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

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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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