China tech crackdown takes toll on Meituan

China tech crackdown takes toll on Meituan

Meituan reported its biggest loss in three years, weighed down by a bruising antitrust probe, an investment spurt and mounting competition from Alibaba Group Holding Ltd. None Asia s Richest Man Looks to Walton Family Playbook on Succession

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The Chinese food-delivery behemoth said on Friday that revenue for the September quarter was 48.8 billion yuan $7.6 billion in line with analysts estimates. The company incurred a 3.44 billion yuan fine for violating antitrust rules, which resulted in a net loss of almost 10 billion yuan, compared to 7 billion yuan projected. It was the steepest loss since the third quarter of 2018.

Beijing's wide-ranging tech crackdown, spanning areas from e-commerce to fintech, data security, after-school education and the gig economy, has taken a heavy toll on China's largest internet firms. Tencent Holdings Ltd. reported its slowest quarterly sales growth since becoming a public company in 2004, while Alibaba slashed its outlook for fiscal 2022 revenue. Companies are investing in new businesses, such as community e-commerce and technology, which is fuelling competition for leaders like Meituan.

In October, the antitrust regulators slapped a $530 million fine on Meituan for violating antimonopoly laws, a penalty that was smaller than some investors had expected. The company was told to improve its commissions mechanism, ensure the rights of its restaurant partners and increase protections for delivery riders.

Meituan could struggle to meet the consensus estimates for a 1.4 percentage point year-over-year gain in 4QQ Food delivery operating margin, we calculate. The 16 -- 21 bps declines in 3Q commission and monetization rates from a year earlier reflect more intense competition, particularly from Alibaba's, within the sector in mainland China. The company s ability to charge more for services will be limited because cost increases continue through December.

A vision to achieve common prosperity and redistribute wealth is being outlined by Chinese President Xi Jinping, an effort that could force tech giants like Meituan to give more concessions to its vast army of gig workers. In July, food delivery platforms were required to improve working conditions, including optimizing routes, setting reasonable delivery times, and enabling drivers to participate in social security.

The State Administration for Market Regulation published a stinging rebuke of platform companies that have been vested with community group buying, which has caused concern that the industry could become the next target of regulators. These large firms could hurt the normal development of supply chain networks, their discounting could disrupt orderly market pricing, and they could affect social stability by squeezing out small hawkers and stall owners, SAMR said.

Community e-commerce - where local agents buy groceries and small items at a bulk discount on behalf of people in neighborhoods - was Meituan's largest area of investment during the second quarter, executives told analysts in August.

In the wake of regulatory scrutiny, Meituan is moving away from its Food Platform strategy to focus on Retail Technology, according to media reports. The Chief Executive Officer Wang Xing is updating the business to focus on new drivers such as community group buying, as well as investing in new technology like autonomous vehicles and drone delivery.

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