(Bloomberg) -- Meituan’s revenue jumped a faster-than-anticipated 27% after a gradually stabilizing Chinese economy drove meal delivery and travel nationwide.
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Operating profit in its core commerce business more than doubled, while room nights booked during the key Lunar New Year holiday travel season jumped over 40%. That helped Meituan’s results beat estimates. Sales rose to 58.6 billion yuan ($8.3 billion) in the quarter ended March, against an average projection for 57.5 billion yuan.
Like many of its internet peers, Meituan benefited from heightened consumer spending on meals, travel and tickets after China’s post-Covid reopening. But the bounce-back remains uneven, with pockets of the economy falling short of initial expectations for resurgent growth. Official data last week showed retail sales grew at a much slower pace than expected in April.
“Going ahead to the second quarter, we will continue to ride consumption recovering,” Meituan founder Wang Xing told analysts on a conference call. “We remain confident in the long term growth and the long term operating margin of our in-store, hotel and travel business.”
That rebound is complicated by new entrants on Meituan’s turf such as ByteDance Ltd. ByteDance’s Douyin — TikTok’s cousin in China — is testing a grocery and food delivery service in Beijing, Shanghai and Chengdu and is looking to gain ground against both Meituan and No. 2 Ele.me, owned by Alibaba Group Holding Ltd.
Read more: Meituan Debuts in Hong Kong Monday in First Overseas Step
What Bloomberg Intelligence Says
Meituan’s on-demand deliveries could beat consensus expectations for 2023 profitability after posting stronger-than-expected growth in non-food transactions in 1Q. The firm’s Instashopping transactions rose 35% year-over-year vs. 14% in 4Q, and an expansion of the segment through December should help generate more savings from economies of scale as well as lift margins, we believe. Analysts expect a one-percentage-point drop in the segment’s 2023 profitability.
- Catherine Lim and Trini Tan, analysts
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Meituan is fending off rivals in part by hiring aggressively to keep its lead in the $145 billion Chinese food arena. It reported net income of 3.36 billion yuan, compared with estimates of a 210.4 million yuan loss. That was partly boosted by a gain of more than 1.3 billion yuan on treasury investments.
And this month, the company launch a sister app in Hong Kong on Monday, taking the world’s largest food delivery service beyond mainland China for the first time. In doing so, it will seek to challenge the likes of Deliveroo Plc and Delivery Hero SE’s Foodpanda. It will rely on a familiar subsidy-heavy strategy to draw in users and delivery people alike, distributing HK$1 billion ($128 million) of user incentives in the city with each newly registered user getting a coupon package valued at HK$300.
The company’s longer-term prospects hinge on its ability to navigate demand swings in a post-pandemic market and its success in new arenas and overseas, as longstanding backer Tencent Holdings Ltd. unwinds its shareholding.
(Updates with comments from the fifth paragraph)
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