Operating losses at Chinese food delivery and services platform Meituan-Dianping surged 57% year-on-year to RMB 3.7 billion (around $557 million) in the fourth quarter of last year, amid rising costs for its core food delivery business and as a foray into shared bikes via Mobike took its toll.
While the company’s overall revenues almost doubled compared with the same period in 2017, food delivery revenue slumped in the fourth quarter, declining 1.5% quarter-on-quarter due to broader macroeconomic pressure and growing competition, according to the financial statement from Meituan.
The cost of food delivery in the December quarter increased 53.6% year-on-year to RMB 9.5 billion, which management attributed to the mounting salary costs for its delivery fleet.
In February, Meituan delivery drivers went on strike in several major cities across the country, with Chinese media reporting that conflicts become violent at times. The company denied any link between narrowing profits and striking delivery staff.
Tencent-backed Meituan expanded its services in 2018 to include ride-hailing and bike-sharing, boosting annual active users 29.3% to more than 400 million in 2018 compared with 2017. But the new businesses weighed on profits: Bike-rental subsidiary Mobike contributed RMB 4.6 billion in losses for the year since its acquisition in April.
“We can conclude fairly safely that Mobike has been a disaster for [Meituan] in every sense of the word,” said Michael Norris, strategy and research manager of AgencyChina and TechNode contributor. “Sooner or later, someone at Meituan will have to make the call as to whether or not the company should persist with its transportation play.”
On Friday, 15 full-time employees in Singapore, Malaysia, Thailand, India and Australia were given notice, while many more contract and third-party workers were reportedly affected by the layoffs. Meituan later denied that the closures are part of a broader move to withdraw from international markets.
Revenue from Meituan’s hotel booking and travel business—another key pillar for the company—increased to RMB 15.8 billion in 2018 from RMB 10.9 billion in 2017, pushing Meituan to describe itself as the leading provider in China for domestic room night bookings, thus overtaking Ctrip, China’s biggest online travel agent.
Ctrip does not segment out its room night booking volume for domestic hotels.
In the explanation of its financials, the company stressed more than once that it would exercise prudence in certain aspects of its business strategy in 2019, including new retail opportunities for non-food delivery.
Norris, the consultant, said such sentiment is testament to a profound change in the company’s approach in just 12 months. “Last year it seemed that there was no end to the expansion opportunities for a super app such as Meituan,” he said. “Turns out there are limits. The mobility-induced blot on Meituan’s balance sheet has taught it a valuable lesson.”
With additional reporting from Colum Murphy.