Chinese Online Grocery Companies Dingdong and Missfresh Have Tough Initial Public Offering

A driver packs delivery orders onto the back of an electric motorcycle outside a Missfresh warehouse.

Gilles Sabrie | Bloomberg | fake images

GUANGZHOU, China – Two Chinese grocery delivery startups, Missfresh and Dingdong, are off to uninspiring starts after their initial public offerings in the US.

Investors are concerned about fierce competition in the Chinese market over grocery deliveries and whether these companies will ever be profitable.

Missfresh, which is backed by Chinese tech giant Tencent, went public on the Nasdaq on Friday, pricing its US depository shares (ADSs) at $ 13 each and raising about $ 273 million. Since then, the stock has fallen a third and closed at $ 8.65 on Tuesday.

Meanwhile, rival Dingdong, which went public on the New York Stock Exchange on Tuesday, closed virtually unchanged on its debut after pricing the stock at $ 23.50 per ADS.

After Missfresh’s difficult start, Dingdong reduced the size of its initial public offering from $ 357 million to $ 110 million, assuming that underwriters fully exercise their option to purchase additional shares.

Both e-commerce players are trying to take advantage of the growing trends in China: the shift to online shopping, the demand for high-quality products, and the digitization of supply chains, among others.

However, Missfresh and Dingdong are up against some of China’s biggest giants, including Alibaba and JD.com, and food delivery company Meituan. These companies have strong logistics and supply chains.

And the competition is expensive.

“Both MF (Missfresh) and DDL (Dingdong) are still far from breakeven,” 86Research analyst Kevin Xiang told CNBC. “We believe that their business models cannot generate positive unit economies across the country.”

Missfresh reported a net loss of 610.3 million yuan ($ 93.2 million) in the first quarter of 2021, much higher than the net loss of 194.7 million yuan recorded in the same period in 2020. The company it has also not had a positive cash flow.

Dingdong had a net loss of 1.38 billion yuan ($ 211.4 million) in the three months ending March 31, 2021. That was wider than the net loss of 244.5 million yuan in the same period. 2020.

Ongoing operating costs and losses have worried analysts.

“Despite the funding from the IPO, MF and DDL may run out of cash by the end of this year,” Xiang said. “The rate of cash burning is faster than the improvement in the unit economy.”

In an interview with CNBC’s Eunice Yoon on Tuesday, Dingdong founder Liang Changlin said the company raised $ 1.3 billion earlier this year, so the money raised from the IPO “is not that essential.”

“We have adequate cash flow and that is our situation,” Liang said.

Add Comment