Meituan Dianping Shares Slip after Huge Operating Loss

Meituan Dianping’s share price plunged on Friday after the Chinese online food delivery-to-ticketing firm reported a far wider quarterly operating loss amid a costly battle with competitors including Alibaba-backed Ele.me.

The company, which operates a “super app” of services and is backed by tech giant Tencent Holding Ltd, saw its stock slip as much as 14.4 percent and was heading for its worst trading day since raising $4.2 billion in September IPO.

The stock was at HK$54.40 in late morning trade, lower 11 percent, compared with a 0.4 percent decline in the benchmark Hang Seng Index.

The drop, which swiped away more than $4 billion from Meituan Dianping’s market valuation, highlights the challenges of a company up against the clout of Alibaba Group Holding Ltd and Japan’s Softbank Group Corp, which has invested in ride-hailing-slash-delivery firm Didi Chuxing.

“These companies are in an all-out blitz for market share – profitability only comes after one has consolidated its share of the market,” stated Don Zhao, who is the co-founder of Shenzhen-based e-commerce consultancy Azoya.

Meituan said late on Thursday that its operating loss in the three months to September 30 tripled to 3.45 billion yuan, or $497.12 million, though revenue rose 97.2 percent to 19.08 billion yuan.

Overall gross transaction volume rose 40 percent in the quarter. That compared with 55.6 percent in the first half of the year.

“Transactions were up only 40 percent, which indicate that growth may be slowing down,” said Zhao. “This is why the market reacted so negatively – because investors question how much longer the company can sustain growth and whether or not it’s willing to shift its focus to profitability.”

Net loss soared to 83.30 billion yuan from a loss of 4.4 billion yuan in the same period a year earlier, which the firm attributed to changes in the fair value of convertible redeemable preferred shares.

Meituan Dianping, which gets most of its revenue from food delivery, said that increased costs for payment processing and delivery riders had contributed to its losses.

It also owns bike-sharing firm Mobike, which it purchased in April for a reported $2.7 billion. During an earnings call, Meituan Dianping Vice President Shaohui Chen said that the firm would reduce its number of bicycles to address “extensive supply in the market.”

The losses come as China’s tech industry is being embroiled by concerns the heady days of growth that saw firm like Alibaba and Tencent double in value over the past few years may be over, pounding tech shares, including those of new IPO entrants.

The company now has a market valuation of around $38.5 billion, having witnessed its shares up 25 percent since listing amid cooler economic growth and a biting trade war between China and the United States which has dampened investor confidence.

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