(Bloomberg) — Meituan reported revenue that beat estimates, showing how Beijing’s ongoing antitrust probe into the internet giant has yet to weigh on its growth prospects.
China’s largest food delivery platform delivered sales of 43.8 billion yuan ($6.8 billion) for the June quarter, compared with the 42.4 billion yuan average of analyst estimates. The company posted a third straight quarterly net loss of 3.4 billion yuan.
Wang Xing’s internet behemoth is facing fines of roughly $1 billion as part of an investigation by the antitrust watchdog into alleged violations such as forced exclusivity arrangements, Bloomberg News reported this month. Launched days after rival Alibaba Group Holding Ltd. was slapped with a record fine in April, the probe thrust Meituan into the spotlight and marked the expansion of Beijing’s campaign to rein in its technology giants.
Since then, Meituan and its peers have come under sustained fire from regulators for a slew of perceived offenses, ranging from the plight of low-income gig workers to their handling of data security. Despite a pledge by the company to provide insurance for its delivery force, 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 colossus Tencent Holdings Ltd. — has shed about $160 billion in market value since its February high, shedding roughly half its value. Its industry, which relies on an army of blue-collar works 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 and described how it set up charity programs to help its hundreds of thousands of delivery drivers, promising to pay closer attention to their welfare and needs.
“The company is not able to predict the status or the results of the investigation at this stage,” Meituan said in its exchange filing. It “could be required to make changes to its business practices and/or be subject to a significant amount of fines.”
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China’s crackdown campaign has intensified in recent weeks along with a sustained assault on consumer internet firms, with agencies vowing to step up tax enforcement, crack down on labor abuses and take action against “fan culture” in the entertainment industry.
The measures have roiled markets, with a measure of price swings in Chinese shares soaring last week to the highest level in 16 months. Citigroup this month cut their share price target for Meituan by 19%.
Read more: Meituan Sheds $60 Billion After China Crackdown Fears Deepen
Even as regulatory scrutiny intensified, Wang’s firm has splashed out on newer businesses including community commerce, an arena that took off during the pandemic. The company, which had 628.4 million annual transacting users in the June quarter, is counting on its Meituan Select division to help it reach a target of adding as many as 400 million over the next few years.
“Our base case scenario assumes it might take ~5 years to fully implement the potential increase on rider cost,” Citigroup analyst Alicia Yap wrote in a note this month. “While there remain regulatory overhang and financial impacts uncertainty near term, we believe our positive thesis on Meituan for its local services super-app position remains intact and believe Meituan will navigate through the challenges and transform into a reputable and prevailing local service gateway company.”
But competition in the community group buying industry has been stiff. In recent months, several smaller operators have folded or run into trouble, unable to compete with the heavy investments by giants like Meituan, Alibaba and Didi Global Inc. Alibaba this year reorganized its Ele.me food delivery app, Koubei local commerce platform as well as mapping and online travel business into a new lifestyle services division, in a bid to challenge Meituan’s dominance in those sectors.
Meituan and its peers have in recent months announced major philanthropic projects, heeding Beijing’s call to redistribute wealth. In the latest example, Pinduoduo Inc., an e-commerce company known for giving big discounts to customers when they buy produce together, said it will donate all of its first net profit since going public to support the country’s farmers and agricultural areas. In June, Wang pledged $2.3 billion of shares toward education and science, aligning himself with nationwide priorities in speeding technological innovation.
“Regulatory risks facing the company persist. We have to wait and see what would happen next,” said Shawn Yang, a tech analyst with market research firm Blue Lotus Capital Advisors. “The upcoming policy related to food deliverymen’s benefits is a key concern for Meituan’s earnings power moving forward.”
Read more: Beijing’s Tech Crackdown Makes China Model the Law of the Land
(Updates with details from the earnings release from the third paragraph)
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