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Meituan posts surprise profit after pipping Alibaba in food

Hong Kong

MEITUAN Dianping posted its first quarterly profit after the Chinese internet services giant grabbed market share from rivals such as Alibaba Group Holding Ltd in food delivery.

The company posted a net income of 877.4 million yuan (S$170 million) compared with the 1.57 billion yuan loss analysts projected on average. Meituan however got help from one-time investment gains, such as in wealth management products. Revenue rose 51 per cent to 22.7 billion yuan, compared with the 21.9 billion yuan mean estimate.

Hard-charging billionaire founder Wang Xing is waging a take-no-prisoners battle of subsidies with Alibaba for China's US$1.3 trillion online services industry, which includes food delivery. Meituan's expenses have soared, though it's trying to control costs by putting the brakes on investment in loss-making areas such as bike sharing and ride hailing.

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Advances made against Alibaba however have helped the company become China's third largest publicly traded tech company. It's overtaken search engine Baidu Inc and e-commerce platform Inc in capitalisation after gaining 59 per cent this year. Backed by WeChat-operator Tencent Holdings Ltd, Meituan could have gained another two percentage points of food-delivery market share versus its rivals, reaching 36 per cent in the second quarter, according to Bernstein.

"Food delivery business achieved positive adjusted operating profit due to favourable seasonality and improved economies of scale," Jefferies analysts Thomas Chong and Ken Chong wrote. "For now, Meituan is focusing on its bread-and-butter business of dining, expanding up the value chain to help restaurants manage their back-end systems. Longer-term, Wang envisions a super-app modelled on WeChat, extending a raft of everyday services to an increasingly wealthy populace." BLOOMBERG