Bottom line: Meituan’s opening of its wordage unit to increasingly customers looks smart but will require execution to succeed, while shares of money-losing Starbucks challenger Luckin will move steadily downward in the months without its super-sized IPO. 

Meituan opens up wordage service

A couple of money-losers are in the headlines these last few days, tossing a spotlight on how profits protract to evade many of China’s hottest tech companies and what they’re doing to try to transpiration that. This kind of loss-making isn’t all that uncommon for such startups. But in at least one of the cases we’re looking at today, the visitor Meituan Dianping (HKEx: 3690), is once a decade old or more, depending on which piece of it you squint at. That whimsically qualifies as a startup by most people’s definition, plane though the visitor is still losing massive money.

The news involving Meituan has it opening up one of its biggest money gobblers, which specializes in restaurant takeout delivery, to other third-party customers besides just restaurants. The other news involves Luckin, an app-only coffee uniting that wants to rencontre Starbucks (Nasdaq: SBUX). That news had the visitor significantly supersizing its IPO plan to $500 million despite the fact that it’s just two years old. 

Again, the worthier theme here is that China seems to be a variegated creature from the rest of the world when it comes to investor tolerance for massive losses. Meituan Dianping’s origins go all the way when to as early as 2003 with the founding of Dianping, often likened to the Yelp (NYSE: YPL) of China. And yet despite that, the visitor only managed to finally go public last year and posted a massive loss of 115 billion yuan ($17 billion) for all 2018.

A big reason for the company’s unfurled losses is its nonstop movement into new businesses, which is a worldwide theme among Chinese Internet firms in general. One of those businesses, takeout dining, is at the heart of the latest news bit. According to the latest headlines, Meituan is opening up the wordage part of its takeout dining merchantry to other businesses as well.

Under the expansion, other third parties such as supermarkets and presumably e-commerce operators will be worldly-wise to utilize Meituan’s huge network of wordage scooters and other logistical infrastructure to wordage their goods. Thus the unit will wilt increasingly like a wordage and logistics visitor rather than solely serving its current clientele of mostly restaurants.

This looks like a major plank in Meituan senior Wang Xing’s vowed effort to get increasingly efficiencies — and sooner profits — out of his many variegated businesses. The move looks often positive, though we’ll have to wait and see how well it’s executed, expressly since China’s courier space is moreover quite crowded.

Luckin Goes Looking for Funds

Next there’s Luckin, which first spoken its plan to make a New York IPO just three weeks ago with an initial target of raising $100 million. The visitor has just updated its prospectus and listing plans, and now says it has lifted its fund-raising goal five-fold to a massive $500 million.  What’s more, the visitor appears to be racing to market, with plans to make its trading debut toward the end of next week.

Again, this is a visitor that’s losing massive money, including a massive 3.2 billion yuan loss last year. That’s not too surprising, since the visitor is opening stores at a breakneck prune that has it on track for 4,500 shops by the end of this year — a icon that would hands eclipse Starbucks’ current total of well-nigh 3,600 China stores.

At the time of its filing I expressed surprise at how quickly Luckin was moving to an IPO so early in its development. This massive super-sizing of its fund-raising goal, and moreover the lightning pace that things are moving ahead, is standing to surprise me as well. I honestly don’t see many U.S. investors stuff that interested in a visitor with so little operating history and no profits unendingly soon.

Again, I suppose it all comes when to something well-nigh the China Kool-Aid, and how it makes investors salivate over the country’s huge market size and forget well-nigh the most vital visitor fundamentals. I previously predicted the Luckin IPO would flummox and possibly not make it to market at all. It’s looking like I could be wrong, though I’d still be willing to wager the stock trades weakly and moves steadily downward regardless of any hype when trading begins.