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Abu Dhabi, UAEWednesday 19 December 2018

Chinese company Meituan plunges as losses escalate

With the backing of Tencent, Meituan is driving sales at the expense of profit

Management of China's Meituan Dianping, an online food delivery-to-ticketing services platform, attending a news conference in Hong Kong. Reuters
Management of China's Meituan Dianping, an online food delivery-to-ticketing services platform, attending a news conference in Hong Kong. Reuters

Meituan Dianping, the Chinese food-delivery giant, slumped by a record as its fight for market share with Alibaba led to wider losses.

The shares fell as much as 14 per cent in Hong Kong, the most since its September Initial Public Offering (IPO). Operating losses at the Beijing-based company more than tripled to 3.45 billion Chinese yuan ($498 million) in the three months ended September even as revenue almost doubled.

With the backing of Tencent – a Shenzhen-based multinational investment holding conglomerate - Meituan is driving sales at the expense of profit in a fierce battle for food delivery customers as it also expands into new businesses. That’s taken a toll on its bottom line and hit the share price, which has dropped more than 20 per cent since the company raised $4.2bn in its IPO.

“The competition is too severe even for just two companies in competition,” said Alex Wong, director of asset management at Hong Kong-based Ample Capital. “So the earnings side would be quite bad for the foreseeable future.”

After including revaluations of preferred stock following the IPO, the net loss became a massive 83.3bn Chinese yuan compared with 4.4bn Chinese yuan a year earlier, it said in a filing on Thursday.

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Meituan is competing on multiple fronts, from food delivery to ride-hailing and bike sharing. Its Mobike bicycle business has been dragged into a fierce cash burning battle with no signs of profitability and the company plans to reduce the number of bikes and improve the business’ operating efficiency.

The firm also said it will be more cautious in the way it devotes resources to new initiatives, preferring to focus more on restaurant management related services, as the macro economy could face headwinds. Meituan has no plans to expand car-hailing business in other cities.

“We are not immune to the macro slowdown because we are already quite sizable,” said Wang Xing, chairman and chief executive of Meituan.