Meituan pared losses in Q1 as cost controls gain traction

A more “disciplined” Chinese food delivery and services platform Meituan is seeing the effects of its belt-tightening pay off as shown in its first quarter earnings results released Thursday.

Meituan’s adjusted net loss narrowed to RMB 1.04 billion (around $150.5 million) in Q1 compared with RMB 1.86 billion in the quarter ended December 31, 2018.

Improvement in the operating margin of core businesses and ongoing efforts to streamline new initiative operations were primary drivers for the smaller loss, the company said.

The company’s Q1 revenue surged 70.1% year over year to RMB 19.2 billion from RMB 11.3 billion the same period a year earlier, benefiting from strong revenue growth in major business segments like food delivery and hotel and travel services.

In an aggressive expansion initiative, Meituan entered multiple crowded industries like new retail, ride-hailing, and bike rentals last year. But new businesses weighted on profits, most notably the Mobike acquisition which contributed RMB 4.6 billion in losses for 2018 from the April transaction. The surging operating losses, which surged around six-fold in Q4 last year, sparked investor concern.

The company stated that bike rental Mobike weighed on its Q1 profit margin without disclosing specific financials. Research from equity firm China Tonghai Securities predicted that Mobike will continue to be a drag on overall profitability until 2021.

Meituan said following the release of its full year 2018 earnings that its significant investment in new initiatives in 2018 tempered its growth, and it promised that it would exercise more prudence in business strategy for businesses such as new retail and non-food delivery in 2019.

In a series of moves to wind down its expansion to non-core services, Meituan closed its Ella supermarkets, a rival to Alibaba’s new retail store Hema, in lower-tier cities, downsized Mobike’s overseas operations, and cut back subsidies for its ride-hailing business.

Meituan’s food delivery service comprises 64.6% of China’s online food delivery market, while Alibaba’s Ele.me and Star.Ele, formerly Baidu Waimai which Ele.me acquired in 2017, has 25.5% and 8.4% respective share in Q1 this year, according to data from research institute Data Center of China Internet.