Food Delivery Giant Meituan’s Sales Beat Estimates

(Bloomberg) -- Meituan Dianping shares surged the most in five months after reporting quarterly revenue that beat estimates, as demand for takeout services bounced back from disruptions caused by the pandemic in China.

The world’s largest meal delivery service reported sales climbed a better-than-expected 8.9% to 24.7 billion yuan ($3.6 billion) in the June quarter. It also reported a surprise net income of 2.2 billion yuan, helped by tax returns and preference gains. Its stock gained as much as 11% Monday, the biggest intraday gain since March, after brokerages including Morgan Stanley and Citigroup lifted their recommendations or price targets.

Backed by Tencent Holdings Ltd., Meituan has seen a gradual pick-up in its core food delivery business after the company posted its first quarterly revenue decline in the three months ended in March during the Covid-19 shutdowns. In August, the daily peak of delivery orders for both food and other categories exceeded 40 million, growing by 10 million in about a year, founder Wang Xing said in a post-earnings call.

He told analysts that the online grocery business would be a key arena for Meituan to compete with rivals like Alibaba Group Holding Ltd. and JD.com as the country recovers from the pandemic. With sluggish economic growth and the possibility of a resurgence in virus cases, consumers have pulled back from restaurant dining, hotels and other hospitality services.

“Online grocery is a very important business for us, potentially the most important initiative for us,” Wang said. “Meituan has never been afraid of competition.”

What Bloomberg Intelligence Says

The strong efficiency improvements at Meituan’s food-delivery segment could continue to lift the company’s operating profit even with its hotel business struggling to recover from the Covid-19 pandemic- Vey-Sern Ling and Tiffany Tam, analysts

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Operating profit from food deliveries jumped 66% in the June quarter, signaling a return to growth following a slump earlier in the year, while new initiatives including grocery retail also expanded sales faster during the period. But in-store dining recovered at a slower pace and its hotel and travel businesses continued to suffer the effects of the pandemic as travelers stayed away, Meituan said in its earnings statement.

“We expect all business lines to accelerate [year over year] on the back of a recovery story and as food delivery enters a peak season,” Jefferies analysts led by Thomas Chong wrote in a research note.

Meituan’s stock gains came on top of a 4.5% gain Friday. The shares have more than doubled this year, lifting the value of the company to about $200 billion. The stock was unexpectedly left off a list of new entrants into Hong Kong’s benchmark Hang Seng Index last week, following a change in rules that allowed dual-class shares.

Amid increasing competition in its core takeout business from rivals including Ant and SF Express -- both supported by Alibaba -- Meituan had expanded into a wide array of services including online travel, groceries delivery and ride-hailing. Alibaba’s food-delivery arm Ele.me is also engaging in a subsidy battle with the startup for market leadership. In the longer run, Meituan is investing in technologies like self-driving vehicles to help cope with surging delivery demands.

©2020 Bloomberg L.P.