Meituan, the prominent player in China’s tech landscape, experienced a more than 5% decline in its Hong Kong-listed shares on Friday, following a warning from CEO Wang Xing about an impending slowdown in the food delivery sector during the next quarter.
CEO Wang stated during the earnings call on Thursday that, “For our food delivery, we expect the third quarter’s volume will slow down, but still be more resilient than other consumption-related sectors.”
Despite this cautionary outlook, Meituan reported robust second-quarter results. The company reported a revenue of 67.96 billion Chinese yuan ($9.33 billion), marking a remarkable 33.4% increase from the 50.93 billion yuan recorded in the corresponding period the previous year. A noteworthy transformation was also seen in the company’s profitability, with a profit of 4.69 billion Chinese yuan for the second quarter, a stark contrast from the loss of 1.11 billion Chinese yuan incurred a year ago.
The CEO attributed some of the short-term challenges faced by Meituan to the macroeconomic climate and extreme weather conditions. The areas of Beijing, Tianjin, and several provinces, including Hebei, Shanxi, and Henan, were struck by intense rain in July, leading to extensive flooding. The impact of Typhoon Doksuri further exacerbated the situation.
Wang elaborated, “Extreme weather brings challenges to our business. Many merchants had to suspend their business, while consumers chose to stock packaged food instead of ordering fresh food delivery. In some cities, food delivery was even suspended in order to ensure safety.”
Notably, Meituan is a dominant force in China’s food delivery sector, holding an impressive 70% market share on the mainland, as highlighted in a 2022 report.
Beyond its food delivery stronghold, Meituan’s tech portfolio encompasses diverse services such as ride-hailing, on-demand delivery, hotel and travel booking, movie ticketing, and a range of entertainment and lifestyle offerings.
Xiaolin Chen, the head of international at KraneShares, expressed optimism about Meituan’s trajectory. With a target price of 205 Hong Kong dollars ($26.14) for the stock, indicating a 35.2% potential upside from the current HK$132.80 price, Chen emphasized Meituan’s strategic gains during the pandemic, particularly in lower tier cities.
Wang anticipated that as the economy rebounds, consumers would likely opt for dining out more frequently, potentially reducing the demand for food delivery. He observed, “So far in the third quarter, offline traffic and travel demand continue to recover rapidly. Consumers’ pent-up demand for offline consumption is further released, and this will lead to a temporary squeeze on food delivery transactions as people go out more often.”
Meituan remains focused on long-term growth prospects for its food delivery business. Wang affirmed, “We will continue to activate our product and operational strategy to better capture the demand and stimulate the recovery.”
The company is also actively exploring technological advancements, including deploying autonomous delivery vehicles in various scenarios. Wang highlighted the partnership with Chinese self-driving car firm Pony.ai for building unmanned vehicles tailored for food delivery services.
Wang concluded by emphasizing the strategic integration of AI and autonomous delivery technologies, stating, “We will leverage our proprietary research and external investment to explore the use of AI and autonomous delivery and other cutting edge technologies.”
Meituan’s recent expansion beyond mainland China includes the launch of a sister app in Hong Kong, reflecting the company’s forward-looking approach to exploring new markets.
In a market marked by both challenges and opportunities, Meituan’s ability to navigate and innovate is poised to define its trajectory in the tech landscape for the foreseeable future.
Paul Balo is the founder of TechBooky and a highly skilled wireless communications professional with a strong background in cloud computing, offering extensive experience in designing, implementing, and managing wireless communication systems.
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