Meituan Posts Widest Loss Since 2018 as China Headwinds Grow
(Bloomberg) -- Meituan reported its biggest loss in three years, weighed down by a bruising antitrust probe, an investment spurt and mounting competition from Alibaba Group Holding Ltd..
The Chinese food-delivery behemoth said on Friday revenue for the September quarter climbed to 48.8 billion yuan ($7.6 billion), in line with analysts’ estimates. Net loss widened to almost 10 billion yuan, versus the 7 billion yuan projected, after the company incurred a 3.44 billion yuan fine for violating antitrust rules. That’s the steepest loss since the third quarter of 2018.
Beijing’s wide-ranging tech crackdown -- spanning areas from e-commerce to fintech, data security, after-school education and the gig economy -- has taken a heavy toll on China’s largest internet firms. Tencent Holdings Ltd. this month reported its slowest quarterly sales growth since becoming a public company in 2004, while Alibaba slashed its outlook for fiscal 2022 revenue. In response, companies are stepping up investments in new businesses such as community e-commerce and technology, fueling competition for leaders like Meituan.
The antitrust regulator in October slapped a $530 million fine on Meituan for violating anti-monopoly laws, a penalty that was smaller than some investors had expected. The company was also told to improve its commissions mechanism, ensure the rights of its restaurant partners and step up protections for delivery riders.
What Bloomberg Intelligence Says:
Meituan could struggle to meet consensus estimates for a 1.4 percentage point year-over-year gain in 4Q food delivery operating margin, we calculate. The 16-21 bps declines in 3Q commission and monetization rates from a year earlier reflect more intense competition, particularly from Alibaba’s Ele.me, within the sector in mainland China. This will likely limit the company’s ability to charge more for services as cost increases persist through December.
-- Catherine Lim and Tiffany Tam, analysts
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But headwinds remain, even with the conclusion of the antitrust probe. Chinese President Xi Jinping has outlined a vision to achieve “common prosperity” and redistribute wealth, an effort that could force tech giants like Meituan to offer more concessions to its vast army of gig workers. Rules announced in July required food delivery platforms to improve working conditions, including optimizing routes, setting reasonable delivery times and enabling the drivers to participate in social security.
The State Administration for Market Regulation this month also published a stinging rebuke of so-called platform companies that have muscled into community group buying, fueling concern the industry could become the next target of regulators. These large firms could hurt the normal development of supply chain networks, their discounting could disrupt orderly market pricing, and they could affect social stability by squeezing out small hawkers and stall owners, SAMR said.
Community e-commerce -- where local agents buy groceries and small items at a bulk discount on behalf of people in neighborhoods -- was Meituan’s largest area of investment during the second quarter, executives told analysts in August.
In the wake of regulatory scrutiny, Meituan is shifting away from its “Food + Platform” strategy to focus on “Retail + Technology,” according to media reports. Chief Executive Officer Wang Xing is overhauling the business to focus on new drivers such as community group buying, as well as investing in new technology like autonomous vehicles and drone delivery.
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