Wang Xing, the founder of Chinese food-delivery giant Meituan, has seen his wealth plunge by a whopping $6.6 billion this year, as the Beijing-based company struggles to find faster growth amid lackluster consumption and heightened competition.
The 44-year-old mogul still has a sizeable net worth of $9.3 billion, according to Forbes’ real-time tracker, but he is having trouble convincing investors skeptical of the firm’s future outlook. Shares of the Hong Kong-listed Meituan have plummeted about 50% since January – including diving as much as 12% on Wednesday after it announced third quarter results — as growth may further lose steam this year and spending has to be increased to fend off competitors.
“We think investors have concerns about decelerating growth outlook owing to macro headwinds, competition, and end of Covid lockdown benefits,” says Tommy Wang, a Hong Kong-based analyst at China Merchants Securities.
Wang the analyst (no relation to Wang Xing) is referring to the fourth quarter of 2022, when China still had quarantine measures in place. Stringent stay-at-home rules drove many consumers to food-delivery platforms such as Meituan, setting a high base for comparison.
The company itself made a similar assessment. Deliveries are likely to decline in the final quarter of 2023, compared with the same period last year, Chief Financial Officer Chen Shaohui said during a Tuesday analyst call. Management also pointed to other reasons, including weather for the slowdown, explaining that a warmer winter has led consumers to dine out more instead of relying on food delivery.
Competition is also biting Meituan hard. Douyin, the Chinese version of short video platform TikTok, is seeking to expand into local services – including dining and meal deliveries – by doling out coupons and posting promotional videos of various restaurants. This has forced Meituan to increase its own subsidy spending, which has been weighing on margins.
In the third quarter, for example, operating margin for its bread-and-butter local commerce business – which includes hotels and food deliveries —dropped to 17.5% from 20.1% seen a year earlier. Overall, revenues increased 22.1% year-on-year to 76.5 billion yuan ($10.8 billion) while profit almost tripled to $509 million.
But Meituan Select, its community group-buying unit and part of the newer business initiatives, is still incurring heavy losses of more than $707.5 million per quarter for the last two to three years, with uncertainties around whether it can break even, says Kai Wang, a Hong Kong-based senior equity analyst at research firm Morningstar.
“Management is trying to use AI, live streaming, and also other niche products to try to drum up greater demand but at this point it does not seem to have much effect,” says Wang. “Our current model suggests that while orders will still grow, its likely to decelerate in the short term. ”
Meituan’s Wang, in the meantime, is leading the company outside mainland China. It May, it launched Keeta, a new food-delivery brand in Hong Kong, as the firm searches for fresh growth.
But some analysts think it will be hard for Meituan to replicate its success at home, as higher labor costs and less frequent use of digital payments mean consumers elsewhere may not order meal deliveries as often. Eric Wen, founder and chief executive of research firm Blue Lotus Capital Advisors, says it might work better for Meituan to acquire a rival food delivery firm if it wants to establish a foothold internationally.
The Chinese giant is reportedly in negotiations to acquire Delivery Hero’s business in Southeast Asia, but a deal hasn’t been announced so far. “Acquisition seems like something they must do, or it will be very hard for them to enter a foreign market,” says Wen. He also notes that there aren’t many suitable targets and the price might come off as quite expensive.
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