Yahoo Finance Meituan Dives After China Slowdown Warning Clouds Sales Surprise
(Bloomberg) -- Meituan fell its most in almost three months after warning that growth in its core meal delivery business will slow this quarter, in one of the clearest signs that Chinese economic turbulence is beginning to hurt the country’s internet leaders.
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Executives said growth of order volumes in its core food delivery business will decelerate this quarter as the uncertainty erodes consumer sentiment, though services should remain a bright spot even in a downturn. A heat wave that enveloped parts of the country also played a part in depressing business.
Meituan’s stock slid as much as 7% despite posting its fastest pace of revenue expansion since 2021, after dining and travel bounced back from Covid-Zero depths. Sales rose a better-than-projected 33% to 67.96 billion yuan ($9.3 billion) in the quarter ended June. Meituan swung to an operating profit of 4.7 billion yuan from a small loss a year earlier, helped by a doubling in gross transactions volume across its in-store, hotel and travel business.
As with its peers in the internet industry, Meituan is seen as a barometer of China’s post-Covid recovery, which has proven broadly weaker than expected. But Meituan has benefited this year as consumers grappling with a property slump shun big-ticket items to instead spend on experiences from trips and movies to dining. That’s propped up Meituan’s meals and travel services, and the company has splashed out on marketing to tap that post-pandemic demand.
Order volumes “will slow down, but still will be more resilient than other consumption-related sectors,” Chief Financial Officer Chen Shaohui told analysts on a conference call Thursday. “We have seen some short-term headwinds due to macroeconomy and extreme weather.”
The company’s longer-term prospects depend on how it navigates post-pandemic demand swings and new arenas such as AI. Meituan joined a global AI investment frenzy alongside big players like Baidu Inc. and Tencent Holdings Ltd. when it doled out almost $234 million to buy co-founder Wang Huiwen’s generative AI startup. But Chief Executive Officer Wang Xing acknowledged this year it was “still playing catch-up” on that front.
“Our goal is to become a smart assistant for consumers,” Wang told analysts. “We will leverage our proprietary research and external investments to explore the fields of artificial intelligence, autonomous delivery, and other cutting-edge technologies.”
What Bloomberg Intelligence Says
Meituan’s stronger-than-expected 2Q core local-commerce operating profit, up 35% year over year vs. consensus for a 17% gain, should allay concerns about lower food and on-demand delivery margins through December. The drop in unit cost from greater economies of scale may persist as the company expands with more merchants, offsetting hikes in user incentives into 2024. These costs lifted the 2Q marketing-to-sales ratio by 3.8 percentage points from a year earlier.
- Catherine Lim and Trini Tan, analysts
Click here for the research.
While the days of heady growth for China’s tech giants are over, Beijing’s rhetorical support for private enterprise mark a significant step toward reversing a crackdown that erased hundreds of billions of market value from the sector since 2021. Meituan and its long-standing backer, Tencent, were both praised in a rare post from the nation’s powerful economic planner for making investments that aligned with Beijing’s goals.
For now, Meituan is expanding into adjacent areas from grocery retailing to group-buying. In March, the food delivery giant abandoned its ride-hailing service to cut down on costs. And it’s investing heavily in live-streaming services to fend off rivals like ByteDance Ltd.’s Douyin.
As it looks beyond its home market, Meituan has also been rolling out cash-heavy incentive schemes for its “KeeTa” meal delivery app in Hong Kong, its first foray beyond the mainland Chinese market it dominates. Its debut in the city in May pits it against Deliveroo Plc and Delivery Hero SE’s Foodpanda in the international financial hub.
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