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Meituan’s Revenue Slows in Latest Sign of China Crackdown Toll

(Bloomberg) -- Meituan’s revenue slowed for the third straight quarter after weakening Chinese consumer spending and regulatory pressures constrained its online food and travel businesses.

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The food delivery behemoth’s net loss for the December quarter totaled 5.3 billion yuan ($830 million), versus the 7.2 billion yuan projected. Revenue rose 31%, the slowest in more than a year, to 49.5 billion yuan.

Meituan’s results reflect the challenges ahead for the company backed by Tencent Holdings Ltd., which is grappling with regulatory scrutiny in areas from the welfare of its delivery riders to the commissions it charges restaurants. Fierce competition with Alibaba Group Holding Ltd.’s food delivery platform Ele.me as well as sporadic Covid-Zero lockdowns will also take a toll on the company’s financials.

Meituan and its rivals now have to embrace a new normal of slower growth as Beijing’s tech crackdown reins in the once-unchecked expansion of the country’s tech sector. Alibaba, Tencent and Pinduoduo Inc. all reported the slowest revenue growth since their initial public offerings during the same quarter.

What Bloomberg Intelligence Says

A steady rise in food delivery demand on mainland China, particularly amid lingering Covid-19 concerns among the population, could have resulted in economies of scale which lowered average order costs and lifted the business unit’s profitability during October-December vs. the same period a year earlier. Such gains may reverse in the March quarter as Meituan reduces delivery fees for restaurants and spends more on incentives for end-users to help lift these catering entities’ online revenue.

- Catherine Lim, analyst

Click here for the research.

Beyond regulatory and macroeconomic headwinds, Meituan and its rivals are also under pressure to do their bit to share the wealth in Xi Jinping’s “common prosperity” drive, and alleviate widespread pain as China battles several Covid outbreaks. In February, the government issued a call to aid the ailing service industry, asking food delivery platforms to cut the fees they charge restaurants -- wiping $26 billion off Meituan’s value in a single day. Meituan’s stock is now down 40% in 2022.

Meituan said on March 1 that it would reduce its technology service fee by 50%, capping it at 1 yuan, or 16¢, for merchants in pandemic-hit regions if their daily average user transaction volume has fallen more than 30%. Ele.me, the second-largest platform, said on March 2 that it would cut or waive commissions for merchants in areas hit by Covid for at least 15 days.

The company is keen to comply. Meituan, whose high-profile billionaire Wang Xing last year drew fire for apparently criticizing the government’s regulatory campaign, has been accused of exploiting merchants by charging high commissions and forcing them to sign exclusive contracts. It disputes such criticism but began to make changes when China’s top market regulator made it the target of an antitrust investigation in April 2021.

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