Meituan Expects More Red Ink in 2021 Following Expansion of Community Group Buying Business

Meituan
Food delivery, Meituan’s largest source of income, saw quarterly revenue growth of 37% to reach 21.54 billion yuan. (Source: read01)

Chinese food delivery platform Meituan reported better-than-expected fourth quarter and full year revenues but warned that continued investment in its community group buying business would likely lead to losses in future quarters.

Revenues jumped 35% year-on-year to reach 37.9 billion yuan ($5.8 billion) in the fourth quarter ended in December, beating an estimate of 36 billion yuan from a Bloomberg analyst survey, according to the company’s financial results released on Friday.

Revenue for the full year also grew, amounting to 114.8 billion yuan in 2020, an 18% increase from 97.5 billion yuan in 2019.

Food delivery, Meituan’s largest source of income, saw quarterly revenue growth of 37% to reach 21.54 billion yuan. The company also operates ventures in restaurant reviewing, bike-sharing, and hotel and travel sectors, which benefited from a rebound in domestic travel after China successfully contained the pandemic.

However, the Beijing-based firm reported a net loss of 2.2 billion yuan during the last three months of 2020, after expanding rapidly into the popular community group-buying business, which relies heavily on subsidies. Its community e-commerce platform, Meituan Select, enables communities to set up location-based groups for bulk buying.

Operating losses from new initiatives in 2020 increased to 10.9 billion yuan from 6.7 billion yuan in 2019, the company said, adding that “increasing investments in new initiatives may continue to cause significant negative impacts on our overall financial results.”

Meituan said it “may continue to record operating losses in the next few quarters as we ramp up our community e-commerce business.”

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However, Chief Executive Officer Wang Xing emphasized that community e-commerce remained a “top priority” for the company, which sees the segment as offering promising long-term growth potential and fitting into its “Food + Platform” strategy.

“We believe community e-commerce is one of such big opportunities, and we will allocate sufficient resources to accelerate its development in 2021 while continuously improving its operating efficiency,” the company said. Meituan Select directly competes with JD.com’s Dingdong Maicai, Xingsheng Youxuan, Pinduoduo’s Duo Duo Maicai, Alibaba’s Taobao Maicai and Didi Chuxing’s Chengxin Youxuan.

Meituan’s shares dropped 6.9% to HK$280 in late morning trade on Monday. The stock has fallen roughly 33% from its peak in February, after having tripled in the past year, according to Bloomberg’s figures.

Earlier this month, Meituan Select was among five community group buying platforms fined by market regulators for “improper pricing behavior” that disrupted market order.

The company will abide by regulatory guidelines and “work with the relevant authorities to promote the healthy, long-term growth of the internet and platform economy,” Wang said on an earnings call.

Meituan Select has expanded to cover around 2,000, or about 90%, of China’s cities and counties, the company claimed. Daily order volume surpassed 20 million in December, according to a report from Guosen Securities.

China’s grocery market is expected to be worth 11 trillion yuan in 2023, according to research agency IGD.