Food delivery giant Meituan Dianping posts quarterly revenue decline amid Covid-19 disruptions

Minghe Hu

Meituan Dianping, China’s largest on-demand services provider, reported a 12.6 per cent drop in first-quarter revenue, as the coronavirus pandemic disrupted the company’s food delivery operations and other businesses across the country.

Although the weak results in the March quarter were expected, Meituan co-founder and chief executive Wang Xing warned of further challenges for the company in the next few quarters, he said in a conference call with analysts after the market closed on Monday.

“There are still uncertainties and potential downsides amid the ongoing evolution of the Covid-19 situation,” Wang said. “A large number of local service merchants are still struggling for survival.”

He vowed that Meituan “will remain focused and allocate sufficient amount of resources towards helping merchants resume business, improve their efficiencies and digitise their operations”

The Meituan Dianping app is displayed on a smartphone. Photo: Martin Chan

China’s largest food delivery services provider posted revenue of 16.7 billion yuan (US$2.3 billion) in the quarter ended March 31, down from US$19.2 billion yuan in the same period last year but ahead of market analysts’ consensus estimate of 15.6 billion yuan. It also reported a wider net loss of 1.6 billion in the first quarter, compared with 1.4 billion yuan a year earlier.

Despite the weak first-quarter results, Meituan’s shares closed up 6.1 per cent to HK$125.80 on Monday. The stock was also up 23 per cent year to date.

That showed how investors may have already put the company’s Covid-19 challenges into account, following Wang’s declaration in March that a longer period of economic recovery would adversely affect its financial performance.

Backed by internet giant Tencent Holdings, Meituan is under pressure from restaurants to lower commission charges for its core food delivery service at a time when restaurants across the country are struggling to survive amid the impact of the pandemic. While Meituan has been expanding into fields such as ride-hailing services, restaurant management and online groceries, Wang said on Monday that the firm plans to invest in autonomous delivery technologies.

Meituan Dianping refutes claims its delivery fees are hurting restaurants amid coronavirus downturn

In its filing on Monday, Meituan said first-quarter revenue from its food delivery business was down 11.4 per cent from a year ago, as order volumes had not fully recovered by the end of March. It said “consumer demand continued to be negatively impacted by hygiene concerns and quarantine measures, the ongoing closure of universities, and work-from-home policies that applied to many of our high frequency consumers”.

Combined revenue from the company’s in-store, hotel and travel businesses fell 31.1 per cent.

Meituan’s new initiatives and others segment, which includes its grocery retail business, saw a 4.9 per cent increase in revenue.

Although Meituan saw local services consumption start to pick up, as the Chinese economy emerged from the coronavirus restrictions, the company remains cautious about the rest of 2020, according to chief financial officer Chen Shaohui.

“This view takes into account the ongoing pandemic precautions, the insufficient consumption competence of consumers in certain local service category and potential risks of merchants’ closure, which could have a negative impact on our core business in the remainder of 2020,” Chen said in the conference call on Monday.

Older Chinese consumers starting to order food online thanks to coronavirus pandemic

While the company’s expectations for the rest of this year remain conservative, some analysts see a turnaround.

“We expect Meituan Dianping’s food delivery business to demonstrate profitability improvement in the second half of 2020,” said Daiwa Capital Markets analysts John Choi and Robin Leung in a report last week.

Research firm iiMedia recently estimated that China’s food delivery services market would top 650 billion yuan this year.

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