Meituan’s losses narrow; fends off rival Alibaba in food, travel segments

Menu icons are displayed on the Meituan application on an Apple Inc. iPhone in an arranged photograph taken in Hong Kong, China, on Friday, March 23, 2018. Photographer: Justin Chin/Bloomberg

Meituan Dianping posted a narrower-than-anticipated loss after the Chinese internet services giant managed to keep Alibaba Group Holding Ltd. at bay and expand rapidly in food delivery and travel.

The fast-growing company backed by WeChat-operator Tencent Holdings Ltd. posted a loss of 1.43 billion yuan ($207 million) in the March quarter, almost half the 2.7 billion yuan loss that analysts projected on average. Revenue also jumped a better-than-projected 70% as it deepened forays into newer arenas from online travel to ride-hailing. Meituan’s shares gained as much as 5.7% after Morgan Stanley raised its price target on the company.

Meituan’s out-performance offers hope to investors that had endured a 16% loss in its market value since the Chinese internet giant’s September debut. Billionaire founder Wang Xing has held his ground in a cash-burning battle with Alibaba’s Ele.me and Fliggy for on-demand services: The Beijing-based company managed to lift its food delivery market share by 2.1 percentage points to 63.4% in the first quarter compared with the previous three months, according to Trustdata.

“Healthy user metrics and cohorts, sound merchant relationships, and a comprehensive delivery network on top of lower-tier city coverage, have all helped capture market share,” Morgan Stanley analysts including Grace Chen wrote in a report.

Wang has pledged to control costs, with Meituan this year kicking off a restructuring that will see loss-making bike-rental arm Mobike pull out from most of its overseas markets. It also shifted to a platform strategy for ride-hailing, allowing users to book cars from other services.

The founder said he’s in no hurry to achieve profitability as he vies for market share, and envisions another year of fierce competition. “We are not that concerned when other players use heavy subsidy for price-sensitive users. It is not going to be sustainable,” Wang said during an earnings call. “So when a subsidy campaign stops, these orders will vanish.”

Longer term, the company intends to focus on core initiatives such as restaurant management services. Its hotel bookings business, which goes up against Alibaba’s Fliggy, has been profitable, Wang said in March.

What Bloomberg Intelligence Says

Meituan’s operating losses may decline as it continues to streamline new business initiatives.

–Vey-Sern Ling and Tiffany Tam, technology analysts

Unlike Alibaba, which is expanding its Freshippo grocery chain, Meituan said it’s scaling back its own footprint and closed Ella supermarkets in lower-tier cities to focus on its remaining two stores in Beijing. Meituan will also invest to incorporate community grocery stores into its platform.

  • Food delivery revenue rose 52% to 10.7 billion yuan
  • In-store, hotel booking and travel business revenue rose 43% to 4.5 billion yuan
  • Gross margin fell to 26.4% versus 28.5% a year earlier
  • Gross transaction volumes shot up 28% to 138.4 billion yuan with the number of transacting users reaching 412 million

Bloomberg