China’s Meituan swings to profit on food delivery rebound, flags headwinds

By Casey Hall

SHANGHAI (Reuters) -Chinese food delivery giant Meituan on Thursday posted a bigger-than-expected 33.4% rise in second-quarter revenue, defying a slowing Chinese economy, though executives warned of headwinds for its core business in the quarter ahead.

Meituan, which offers an app that provides services such as bike-sharing, ticket-booking and maps, reported April-June revenue of 67.9 billion yuan ($9.33 billion), up from 50.9 billion a year earlier.

That beat the 66.7 billion expected by 15 analysts in estimates compiled by Refinitiv Eikon.

It posted a net profit of 4.7 billion yuan versus a loss of 1.1 billion yuan a year earlier.

Last year’s April-June quarterly results were hit by China’s COVID-19 containment measures, which included a strict two-month lockdown in Shanghai that made the city largely inaccessible to delivery services.

China’s post-pandemic recovery has lost steam in recent months as demand remained lacklustre at home and weakened abroad, giving rise to a trend that has seen low-cost and discounted products become the focus for platforms and shoppers.

On a call with analysts following its earnings release, the company said that average order value in the quarter declined year-over-year but increased use of discount coupons and livestreaming helped merchants increase their reach and order volumes.

Revenue from core local commerce, which includes food delivery and non-food delivery service Meituan Instashopping, rose 39.2% to 51.2 billion yuan.

CEO Wang Xing flagged that the third quarter would likely be tougher for the food delivery business as macroeconomic headwinds and extreme weather events, including record-breaking rainfall in regions such as Beijing, prove challenging in the short term.

“The change of consumption power due to the macro environment will impact food delivery to a certain extent,” he said, adding he was confident about the sector’s long-term outlook and resilience compared with other consumer-related segments.

Quarterly revenue from Meituan’s in-store, hotel booking, and travel sector businesses benefitted from China’s domestic travel rebound in the second quarter and would continue to grow strongly on the back of summer travel in the third quarter, Wang said.

Since last reporting earnings in June, Meituan announced it was buying Light Year, an artificial intelligence (AI) startup established by Meituan co-founder Wang Huiwen, for $281 million. The purchase comes as major tech firms in China increase their bets on AI in the wake of excitement created by ChatGPT.

Earlier this year, Meituan expanded to Hong Kong with new food delivery business KeeTa. The business marks Meituan’s first foray outside of mainland China and could serve as a stepping stone to further international expansion, according to comments by CEO Wang on a call with analysts in March.

The expansion comes as Meituan faces competition from long-time competitor, owned by Alibaba Group, as well as ByteDance, the owner of TikTok and Chinese sister platform Douyin, which branched out into food delivery in February.

Meituan remains China’s biggest delivery platform, with a 69% market share of the 1 trillion yuan market, data from researcher ChinaIRN showed.

($1 = 7.2777 Chinese yuan)

(Reporting by Casey Hall Editing by Jason Neely and Mark Potter)