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Meituan Surges to Highest Since IPO After Surprise Profit

Lulu Yilun Chen

(Bloomberg) -- Shares in Meituan Dianping surged the most in five months, hitting the highest price since its initial public offering after the Chinese internet giant posted its first quarterly profit last week.

The stock jumped 8.9% to close at HK$76.20 on Monday in Hong Kong, becoming the second biggest gainer on the MSCI China Index. Meituan went public at HK$69 a share in September 2018 and has spent most of the intervening months below that level.

Meituan recorded a net income of 877.4 million yuan ($124 million) compared with the 1.57 billion yuan loss analysts projected on average, after it grabbed market share from rivals like Alibaba Group Holding Ltd. in food delivery. The company however got help from one-time investment gains, such as in wealth management products. Revenue rose 51% to 22.7 billion yuan, compared with the 21.9 billion yuan mean estimate.

Hard-charging billionaire founder Wang Xing is waging a take-no-prisoners battle of subsidies with Alibaba for China’s $1.3 trillion online services industry, which includes food delivery. Meituan’s expenses have soared, though it’s trying to control costs by putting the brakes on investment in loss-making areas such as bike sharing and ride hailing.

Meituan Earns Its Way Into Amazon’s Virtuous Circle: Tim Culpan

Advances made against Alibaba however have helped the company become China’s third largest publicly traded tech company. It’s overtaken search engine Baidu Inc. and e-commerce platform JD.com Inc. in capitalization after gaining 59% this year. Backed by WeChat-operator Tencent Holdings Ltd., Meituan could have gained another 2 percentage points of food-delivery market share versus its rivals, reaching 36% in the second quarter, according to Bernstein.

“Food delivery business achieved positive adjusted operating profit due to favorable seasonality and improved economies of scale,” Jefferies analysts Thomas Chong and Ken Chong wrote.

For now, Meituan is focusing on its bread-and-butter business of dining, expanding up the value chain to help restaurants manage their back-end systems. Longer-term, Wang envisions a super-app modeled on WeChat, extending a raft of everyday services to an increasingly wealthy populace.

Read more: The Greatest Delivery Empire on Earth Has Alibaba’s Attention

Here are a few highlights from its quarterly results:

Food delivery revenue rose 44%In-store, hotel booking and travel business revenue rose 43%Gross transaction volumes climbed 29% to 159.2 billion yuanAnnual active merchants grew 16% to 5.9 million in the year ended June 30Company will continue to prioritize revenue over profit, and accelerate investment in marketing channels, allocate more resources to membership programs to increase active users.

(Updates with share moves from the second paragraph)

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Colum Murphy, Peter Elstrom

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