Meituan posts 77 per cent quarterly revenue growth despite concerns over antitrust investigation

China’s largest food delivery and on-demand local services provider posted market-beating second-quarter revenue of US$6.8 billion
The company incurred a net loss of US$525 million, as its new initiatives and others segment continued to rack up losses

Meituan

Minghe Huin BeijingandIris Dengin Hong Kong

Published: 5:10pm, 30 Aug, 2021

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Meituan, operator of China’s largest food delivery and on-demand local services platform, beat second-quarter estimates with a 77 per cent revenue growth, despite the government’s antitrust investigation and the regulatory scrutiny of the country’s technology sector.

Beijing-based Meituan posted revenue of 43.8 billion yuan (US$6.8 billion) in the quarter ended June, up from 24.7 billion yuan a year ago, on the back of stellar growth at its food delivery business. That beat the 42 billion yuan consensus estimate from a Bloomberg poll of market analysts.

The company incurred a net loss of 3.4 billion yuan, compared with a 2.2 billion yuan profit a year earlier, as its business segment called new initiatives and others, which includes group buying, continued to rack up losses. This segment recorded a wider loss of 9.2 billion yuan, compared with 1.5 billion yuan a year ago, because of continued heavy investment.

“As the Chinese economy continued to recover steadily, our various business segments maintained healthy growth in the second quarter of 2021,” said Meituan founder, chairman and chief executive Wang Xing in a statement on Monday. “The recent new regulatory environment change reminded ourselves of our role in society and compels us to innovate and better contribute to society at large.”

Wang Xing, founder, chairman and chief executive of Meituan, said the company will continue to develop its businesses around the needs of mass-market consumers. Photo: Bloomberg

Meituan’s share price closed up 1.5 per cent to HK$228 (US$29.27) on Monday in Hong Kong, down from a peak of HK$460 in mid-February, as the stock continues to be dragged down by the government’s antitrust investigation and regulatory uncertainties brought by tighter scrutiny on the internet sector.

In a conference call with analysts after the market closed, Wang said that a series of recently announced regulatory policy guidelines provide a clear direction on how to improve its business.

“We will abide by these guidelines strictly and carry out our social responsibilities proactively,” he said. “We we will live up to the higher expectation of our government, society, merchants, delivery riders, consumers and more. We will continue to roll out our plans for sustainable development, bring more employment opportunities to more markets, boost consumption growth in less developed areas and carry out our carbon neutrality objectives in our daily operations.”

On the antitrust investigation that commenced in April, Meituan said in a statement that the matter remains ongoing and that it is actively cooperating with the State Administration for Market Regulation (SAMR). “The company is not able to predict the status or the results of the investigation at this stage, and the company could be required to make changes to its business practices and/or be subject to a significant amount of fines,” the firm said in a statement.

Hours before Meituan released its latest quarterly results, the SAMR said that it has initiated an investigation into the company’s acquisition of bike-sharing firm Mobike in April 2018. In a statement, the regulator said Meituan failed to report the transaction to the relevant authorities for approval. The company could be slapped with a 500,000 yuan fine, which is the maximum penalty under the country’s antitrust law.

Based on antitrust guidelines updated in 2018, companies must seek approval for mergers or acquisitions involving firms with annual revenue of more than 10 billion yuan globally, or 2 billion yuan in China.

China’s community group buying in chaos amid ‘subsidy wars’

Some analysts, however, predicted an easing of regulatory pressure for Meituan. “We believe the anti-monopoly regulatory risks that loom over the company will gradually be reduced because the regulatory agencies have passed their objectives to players in the market to guide their behaviour,” analysts at CMS Equities Research said in a recent report.

Meituan, meanwhile, has continued to invest heavily in its community group buying business, Meituan Select, amid a highly competitive environment that has set back the operations of smaller players such as Tongcheng Life and Alibaba Group Holding-backed Nice Tuan. Alibaba owns the South China Morning Post.

Regulators and state media recently slammed the community group buying industry’s cash-burn strategy, as providers engaged in “subsidy wars” that have left a number of start-ups either filing for bankruptcy or reducing their operations.

Earlier this month, a commentary by the Economic Daily, which is under the Central Committee of the Chinese Communist Party, blamed some community group buying operators for abusing their platforms’ power to disrupt the market, including dumping low-priced goods, as well as illegally collecting and using consumers’ personal information.

China moves to protect food delivery drivers from digital exploitation

In March, SAMR fined the group buying platforms of Didi Chuxing, Meituan, Pinduoduo and Nice Tuan, for price dumping and fraud.

On protecting the welfare of delivery riders working with Meituan, Wang said the company “will cooperate with the authorities to provide a more comprehensive welfare scheme for the delivery rider group”.

“We will improve the flexibility of delivery times,” he said. “We will adjust our order delivery system and introduce compulsory breaks for delivery riders.”

In the second quarter, revenue at Meituan’s food delivery business segment reached 23.1 billion yuan, up 59 per cent from a year earlier. Gross transaction volume during the same period rose 59.5 per cent to 173.6 billion yuan, on the back of a 58.9 per cent increase in the daily average number of food delivery transactions nationwide to 38.9 million yuan.

The company’s in-store, hotel and travel segment continued to post steady growth, as revenue climbed 89.3 per cent to 8.6 billion yuan.

Revenue at the firm’s investment-heavy new initiatives and others business segment – including Meituan Select, Meituan Instashopping and Meituan Grocery – jumped 113.6 per cent to about 12 billion yuan.

This article appeared in the South China Morning Post print edition as: Meituan’s quarterly revenue jumps 77pc

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