Shares of Meituan, the Chinese food delivery giant, dropped 5% on Friday following a warning from CEO Wang Xing of a downtick in volume during the third quarter. Wang noted on the latest earnings call that such a slowdown was to be expected given the company's exposure to macroeconomic factors and inclement weather. "For our food delivery, we anticipate a decrease in Q3 volume yet it will be steadier than other consuming-related industries. We have encountered certain short-term hindrances stemming from the macro economy and tough weather conditions," Wang revealed to analysts.
Meituan's Hong Kong-listed shares saw a decrease of more than 5% on Friday following CEO Wang Xing's warning of a potential slowdown in the food delivery segment for the following quarter. During the earnings call on Thursday, Wang specified: "For our food delivery, we expect third quarter volume to decelerate, but still display more resistance compared to other sectors related to consumption." The firm posted strong second-quarter figures on the same day. Revenue for the period was recorded as 67.96 billion Chinese yuan ($9.33 billion), indicating a rise of 33.4% year-over-year from 50.93 billion yuan. Additionally, Meituan turned to profit with 4.69 billion Chinese yuan for the second quarter, compared to a loss of 1.11 billion Chinese yuan in the prior year. Wang commented: "We have observed some temporary headwinds as a result of macroeconomic issues and extreme weather conditions." Overwhelming downpours and Typhoon Doksuri had an effect on certain areas, including Beijing, Tianjin, the provinces of Hebei, Shanxi, and Henan.
Wang noted that extreme weather had caused difficulties for businesses, with many merchants suspending operations while customers stocked up on packaged food in lieu of fresh food delivery. In some cities, food delivery was even suspended for safety reasons.
Meituan presently holds nearly 70% of the Chinese food delivery market, according to a 2022 report. Additionally, the tech firm provides a variety of services, including ride-hailing, on-demand delivery, hotel and travel booking, movie ticketing, entertainment and lifestyle services.
Xiaolin Chen, head of international at KraneShares, is optimistic about Meituan's performance. The investment firm is forecasting a price target of 205 Hong Kong dollars ($26.14) for the stock, which reflects an increase of 35.2% from the current level of HK$132.80.
Chen noted that they had achieved a considerable level of market share during the pandemic; they successfully concentrated on less prominent cities and he believes this kind of market share could be sustained. Wang added that as the economy starts to recuperate, it is likely that individuals will choose to dine out more, which could reduce the demand for food delivery services. In the third quarter, the traffic and desire to travel has been quickly recovering; people's longing to spend time offline is gradually being fulfilled and this could temporarily put pressure on food delivery sales as people go out more.
Fitch Ratings still anticipates a 5.6% GDP expansion for China in 2023, slightly exceeding the nation's estimated 5% goal. Meituan's CEO recently expressed his optimism concerning the future development of their food delivery business, notwithstanding a momentary drop in orders in Q3 2020. Wang commented that this decline is principally due to external factors, and they plan to invigorate their product and operational strategies to catch up with demand and expedite the recovery. Meituan has also been initiating the implementation of autonomous delivery vehicles in various scenarios, teaming up with self-driving car firm Pony.ai for this purpose.
Chen asserted that utilizing artificial intelligence technology for food delivery is paramount to "taking costs and services up a notch for our customers." Wang voiced that they intend to rely on both their own findings and external capital to investigate the application of AI and self-governing delivery as well as other innovative advancements. Last month, Meituan launched a counterpart app in Hong Kong, as it ventures to seek out new territories beyond China Proper.
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