Chinese delivery giant Meituan recently generated an appetizing profit for investors, but will it be able to maintain that momentum?
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In the third quarter, Meituan’s core business of food delivery and newer commercial ventures performed better-than-expected, despite tough Covid lockdowns and weak consumer demand. In its seventh straight quarter of losses, the company was able to turn a profit by tightening cost controls and growing revenues.
As of September 30, total revenue was CNY 62.62 billion (USD 8.89 billion), up just over 28 percent from the past quarter. A closer look at Meituan’s two main divisions reveal more about the dynamics at play: the company’s core local commerce pursuit – food delivery and shopping platforms, and its new ventures, e.g. Meituan Select.
Over the past year, core business revenues have increased almost 25 percent to CNY 46.33 billion, resulting in operating profits of CNY 9.32 billion, more than double year-earlier levels.
Additionally, the operating profit margin increased to 20.1 percent. The increase was attributed to increased profitability in the food delivery business and Meituan Instashopping, as well as lower expenses in the hospitality and tourism businesses.
New businesses that have dragged down earnings since 2020 also saw revenues rise. In the third quarter, this business category raked in CNY 16.29 billion in revenues, up nearly 40 percent from last year. The company reported an almost third reduction in its operating loss, with efficiencies in its retail and grocery businesses to thank.
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A quarter ago, the company reported a loss of more than ten billion yuan due to a lack of cash from its new business. This quarter, it reported a profit of nearly CNY 1.22 billion, compared to a loss of nearly CNY 10 billion last year. Operating profit margins returned to positive territory at 1.6 percent, from minus 20.7 percent in the prior year.