Tencent-Backed Meituan's Losses Balloon in Duel With Alibaba

(Bloomberg) -- Meituan Dianping is reaping the benefits of scale in its core food delivery division as it feels the pain of competition from arch-foe Alibaba Group Holding Ltd. in smaller businesses such as hotel bookings.

While revenue almost doubled in the December quarter, its net loss widened 57 percent to 3.4 billion yuan ($508 million) as profitability shrank in travel and bike-sharing. To keep a lid on swelling costs, Meituan said it’s kicked off a restructuring that will see loss-making bike-rental subsidiary Mobike pull out from most of its overseas markets.

Backed by WeChat-operator Tencent Holdings Ltd., Meituan is spending heavily to wage a pitched battle with Alibaba’s Ele.me and Fliggy in a cut-throat arena for on-demand services. That’s taken a toll on its bottom line and share price, which is down 15 percent since the company raised $4.2 billion in a 2018 initial public offering. Billionaire founder Wang Xing pledged to ramp up cost discipline as the growth of its bread-and-butter meal delivery business begins to subside.

“Growth is decelerating. The industry will continue a modest growth rate in 2019,” the chief executive officer told analysts on a conference call. The company will be “more disciplined and selective as to where and when to allocate capital.”

Meituan intends to focus on food-related initiatives -- such as restaurant management -- that can augment and complement its core business, Wang said. And it will keep trying to reduce losses by curbing subsidies in areas such as car-hailing and bike-sharing. Its hotel business, which goes up against Alibaba’s Fliggy, is already profitable, he added.

“New initiatives dragged down overall margins because of gross losses incurred in car-hailing, bike-sharing, and restaurant management,” said Vey-Sern Ling, an analyst with Bloomberg Intelligence. “That could be due to competitive pressures, which required Meituan’s response in higher subsidies.”

• Revenue climbed to 19.8 billion yuan in the fourth quarter from 10.5 billion yuan a year earlier.
• Hotel booking and travel business revenue rose 48 percent to 4.59 billion yuan
• Gross margin fell to 22.6 percent versus 32 percent a year earlier
• Gross transaction volumes across the board have slowed substantially compared with the third quarter
• Food delivery revenue was 11 billion yuan versus 6.6 billion yuan a year earlier
• Its shares rose 3.6 percent in Hong Kong on Monday.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Giles Turner

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