ Devastation

Expedia Believes Tech Is Key to Helping Travelers Plan the Perfect Vacation

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