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Food delivery giant Meituan's sales beat estimates

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Meituan Dianping's shares soared after it reported a smaller than expected 13 per cent slide in revenue that drove hopes the world's largest meal delivery business is starting to recover as China emerges from Covid-19 lockdowns.

[SHANGHAI] Meituan Dianping's shares soared after it reported a smaller than expected 13 per cent slide in revenue that drove hopes the world's largest meal delivery business is starting to recover as China emerges from Covid-19 lockdowns.

Sales fell 12.6 per cent to 16.8 billion yuan (S$3.41 billion) in the three months ended March, surpassing the 15.6 billion yuan average of estimates. It also reported a lower-than-projected net loss of 1.58 billion yuan after three successive quarters of profit. Its shares climbed as much as 6.8 per cent, extending strong gains since China began to return to normal in mid-March and propelling Meituan's market value to a record high of more than US$100 billion.

Backed by Tencent Holdings Ltd., Meituan's sprawling services from food delivery to in-store dining and hotel booking were among the most vulnerable to nationwide shutdowns. But its businesses had begun to climb out of the trough, offsetting severe slumps in areas such as hotels, executives told analysts on a Monday conference call. As of March's final week, more than 70 per cent of restaurants surveyed had recovered more than half their normal order volumes, while 30 per cent had exceeded pre-pandemic levels, Chief Executive Officer Wang Xing said.

"Covid-19 had a negative impact on Meituan but results beat on top-line and bottom line by a wide margin," Bernstein analysts led by David Dai wrote. In food delivery, the "long run potential is still there and the profitability level can be much higher" after the company pushes advertising, they added.

Longer term, the internet services giant will have to grapple with China's worsening economy, which may further dent consumer spending. Subsidies and measures to help restaurants and merchants during the outbreak will again pressure profitability in the June quarter, executives said.

"Looking into the next three quarters, we believe there will still be challenges as there are still uncertainties and potential downside from the ongoing evolution of the Covid-19 situation," Mr Wang said on the call. "Meanwhile, a large number of local service merchants are still struggling for survival. Short-term profitability is not our top priority."

Before the outbreak, Meituan had pushed aggressively into adjacent arenas from online travel to ride-hailing. While revenue from the business that encompasses hotels and travel plunged 31 per cent plunge during the March quarter, Meituan's much smaller new initiatives segment -- which includes bike- and car-hailing -- grew sales 4.9 per cent, aided by the launch of a new grocery delivery service. Hotels remained hardest-hit: in the week of May 11, domestic room nights were at about 70 per cent pre-pandemic levels.

While Meituan is expanding offerings to sell things like handsets and farm produce, rivals including Ant Group and SF Express, both backed by Alibaba Group Holding Ltd, are elbowing their way into Meituan's core takeout business. Alibaba's food-delivery arm Ele.me is also engaging in a subsidy battle with the startup for market leadership.

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