Chinese grocery delivery company clings to gains after slashing IPO

Food supplier Dingdong workers are packing vegetables for orders that customers can receive in about 30 minutes, the company says.

Ding Dong

BEIJING – Chinese food delivery company Dingdong closed 2 cents higher on its US IPO on Tuesday after slashing supply size by 70%.

The lackluster performance comes from a surge in Chinese US stock market listings and concerns over growth in the food delivery industry, in which tech giants Alibaba, Meituan and JD.com have all invested heavily.

When it went public, Dingdong still had a market value of $ 5.5 billion. That’s more than double the value of Tencent-backed rival Missfresh, who fell more than 25% on Friday’s Nasdaq debut.

Earlier this week Dingdong announced that it would price its IPO on the New York Stock Exchange at $ 23.50 per share, at the lower end of the proposed range and less than 30% of the original number of shares. Dingdong raised $ 95.69 million as a result, versus an offer that could have been as high as $ 357 million.

In our view, the IPO itself is a milestone and how much money we’ve raised isn’t that important. We have sufficient cash flow and that is our situation.

Liang Changlin

Founder and CEO, Dingdong

CNBC’s founder and CEO Liang Changlin told Eunice Yoon on Tuesday that he plans to use the proceeds from the IPO to expand the company in China and invest in technology and talent.

“We just closed a Series D funding round and everyone knows we’ve raised $ 1.03 billion,” he said, according to a CNBC translation in Mandarin. “So the IPO itself is a milestone from our point of view and it is not so important how much money we have raised. We have sufficient cash flow and that is our situation.”

Liang has a 30% stake in the company.

Dingdong stated in its prospectus that it had 1.45 billion yuan ($ 226.56 million) in cash, cash equivalents and locked up cash. Together with the expected cash flows from financing activities, the company expected to meet its financing needs for at least 12 months.

The company said it operates in 29 cities in China, with a monthly average of 6.9 million users in the first quarter and gross product value (GMV) of 4.3 billion yuan. That is 2.92 billion yuan in the same period last year.

GMV measures the total value of goods sold over a period of time.

However, Dingdong also posted a net loss of 1.38 billion yuan in the first quarter, down from 244.5 million yuan in the same period last year.

Read more about China from CNBC Pro

SoftBank invested $ 330 million in Dingdong in May, following $ 700 million a month earlier from Coatue, Sequoia Capital and others, according to advisor Cygnus Equity.

As Chinese consumer demand for supplies grows, Dingdong claims it can ship fresh produce in around 30 minutes. The company’s strategy is to work in warehouses rather than retail stores that require consumer-friendly interior design. The location can also cause additional costs.

Liang said Dingdong has grown an average of 300% a year for the past three years and is confident that the demand for food deliveries will “boom” in China.

“If something becomes popular during a pandemic but fades away when the pandemic is over, it’s not good business,” he said. For Dingdong, “our price per order may have gone down a bit, but the strength of the orders is there. So we think the pandemic has only accelerated our development.”

Comments are closed.