Meituan shrugs off antitrust investigation as sales exceed estimates

(Bloomberg) — Meituan reported sales that exceeded estimates, showing how Beijing’s ongoing antitrust investigation into the internet giant has yet to weigh on its growth prospects.

China’s largest food delivery platform achieved sales of 43.8 billion yuan ($6.8 billion) in June, compared to the average of 42.4 billion yuan according to analyst estimates. The company posted a net loss of 3.4 billion yuan for the third quarter in a row.

Wang Xing’s internet giant faces fines of about $1 billion as part of an antitrust watchdog investigation into alleged violations such as enforced exclusivity schemes, Bloomberg News reported this month. Launched days after rival Alibaba Group Holding Ltd. Inflicted a record fine in April, the probe put Meituan in the spotlight and marked the expansion of Beijing’s campaign to rein in its tech giants.

Since then, Meituan and his colleagues have come under constant fire from regulators for a slew of alleged violations, ranging from the plight of low-income gig workers to their handling of data security. Despite a commitment from the company to insure its delivery drivers, regulators have gone even further, asking online food platforms to ensure workers earn at least the local minimum wage, which could weigh on margins.

Meituan – which is backed by social media giant Tencent Holdings Ltd. — has lost about $160 billion in market value since its February high, about half its value. The industry, which relies on an army of workers to deliver meals and groceries to doorsteps, is in the crosshairs of Xi Jinping’s campaign for ‘common prosperity’. On Monday, Meituan pledged to give back to society, describing how it has set up charitable programs to help its hundreds of thousands of deliverers, and pledged to pay more attention to their well-being and needs.

“The company is unable to predict the status or results of the investigation at this stage,” Meituan said in her exchange request. It “may be required to make changes in its business practices and/or be subject to significant fines.”

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China’s heavy-handed campaign has intensified in recent weeks, along with an ongoing attack on consumer internet businesses, with agencies pledging to step up tax enforcement, tackle labor abuse and take action against “fan culture” in the entertainment industry.

The measures have shaken markets, with a measure of price swings in Chinese stocks rising to its highest level in 16 months last week. Citigroup lowered its price target for Meituan by 19% this month.

Read more: Meituan loses $60 billion after China crackdown fears mount

Even as regulatory oversight has intensified, Wang’s business has entered newer businesses, including community commerce, an arena that took off during the pandemic. The company, which had 628.4 million annual transactions in the June quarter, is counting on its Meituan Select division to meet its goal of adding a whopping 400 million over the next few years.

“Our base case assumes it could take approximately 5 years to fully implement the potential increase in rider costs,” Citigroup analyst Alicia Yap wrote in a note this month. “While there will still be too much regulatory and financial impact in the near term, we believe that our positive stance on Meituan for its super-app position for local services remains intact and Meituan will continue to thrive through the challenges. navigate and will transform into a reputable and dominant local service gateway company. ”

But competition in the sourcing industry for community groups has been fierce. In recent months, several smaller operators have run into difficulties or are unable to compete with the heavy investments of giants such as Meituan, Alibaba and Didi Global Inc. Alibaba this year reorganized its food delivery app, also local commerce platform Koubei, as a map and online travel company into a new lifestyle services division, in an effort to challenge Meituan’s dominance in those sectors.

Meituan and his colleagues have announced major philanthropic projects in recent months, heeding Beijing’s call to redistribute wealth. In the most recent example, Pinduoduo Inc., an e-commerce company known for giving customers deep discounts when they buy products together, said it will already donate its first net profit since its IPO to the country’s farmers and agricultural areas. to support. In June, Wang pledged $2.3 billion in education and science equities, aligning with nationwide priorities in accelerating technological innovation.

“Regulatory risks facing the business remain. We’ll have to wait and see what happens next,” said Shawn Yang, a tech analyst at market research firm Blue Lotus Capital Advisors. “The upcoming policy regarding food delivery benefits is a major concern for Meituan’s future profits.”

Read more: Beijing’s tech crackdown lets China model the law of the land

(Updates with details from the third paragraph earnings release)

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