Meituan-Dianping and Pinduoduo embody（vt.体现） the excitement over digital China

Investors cannot get enough of two booming internet companies

Business Jul 11th 2020 edition

China’s bustling digital economy has spawned thousands of startups.（新创公司） Yet in the eyes of many it remains “bat or bust”, to cite a saying among jobseekers from the country’s elite universities. The bat in question refers to the original trio（三重唱，三重奏） of Chinese internet stars: Baidu, a search engine; Alibaba, an online emporium（/emˈpɔːriəm/商场，商业中心）; and Tencent, a mobile-payments and video-game titan（巨人）. The acronym（/ˈækrənɪm/缩写） is overdue an update（这个缩写早该更新了）.Alibaba and Tencent continue to lord it over digital China. With market capitalisations(资本化） of nearly $700bn apiece, they are the world’s seventh- and eighth-biggest listed companies, respectively. Having struggled to adapt as consumers moved from desktops to smartphones, Baidu languishes in（在某方面受煎熬） 319th place; its erstwhile equals can gain or lose the equivalent（adj.对等的； n.对等的人或事物） of its entire market value of $45bn in a day or two.

The bat label also belies（vt.掩饰，给人以假象） another development. Newer arrivals have been busily remodelling the upper reaches （重塑上游）of China’s cyberscape（网络景观，网络空间）. They include firms like jd.com, a $100bn e-merchant listed in New York, Didi Chuxing, a privately held ride-hailing（打车服务） giant valued at $60bn or so, and the $100bn-plus ByteDance, the world’s biggest unlisted startup (which owns, among other things, TikTok, a short-video app popular with Western teenagers).

None has set investors’ pulses racing of late more than Meituan Dianping and Pinduoduo. The duo have much in common. Both began by matching shoppers with discounts（打折） (on spa and cinema tickets in Meituan’s case and products from apples to Apple iPads in Pinduoduo’s). Both went public in 2018—Meituan in Hong Kong and Pinduoduo in New York. And both have seen their share prices soar（猛增；飙升） since the start of the year (see chart). They are now worth more than $100bn each. But their routes to these highs look quite different.

Start with the bigger of the two, Meituan. It was founded in 2010 by Wang Xing, an engineering graduate from Beijing’s Tsinghua University, selling those discount vouchers（打折优惠券）. Like Tencent and Alibaba, it has expanded into other areas. In 2013 it launched a meal-delivery business （开展送餐业务）and a travel arm that lets users book hotels and flights. Two years later it merged with Dianping, a restaurant-review and booking platform similar to Yelp. In 2018 it paid $2.7bn for Mobike, a bike-sharing service, and entered ride-hailing, which it expanded last year to dozens of Chinese cities. Today Meituan can be thought of as “a search engine for services”, says Elinor Leung of clsa, a broker.

Some of these, like food delivery or bike-sharing, are low-margin, high-volume businesses（低利润、高容量的行业）. In 2019 the firm earned a profit of less than three cents per delivery (chiefly from commissions（佣金；回扣） it charges restaurants). But it makes an awful lot of them. The platform has 700,000-800,000 drivers at its disposal（可自行支配）. Two in every three yuan that the Chinese spend on having grub（食物，幼虫） dropped off at their doorstep goes through Meituan.

Like Mobike (which is capital-intensive and still unprofitable), the food business lures users who can then be directed to more lucrative（
/ˈluːkrətɪv/，adj.有利可图的；赚钱的） offerings such as travel. Meituan’s operating margins on hotel reservations hover between 20% and 35%. The pandemic briefly halted domestic bookings but by late May they had recovered to 70% of pre-coronavirus levels.
Pinduoduo has taken the opposite tack to Meituan. Rather than spread its bets, it has doubled down on e-commerce. Online retail is growing fast enough in China to justify not being “a jack of all trades”, says David Liu, in charge of strategy at the firm.

