HONG KONG, June 28 (Reuters Breakingviews) – The online grocery party in China is already going badly. Shares of Missfresh (MF.O) plunged 26% on their New York debut, a worrying sign for the upcoming listing of rival Dingdong Maicai (DDL.N). Price wars and logistics costs have crushed margins and e-commerce giants are moving into the industry. Joining forces can give both a better chance of survival.
Seven-year-old Missfresh (MF.O) is a pioneer in online grocery shopping, China’s hottest e-commerce sector. The app was among the first to deliver super-fast delivery of fresh fruit, meat and other products to the doorstep of Chinese city dwellers. Missfresh says its roughly 8 million users wait an average of just 39 minutes for items to be delivered. This is thanks to an impressive but expensive network of over 600 distribution centers with cold storage capacity across the country.
Missfresh has yet to turn a profit, and the fierce competition has made that even more elusive. Grants and rebates are commonplace. Despite a one-fifth increase in the number of annual paid users, Missfresh’s revenue growth slowed to just 2% last year. A pandemic boost is quickly fading: Sales in the first quarter of this year fell nearly 10% from the same period in 2020, while its operating loss more than tripled to 92 million. dollars.
After nearly halving the size of its initial public offering and valuing its shares at the lower end of the range, Missfresh has still failed to attract investors. The company’s latest market cap of $ 2.3 billion implies an enterprise value of more than 2 times last year’s sales. For comparison, food delivery giant Meituan (3690.HK) and e-commerce company Pinduoduo (PDD.O) are trading 14 and 16 times, respectively. The two are investing billions to develop their own grocery offerings.
This does not bode well for loss-making company Dingdong Maicai, which is expected to go public this week. The company, which has a business model similar to Missfresh, plans to raise up to $ 410 million for a valuation of $ 6.3 billion, or 3.4 times last year’s sales. It also burns money.
A merger would reduce logistics and other execution costs. The pair may even gain more bargaining power against suppliers and farmers together. Such combinations are not unheard of in China’s fierce internet industry: Meituan and the Didi Global ridesharing app are themselves the product of mergers. Missfresh and Dingdong even share a common investor. Consolidation can be the ingredient in a longer shelf life.
To pursue @ ywchen1 on Twitter
– Shares of Chinese online grocery company Missfresh closed 26% lower at $ 9.66 on their first day of trading on June 25, from their initial public offering price of $ 13. The company sold 21 million US custodian shares at the bottom of its target range, raising $ 273 million.
– Rival Dingdong Maicai is looking to raise up to $ 410 million, including an over-allotment option, on the New York Stock Exchange, trading them in a range of $ 23.5 to $ 25.5 each.
– Missfresh and Dingdong Maicai lowered their initial fundraising targets by 40%, the South China Morning Post reported on June 24 citing sources.
Editing by Robyn Mak and Katrina Hamlin
Reuters Breakingviews is the world’s leading source for financial information on agenda making. As the Reuters brand for financial commentary, we dissect big business and economic stories from around the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide real-time expert analysis.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and to www.breakingviews.com. All opinions expressed are those of the authors.