Meituan troubles are piling up even after 40% slump
THE stock of China’s biggest food delivery platform has almost halved since a January peak and if traders are right, the worst is not over.
The volatility skew on Meituan, a gauge of market positioning and sentiment, is at its most bearish since February, signalling that market players are bracing for more declines. China’s economic growth is flagging and competition in the business is heating up – all of which spells trouble for the e-commerce company.
Meituan’s struggles are symptomatic of China’s lacklustre consumption growth, with subdued spending and travel figures from the Golden Week holiday suggesting that the economy may remain in the doldrums for a while. Global active fund managers offloaded US$3.7 billion of the company’s shares this year, making it the most-sold China tech firm during the period, according to Morgan Stanley.
Meituan’s shares have fallen almost 40 per cent in Hong Kong since the start of the year, underperforming the Hang Seng Tech Index which is down about 7 per cent. The stock is one of the few Chinese technology names that have erased all the gains that were fuelled after China rolled back Covid curbs late last year.
Traders say there are a number of concerns with Meituan. For one, the company needs to boost spending to compete with ByteDance and fund its loss-making group-buying platform, where a number of buyers can purchase products together to secure deeper discounts. Margins in its core delivery business are coming under pressure given the growing competition in the field.
In August, Meituan even warned of slower growth in food delivery orders in the third quarter due to concerns about the economic outlook and extreme weather.
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Meituan is unlikely to keep growing at its targeted pace without offering discounts, which will hurt profitability, according to Kai Wang, an analyst at Morningstar. That means “the food delivery business will slow down dramatically”.
The premium for an options contract that bets Meituan’s stock will drop 10 per cent in the next three months is trading at the highest level since February versus a contract betting on a 10 per cent gain, according to data compiled by Bloomberg.
Pole position
Still, optimists say that the challenge posed by ByteDance may be less formidable than critics have made it out to be. In a meeting with investors last month, Meituan said its market share in the local lifestyle market is double that of ByteDance, and it is confident of maintaining its leadership, according to Goldman Sachs Group.
But, Meituan’s ability to stay ahead of its rivals is likely to come at a considerable cost: it may have to sacrifice its margins.
“We expect Meituan to maintain its aggressive investment strategy in the second half to defend its market share in the in-store & hotel segment,” Ellie Jiang, an analyst at Macquarie Capital, wrote in a research note this month. She expects Meituan’s operating profit margin in the third quarter to have declined from a year earlier. BLOOMBERG
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