Tencent-backed Meituan's losses balloon in duel with Alibaba


Meituan Dianping is reaping the benefits of scale in its core food delivery division as it feels the pain of competition from arch-foe Alibaba in smaller businesses such as hotel bookings.

While revenue almost doubled in the December quarter, its net loss widened 57% to 3.4bn yuan ($508m) as profitability shrank in travel and bike-sharing. To keep a lid on swelling costs, Meituan said it’s kicked off a restructuring that will see loss-making bike-rental subsidiary Mobike pull out from most of its overseas markets.

Backed by WeChat-operator Tencent, Meituan is spending heavily to wage a pitched battle with Alibaba’s Ele.me and Fliggy in a cut-throat arena for on-demand services. That’s taken a toll on its bottom line and share price, which is down 15% since the company raised $4.2bn in a 2018 initial public offering.

Billionaire founder Wang Xing pledged to ramp up cost discipline as the growth of its bread-and-butter meal delivery business begins to subside.

"Growth is decelerating. The industry will continue a modest growth rate in 2019," the chief executive officer told analysts on a conference call. The company will be "more disciplined and selective as to where and when to allocate capital."

Meituan intends to focus on food-related initiatives – such as restaurant management – that can augment and complement its core business, Wang said.

And it will keep trying to reduce losses by curbing subsidies in areas such as car-hailing and bike-sharing. Its hotel business, which goes up against Alibaba’s Fliggy, is already profitable, he added.

"New initiatives dragged down overall margins because of gross losses incurred in car-hailing, bike-sharing, and restaurant management," said Vey-Sern Ling, an analyst with Bloomberg Intelligence.

"That could be due to competitive pressures, which required Meituan’s response in higher subsidies."

* Fin24's parent company Media24 is part of the Naspers Group. Naspers owns a stake in Tencent. 

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