Wednesday, January 26

Meituan Records Largest Loss Since 2018 As Headwinds From China Pick Up

Meituan reported its biggest loss in three years, weighed down by a hard-hitting antitrust investigation, a streak of investments and mounting competition.

The Chinese food delivery giant said on Friday that revenue for the September quarter rose to 48.8 billion yuan ($ 7.6 billion), in line with analysts’ estimates. The net loss widened to nearly 10 billion yuan, up from a projected 7 billion yuan, after the company incurred a 344 billion yuan fine for violating antitrust rules. That’s the steepest loss since the third quarter of 2018.

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Beijing’s extensive technological crackdown, spanning areas from e-commerce to financial technology, data security, after-school education and the concert economy, has taken a heavy toll on China’s largest internet companies. Tencent Holdings Ltd. this month reported its slowest quarterly sales growth since going public in 2004, while Alibaba Group Holding Ltd. slashed its 2022 tax revenue outlook. In response, companies are stepping up investments in new businesses, such as community e-commerce and technology, fostering competition for leaders like Meituan.

In October, the antitrust regulator fined Meituan $ 530 million for violating antitrust laws, a lesser penalty than some investors expected. The company was also told to improve its commission mechanism, guarantee the rights of its restaurant partners and increase protections for delivery passengers.

What Bloomberg Intelligence says:

The earnings shortfall would have been led by higher spending on grocery-related services under Meituan, as the company seized opportunities from the Covid-19 outbreak in mainland China to increase its market share in Q3.

Profitability at Meituan’s food delivery unit may also have fallen to a 12-month low as the company spent more to provide additional insurance coverage, medical care and educational support to all subcontracted passengers. – Catherine Lim and Tiffany Tam, Analysts

But the headwinds persist, even with the conclusion of the antitrust investigation. 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 their vast army of workers. Rules announced in July required food delivery platforms to improve working conditions, including optimizing routes, setting reasonable delivery times and empowering drivers to participate in social security.

The State Administration for Market Regulation also issued a harsh reprimand this month to so-called rig companies that have moved into buying from community groups, fueling concerns that the industry could become the next target for regulators. These large companies could damage the normal development of supply chain networks, their discounts could disrupt orderly market prices and could affect social stability by driving out small street vendors and stall owners, SAMR said.

Community e-commerce, where local agents buy food and small items at a volume discount on behalf of people in neighborhoods, was Meituan’s largest investment area during the second quarter, executives told analysts in August. .

In the wake of regulatory scrutiny, Meituan is moving away from its “Food + Platform” strategy to focus on “Retail + Technology,” according to media reports. CEO Wang Xing is reviewing the business to focus on new drivers, such as buying from community groups, as well as investing in new technologies such as autonomous vehicles and drone delivery.

© 2021 Bloomberg

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