(Bloomberg) -- Meituan’s stock gained its most in about six months after China’s meal delivery leader beat quarterly results estimates and unveiled a $1 billion buyback, positive signals for investors increasingly worried about domestic consumer malaise.
The shares climbed as much as 9.7%, the biggest intraday gain since early March. Meituan’s outperformance suggested the restaurant delivery business remained resilient, despite worries about a deepening economic downturn seeping into even low-cost arenas. It also underscored how Meituan is beating back rivals like Kuaishou Technology and ByteDance Ltd., which have joined Alibaba Group Holding Ltd. in its main market.
This week, PDD Holdings Inc. — long viewed as a beneficiary of China’s consumption downgrade — stunned markets with an unexpectedly gloomy outlook that drove home the weakness plaguing the world’s No. 2 economy. Meituan founder Wang Xing on Wednesday acknowledged “external challenges” and that consumers were turning far more price-conscious as a post-Covid recovery sputters.
But the company was also drawing more traditional merchants to its food and local services platforms and seeing “significant long-term growth potential” in e-commerce, the billionaire said.
Like PDD, Meituan is considered a more resilient model during an economic downturn. It reported a 21% rise in revenue to 82.3 billion yuan ($11.6 billion) for the June quarter, after the closely watched core local commerce segment grew a better-than-projected 19%. Adjusted net income was 13.6 billion yuan, surpassing an estimated 10.6 billion. The board also approved another $1 billion buyback.
The company’s report is “a positive validation of Meituan’s solid execution and operation efficiency in navigating through macro headwinds,” Citi analysts wrote in a post-earnings note.
Still, Wang cautioned investors against getting overly optimistic.
“Going into the second half of this year, we will keep optimizing operational efficiency, and how much loss we can cut will also depend on the total business scale, so don’t get too excited,” he told analysts during a post-earnings call. The company is exploring new formats to capture demand in the low-price segment.
Meituan’s shares were up about 25% this year, after losing more than half of their market value in 2023. The company has consistently outperformed projections on growth.
What Bloomberg Intelligence Says
Meituan’s stronger-than-expected 2Q core local commerce (CLC) margin that came in alongside the unit’s revenue beat suggest strong traction for the firm’s services that can support gains through December even if consumer sentiment stays weak in China. CLC revenue in 2Q beat consensus estimates by 1.3% with more than 3 percentage points of margin gain from a year earlier vs. projections for lower profitability.
- Catherine Lim and Trini Tan, analysts
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Investors are keeping an eye also on its international expansion — emblematic of a push by Chinese companies to seek growth abroad as competition at home intensifies. In February, Wang took direct control of the company’s overseas businesses, now centered on the Keeta app for Hong Kong.
It’s now preparing for a potential Middle East entry, which would be its first expansion beyond the China region. It’s even starting to consider the feasibility of other markets from Europe to Southeast Asia, executives said in June.
In past years, Meituan has also ramped up investments in newer initiatives such as grocery retailing, group-buying and live-streaming. It held talks with Delivery Hero SE about potentially acquiring the Foodpanda business in Southeast Asia, though those discussions fell through.
--With assistance from Mayumi Negishi and Jeanny Yu.
©2024 Bloomberg L.P.
