Losses widen at Tencent-backed on-demand services provider Meituan Dianping

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 in smaller businesses such as hotel bookings.

While revenue almost doubled in the December quarter, its net loss widened 57 per cent to 3.4 billion yuan (US$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, Meituan is spending heavily to wage a pitched battle with Alibaba’s Ele.me and Fliggy in a cutthroat arena for on-demand services. That has taken a toll on its bottom line and share price, which is down 15 per cent since the company raised US$4.2 billion in its initial public offering in 2018. Billionaire founder and chief executive Wang Xing pledged to ramp up cost discipline, as the growth of the firm’s bread-and-butter meal delivery business begins to subside.

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

Meituan Dianping-owned Mobike to pull out of some Asian countries

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 competes 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 per cent to 4.59 billion yuan. Gross margin fell to 22.6 per cent versus 32 per cent 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 per cent in Hong Kong on Monday.