November 23, 2018 / 4:30 AM / 22 days ago

China's Meituan Dianping shares dive as rising costs inflate losses

HONG KONG/SHANGHAI (Reuters) - Meituan Dianping’s (3690.HK) share price plunged on Friday after the Chinese online food delivery-to-ticketing firm reported a far wider quarterly operating loss amid a costly battle with rivals including Alibaba-backed Ele.me.

FILE PHOTO: The management team of China's Meituan Dianping, an online food delivery-to-ticketing services platform, attends a news conference on its IPO in Hong Kong, China September 6, 2018. REUTERS/Bobby Yip/File Photo

The firm, which operates a “super app” of services and is backed by tech giant Tencent Holdings Ltd (0700.HK), saw its stock fall as much as 14.4 percent and was heading for its worst trading day since raising $4.2 billion in a September IPO.

The stock was at HK$54.40 in late morning trade, down 11 percent, compared with a 0.4 percent decline in the benchmark Hang Seng Index .HSI.

The drop, which chopped off more than $4 billion from the Meituan Dianping’s market valuation, underscores the challenges of a company up against the clout of Alibaba Group Holding Ltd (BABA.N) and Japan’s SoftBank Group Corp (9984.T), which has invested in ride-hailing-cum-delivery firm Didi Chuxing.

“These companies are in an all-out blitz for market share - profitability only comes after one has consolidated its share of the market,” said Don Zhao, co-founder of Shenzhen-based e-commerce consultancy Azoya.

Meituan said late on Thursday its operating loss in the three months to Sept. 30 tripled to 3.45 billion yuan ($497.12 million) - though revenue rose 97.2 percent to 19.08 billion yuan.

Overall gross transaction volume grew 40 percent in the quarter. That compared with 55.6 percent in the first half of the year.

“Transactions were up only 40 percent, which indicates that growth may be slowing down,” Zhao said. “This is why the market reacted so negatively - because investors question how much longer the company can sustain growth and whether or not it’s willing to shift its focus to profitability.”

Net loss soared to 83.30 billion yuan from a loss of 4.4 billion yuan in the same period a year earlier, which the firm attributed to changes in the fair value of convertible redeemable preferred shares.

Meituan Dianping, which makes most of its revenue from food delivery, said increased costs for payment processing and delivery riders had contributed to its losses.

It also owns bike-sharing firm Mobike, which it bought in April for a reported $2.7 billion. In an earnings call, Meituan Dianping Vice President Shaohui Chen said the firm would reduce its number of bicycles to address “extensive supply in the market”.

The losses comes as China’s tech scene is being roiled by concerns the heady days of growth that saw firms like Alibaba and Tencent double in value over the past few years may be over, hammering tech shares, including those of new IPO entrants.

Meituan Dianping now has a market valuation of around $38.5 billion, having seen its shares drop 25 percent since listing amid cooler economic growth and a biting trade war between China and the United States which has sapped investor confidence.

Reporting by Josh Horwitz in HONG KONG and Adam Jourdan in SHANGHAI; Editing by Christopher Cushing

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