Disclaimer: These notes are shared for informational and educational purposes only. THIS IS NOT INVESTMENT ADVICE.

These notes were composed on March 18, 2019 for the China Tech Investor podcast episode 18. Meituan Dianping is traded under 03690.HK

The Market didn’t like their results, from HKD 57 down 8.3% day after they announced, fell again the second & 3rd day, for a total of -15.2%.
Since then bounced back hard, now at HKD 55.10

Problems:

  • Selling & marketing expense above Gross Profit
  • Selling & marketing grew 45%, Revenues grew 92%, Gross Profit grew 23.7%
  • HUGE fair value change in convertible redeemable preferred shares, HKD 104.6 Billion, on absolute basis that’s 60% larger than revenue.
    • It is a NON-CASH item, but does create dilution, so goes through Income Statement in order to end up on equity side of balance sheet.
    • Note 14 of their filing explains Convertible redeemable preferred shares

Mobike Acquisition Figures (April 2018):

  • Consideration: RMB 9.4 B in cash, RMB 5.8 B in preferred shares
  • Valued Trade name at RMB 1.6 Billion
  • User list valued at RMB 840 M (assuming RMB 200 deposit per user about 40.6 M users = RMB 20 per user)
  • Advance from transacting users: almost RMB 500 M
  • DEPOSITS from transacting users: RMB 8.1 B (offered refunds July 2018)
    • Assuming all Meituan deposits from transacting users related to Mobike: paid back RMB 4.8B
    • Currently have RMB 3.3B on balance sheet, so checks out
  • 59% of users got their deposit back
  • Cash & cash equivalents: RMB 834 M
  • Negative Net tangible asset value: RMB -835 M
  • Revenue contributed by Mobike (from April) was RMB 1.5 B
  • Mobike loss of RMB 4.55 B
  • Using their pro forma estimates of revenue and net loss if Mobike had been consolidated from Jan 1 2018:
  • RMB 1.76 B in revenues
  • RMB -6.1 B in net loss

Cash Position:

  • Cash & equivalents = RMB 17 B
  • ST investments = RMB 41.8 B
  • Total RMB 58.8 B (unrestricted cash)
  • Cash used in operations:
    • Big item: convertible redeemable preferreds RMB 104 Billion
    • D&A: RMB 5.4B
  • Working capital
    • Decrease in deposits: RMB 4.8B
    • Increase in current assets RMB 3.7B
    • Increase in trade payables RMB 2.1B
    • Decrease in payables to merchants RMB 1.8B
  • Cash used in investing activities:
    • RMB 7.3B business combinations
    • RMB 2.2B PP&E
    • RMB 1.6B purchase of investments

Free Cash Flow Positive or burning cash?

  • I’d use Operating Cash Flow (-9.18B) minus Capex (PP&E) gives burning roughly RMB 11.4B
  • If we include business combinations, they burned RMB 18.7B
  • With RMB 58.8 B on the balance sheet, that gives about 5 years at the current cash burn rate, excluding business combinations

Meituan Expenses by nature

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