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Meituan Q3 sales surge on China's economic recovery, rise in takeouts

Food delivery continued to recover from the pandemic, with operating profit for the business more than doubling in the September quarter, the company said on Monday

Meituan, food delivery
Meituan’s newest line of business will also faces intense competition from ecommerce upstart Pinduoduo Inc. and Softbank-backed car-hailing leader Didi Chuxing, both of which have rolled out similar services
Coco Liu | Bloomberg
4 min read Last Updated : Nov 30 2020 | 10:29 PM IST
Meituan reported a 29% rise in quarterly revenue after China’s economic recovery boosted restaurants and whetted consumers’ appetite for takeout.

The world’s largest meal delivery service posted sales of 35.4 billion yuan ($5.4 billion) during the July-September period, beating the average estimate of 34 billion yuan. It also logged net income of 6.3 billion yuan, versus a projected 435 million yuan. Profit was bolstered by 5.8 billion yuan in investment gains.

The strong results affirm Meituan’s bounce-back from the pandemic disruptions of past quarters and could assuage investors worried about the impact of a Chinese antitrust crackdown on the internet sector. China’s third-largest tech corporation is now benefiting from rising travel and restaurant spending as the country returns to normal. Meituan’s post-Covid recovery may drive a secondary listing in China as soon as next year, Bloomberg News reported.

Meituan, which controls an estimated two-thirds of China’s food delivery market, was among a raft of internet giants including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. that got caught up in a $290 billion selloff this month after regulators published antitrust guidelines. It’s still down about 13% from Nov. 10, when Beijing detailed measures to curb anti-competitive practices, widely regarded as an effort to rein in the growing influence of tech corporations throughout the world’s No. 2 economy.

“We are currently in constructive dialogues with the regulatory authorities to better understand the spirit of the consultation paper,” founder Wang Xing told analysts Monday. “We will further accelerate our product innovation, improve the opening of our platform, managing our business operations and aiming to actively follow regulatory guidance and comply with regulatory requirements.”

What Bloomberg Intelligence Says

Meituan’s 3Q results indicate its food-delivery business has largely returned to normal while its hotel and travel businesses have turned the corner. Food delivery’s 36% gross-transaction volume growth in 3Q is on a par with the company’s pre-Covid pace, while domestic hotel room-nights grew 4% after a double-digit decline in 1H.
- Vey-Sern Ling and Tiffany Tam, analysts

Backed by Tencent, Meituan has seen a gradual pick-up in its core food delivery business after the company posted its first quarterly revenue decline in the three months ended March during Covid-19 lockdowns. In August, Wang said the recovery was underway but areas such as travel remained anemic.

Food delivery continued to recover from the pandemic, with operating profit for the business more than doubling in the September quarter, the company said on Monday.

Prodded by increasing competition in its core takeout business from Ele.me and other Alibaba-backed services, Meituan had expanded into a wide array of services including online travel, grocery delivery and ride-hailing. In the longer run, Meituan is investing in technologies like self-driving vehicles to help cope with surging delivery demands.

Meituan, with more than 200 services ranging from ticketing to bike-sharing, saw operating losses from new initiatives widen to 2 billion yuan from 1.2 billion yuan a year earlier, partly due to efforts to grow its recently added community buying business. As its name suggests, the model entails a group of residents from the same community placing bulk orders for greater discounts. E-commerce companies then ship the orders in one go, reducing logistics costs significantly.

As the pandemic has accelerated online shopping, China’s community buying market is expected to hit 89 billion yuan this year, Kantar Research estimated. Meituan has pledged to grab a slice of this booming market, with a goal to introduce the service to 1,000 cities and counties by year-end.

Analysts say the move will help Meituan diversify its revenue in the long run but will likely weigh on its profitability in the short term, due to the hefty upfront investment required for logistics and supply chains. Meituan’s newest line of business will also faces intense competition from ecommerce upstart Pinduoduo Inc. and Softbank-backed car-hailing leader Didi Chuxing, both of which have rolled out similar services.

“It’s not going to be a quick win,” Wang said on Monday. The company will prioritize investments in Meituan Select, its community buying program, which will lead to operating losses in the new initiatives business over the next few quarters, he added.

Shares of Meituan were down 7.1% before the earnings results in Hong Kong.

Topics :CoronavirusLockdownChina economyonline food deliveryAlibaba

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