Mobike to weigh on profitability at Meituan until 2021: Report

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Image credit: Meituan-Dianping 

Mobike, the bike-rental arm of Chinese food delivery and services platform Meituan-Dianping, will continue to be loss-making through to 2021 and be a drag on overall company profitability, a recent research report from equity firm China Tonghai Securities said.

The bike rental-subsidiary, which the company acquired for RMB 18.1 billion ($2.7 billion) in April 2018, contributed RMB 4.6 billion, or over half of the company’s adjusted net losses in 2018.

In addition to these persistent bike-rental related losses, mounting competitive pressures in its core food delivery segment, as well as tightening margins caused by cost overruns, mean it will take longer for Meituan to turn its fortunes around, the report added.

Fiercer competition from Ele.me is going to worsen Meituan’s position, analyst Esme Pau, who co-authored the report, told TechNode in an emailed interview. Ele.me CEO Wang Lei announced in 2018 the company’s strategy to raise its market share to 50% from 35% in 2018.

Meituan is essentially a price-taker in its core food delivery business, given that merchants and users are price-sensitive, the March 19 report said.

Meituan relies on subsidies and incentives to retain users and merchants. The turning point would be when Meituan acquires price-setting power in a monopoly or duopoly market, which in Pau’s view, would not occur this year given Ele.me’s determination to grab market share.

Around 85% of food delivery users have a habit of comparing price on different platforms before placing an order, according to a 2018 survey by consultancy ZPartners.

In its 2018 financial report, Meituan promised to take a more prudent approach in the exploration of new opportunities in 2019.

Given the circumstances, Pau said Meituan’s best short-term strategy would be to direct the user traffic on the company’s apps to other profit-making business such as its online hotel and travel-booking services in order to break even at the company level.