By Casey Hall
SHANGHAI (Reuters) -China’s leading food delivery group Meituan, reported on Wednesday a fall of 89% in second-quarter adjusted net profit as it looks to stave off rising competition in the “instant retail” sector.
Meituan, whose app offers services ranging from bike-sharing and ticket-booking to maps, reported a rise of 11.7% in revenue of 91.8 billion yuan ($12.83 billion) for the three months to June 30.
The figure fell short of a revenue gain of 13.8% expected by 17 analysts polled by LSEG. Adjusted net profit fell 89% to 1.49 billion yuan, widely missing expectations.
After the release of first quarter results in May, Chief Executive Wang Xing warned that red-hot competition in the food delivery and instant retail space this year had made forecasting profits for the rest of the year “impossible”.
Online retailer JD.com responded this year to Meituan’s effort to expand beyond meals by moving aggressively into the latter’s core food delivery business.
Alibaba, which runs the second-largest food delivery app, Ele.me, also moved to increase its bets on instant retail. Both JD Takeaway and Ele.me have pledged billions of yuan in subsidies to boost sales.
Meituan has nearly 70% of the delivery market, Morningstar analyst estimates show. Defending that customer base could prove expensive amid the intensifying competition, and squeeze profit margins. The firm’s shares have fallen more than 20% this year.
“China’s food delivery sector has entered a full-scale delivery war…this is a battle Meituan cannot afford to lose,” said ThirdBridge analyst Jamie Chen. “Rivals Taobao and JD.com see food delivery less as a core business and more as a strategic entry point to transform their platforms from pure e-commerce into all-scenario consumer ecosystems.”
Another challenge could come from regulators, with Chinese authorities planning new rules for pricing after merchants and consumers complained of unfair or misleading pricing by big internet platforms.
Earlier this year, Meituan announced a $1 billion investment over the next five years as it enters Brazil with its Keeta app. The increased pace of expansion for its international division helped drive an operating loss for its “new initiatives” segment increased by 43.1% year over year to 1.9 billion yuan.
As well as expanding its international business – Keeta also operates in Hong Kong, Qatar and Saudi Arabia – Meituan has been investing in unmanned drone delivery and has joined the AI race, pledging to invest “billions” of dollars in the technology.
($1=7.1529 Chinese yuan renminbi)
(Reporting by Casey Hall, Editing by Louise Heavens and Clarence Fernandez)
