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(Bloomberg) -- Meituan shares tumbled the most in more than a year after the Chinese company warned that growth in its main meal delivery business would slow this quarter and spending on promotions rise.
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Chief Financial Officer Chen Shaohui expects diners to take advantage of atypically warm weather to dine out, rather than order in. That prediction, based also in part on a difficult comparison with a strong late-2022 market, came after the company reported its third straight quarterly profit off slightly better-than-expected revenue.
Meituan’s US-traded shares fell 11% in New York to $24.80. Along with tech peers Alibaba Group Holding Ltd. and Tencent Holdings Ltd., Meituan has wrestled with a weak rebound in Chinese consumption after three years of strict Covid controls.
“The pace of loss narrowing for community group purchase is below investor expectations so far,” JPMorgan analyst Alex Yao wrote. “The outlook is unclear despite Chairman and CEO Wang Xing’s assurance of ‘significant loss narrowing in the future.’”
Read More: Meituan Mulls Deal for Delivery Hero’s Southeast Asia Arm
Meituan’s board authorized a buyback of up to $1 billion starting Dec. 1, but executives stressed they would assess that option based on the company’s cash position and needed cash to invest in new businesses.
“Our new initiatives are still at an investment stage,” co-founder Wang Xing told analysts on a conference call. “We are also exploring overseas opportunities.”
Mixed official data from last month showed an expansion in Chinese retail sales, but turmoil in the property market has forced Beijing to roll out sweeping measures to shore up the industry’s cash crunch.
Strong travel demand helped the food delivery giant defy slowing growth for its core business. Sales rose 22% to 76.5 billion yuan ($10.7 billion) in the quarter ended September, compared to an average projection for 76.01 billion yuan. Net income almost tripled to 3.59 billion yuan, but margins slid because of promotions.
What Bloomberg Intelligence Says
Meituan’s steeper-than-expected in-store, hotel and travel operating profit fall reflects heightened spending on promotions within this sector, particularly via live streaming and AI tools which the firm disclosed on Nov. 28. This likely contributed to the 2.6 percentage points (ppts) year-over-year fall in Meituan’s 3Q core local-commerce margin, vs. consensus’ projected 2.4 ppts drop. Marketing costs-to-sales ratio widened 4.7 ppts in 3Q from a year earlier, vs. a 3.8% jump the prior quarter.