AsianFin -- Meituan management rejected destructive price competition and expressed confidence in restoring profitability and achieving sustainable margins in its core food delivery business after posting its first quarterly loss in nearly three years. The Beijing-based company recorded an adjusted net loss of RMB16 billion ($2.3 billion) for the September quarter, wider than the 14 billion yuan analysts expected.
Credit：Meituan
Chief Financial Officer (CFO) Chen Shaohui told analysts during a post-earnings call on Friday that "irrational competition within the on-demand delivery industry significantly distorted sector-wide profitability," but added the company is confident in restoring profitability and achieving reasonable margins in the mid to long term. CEO Wang Xing characterized the price war as "a low-quality, low-level form of vicious competition" that Meituan had no intention of joining.
The losses reflect the toll of an intensified three-way battle with Alibaba Group Holding Ltd. and JD.com Inc. in China's weak consumer market. The e-commerce giants are spending billions of yuan on discounts and subsidies to capture market share in meal delivery and quick-commerce. Meituan said it expects the operating loss trend to persist in the fourth quarter as market competition remains overheated.
Chen said that between October and November, industry subsidies temporarily decreased from their summer peak, and Meituan saw a rebound in market share. The company's average order value remained significantly higher than competitors, with orders over 15 yuan accounting for more than two-thirds of gross transaction value.
Core Business Swings to Loss
Meituan's core local commerce segment, which includes domestic food delivery and in-store businesses, swung to an operating loss of RMB14.1 billion in the third quarter from a profit of RMB14.6 billion a year earlier. Revenue in the segment fell 2.8% to RMB67.4 billion "due to the continuously intensifying competition in the food delivery sector," the company said.
Sales and marketing expenses surged 90.9% year-over-year to 34.3 billion yuan, representing 35.9% of revenue compared with 19.2% in the prior year. Rider subsidies also increased to ensure service stability and boost user retention. Overall revenue grew 2% to 95.5 billion yuan, missing analyst estimates of 97.5 billion yuan.
Despite the profit pressure, Meituan reported user growth gains. Daily active users on its app rose more than 20% year-over-year, while annual transacting users surpassed 800 million over the past 12 months.
Market Share Under Pressure
Morningstar projects Meituan's share of the on-demand delivery market will fall to 55% of gross transaction value by 2027 from 73% in 2024. It sees Alibaba's share expanding to 40% from 21% over the same period, with JD.com's rising marginally to 6%. Both Alibaba and JD.com reported halving in overall net income for the September quarter due to heavy spending on food delivery.
Analyst sentiment has weakened substantially. The consensus recommendation on Meituan slumped to a record low last month after a series of downgrades. The average analyst price target has dropped 40% since the end of March.
Overseas Push Shows Early Progress
Meituan's new initiatives segment, spanning grocery retail and overseas delivery service Keeta, recorded 15.9% revenue growth to RMB28 billion. However, the segment's operating loss widened 24.5% to 1.3 billion yuan due to overseas expansion costs.
Wang said Keeta turned profitable for the first time in Hong Kong, Meituan's first market outside mainland China, in October. The platform launched services in Qatar, Kuwait, the United Arab Emirates and Brazil during the quarter. Reports suggest the company is also exploring entry into India.
Sanford C Bernstein & Co. analysts wrote that "Meituan's decision to prioritize investments in multiple overseas markets almost feels like an acceptance that domestic market share is a lost battle." They cautioned that India expansion "will almost certainly be a costly and time-consuming endeavor at a time when protecting home base strikes us as more important."
Research firm Third Bridge noted that as subsidies taper off and logistics costs fall, Meituan's unit economics are expected to turn positive in the first or second quarter of next year. Jefferies analysts suggested Chinese ecommerce companies' quick-commerce losses likely peaked in the September quarter.