He has a point. Chinese e-commerce sales could expand by 16%（增长16%） this year, to 14.4trn yuan ($2trn), according to eMarketer, a research firm, even as total retail sales may dip by 4% to 35trn yuan as a consequence of （由于）lockdowns’ toll （通行费，严重影响）on bricks-and-mortar shops（实体店）. Alibaba will capture perhaps half of this growth. Pinduoduo will slug it out with（与.....一决高下） jd.com for the rest. Shoppers hit by the coronavirus slowdown may lean towards Pinduoduo’s bargains（廉价货，特价品）.

Central to the firm’s ascent is the concept of social shopping, which it describes as a fusion（结合，融合） of Costco and Disneyland. Products are cheaper if you buy in bulk with fellow bargain-hunters. Users can join existing groups or invite pals using WeChat, a social-messaging app owned by Tencent (which holds a 16% stake in Pinduoduo). Merchants sacrifice margins in exchange for higher volumes（商家牺牲利润以换取更高的销量。）.

Colin Huang, Pinduoduo’s founder, who once worked as an engineer at Google in America, did not invent group shopping; Groupon has been doing a version of it since 2008. But he did develop the idea, for instance introducing games which reward players with credits on future purchases.

Chinese shoppers love it. At the end of March 628m of them had made at least one purchase on the app in the preceding 12 months（在之前的12个月）, 42% more than the year before and 60% more than shopped on jd.com; only Alibaba has more active users (726m). Their average annual spending also rose, from 1,250 yuan to over 1,800 yuan. So has Pinduoduo’s share of Chinese e-commerce—from 2% in 2017 to 10% last year. Bernstein, a research firm, expects it to be 18% by 2024, in line with jd.com.

The shopping frenzy has boosted Pinduoduo’s revenues（收益；税收） by 44% year on year in the first quarter, to 6.5bn yuan. The money comes from transaction fees and adverts bought by merchants to have their offers promoted in the app. Similarly to eBay but not many e-commerce giants, Pinduoduo does not hold inventory/ˈɪnvəntri/（ 持有库存）or operate its own logistics network（物流网络）, relying on merchants to ferry products to buyers. Instead, it burns a spectacular, and growing, amount of cash on sales and marketing: 112% of revenues in the first quarter.

Mr Liu insists these costs can easily be dialled back. Experience of other marketplaces suggests otherwise. Uber, which also matches sellers (drivers) with buyers (riders), has been perpetually loss-making（永久亏损的）. Like Uber, Pinduoduo enjoys some “network effects”—the more buyers use its app, the more sellers it draws, who in turn attract new buyers, and so on. But, again as in ride-hailing, buyers and sellers face few costs in switching to another app that offers a better deal. jd.com and Alibaba have already launched Pinduoduo clones to their vast user base.

The market is giving Pinduoduo the benefit of the doubt. The pandemic appears to have done it no harm; cooped-up Chinese consumers have turned to the firm for necessities and, sometimes, a dose of retail therapy. With negligible（微不足道的） business outside China, it is, like Meituan, shielded from the Sino-American tech war making life difficult for TikTok, with its mostly non-Chinese users, or Huawei, China’s telecoms champion. White House threats to expel Chinese firms from American exchanges have not dampened investors’ enthusiasm（抑制了投资者的热情）. Nor has the sudden departure of Mr Huang, who stepped down as its chief executive on July 1st and cut his stake in the company from 43% to 29% (he remains chairman and holds 81% of voting rights).

Meituan’s path to riches（财富） is clearer. It ended last year in the black for the first time. Its profitable food and travel arms have been gaining market share from rivals (such as Ele.me, Alibaba’s food-delivery app, and Ctrip, China’s biggest travel agency). That gives its loss-making divisions financial breathing room.

Ultimately, both firms embody the excitement over digital China’s bright prospects（光明的前景）. But tamp will only become the new bat if both firms can match Tencent’s and Alibaba’s consistently fat profits.

实用语料：

1. bustling digital economy繁荣的数字经济
2. has spawned thousands of startups催生出成千上万的创业公司
3. acronym首字母缩写
4. languish vi.憔悴；萎缩
5. merge with与……合并
6. a jack of all trades杂而不精的人
7. has been perpetually loss-making一直是亏损的
8. cooped-up Chinese consumers被禁锢的中国消费者
9. have not dampened investors’ enthusiasm没有挫伤投资者的热情