Meituan Looks to Expand E-Commerce Business. It Wants to Rival Alibaba.

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China’s premier foods shipping platform is on the lookout to use its mammoth person foundation to broaden into e-commerce and bolster its present forays as a bicycle-share chief and journey middleman. The moves occur even as it stays beneath the vise of Beijing’s regulatory grip and its income slows.

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Meituan (3690: HK) introduced its 2021 economic effects this week, demonstrating an formidable and maturing organization. Analysts remain combined on the company’s potential customers, mainly since of 3 things: the mysterious foreseeable future of Meituan’s new initiatives, China’s clampdown on tech businesses, and Covid-19.

When Meituan beat earnings and profit expectations for the fourth quarter of 2021, quantities were being down—for the quarter and for the year. Profits took a substantial hit, falling from a $737 million get for all of 2020 to a $3.7 billion reduction for 2021. Total revenues were being up 56% for the 12 months, but have however been slowing for 10 months.

“Challenges” ended up a recurring theme in the firm’s commentary accompanying its fiscal statement. “As we entered 2022, we nevertheless confront issues from Covid handle actions and a weakening use natural environment,” it mentioned. It also blamed the “macro environment and organic disasters”—all of which are in fact impediments that have sideswiped a array of sectors in China over the previous 12 months.

“We anticipate the company’s earnings to continue being underneath tension with new rules on foods shipping and delivery fee and resurgence of Covid-19,” LightStream equities analyst Shifara Samsudeen wrote in a observe this week.

Meituan did not respond to requests for comment.

But Meituan also looks to be likely headstrong into its new and present ventures. Late last 12 months, it declared a alter in its whole strategic positioning. It was shifting from “Food + Platform” to “Retail + Technologies,” it claimed in a assertion. What that mostly intended was that it would go on its thriving leadership status in foods delivery and bike-sharing, but would develop into complete-fledged e-commerce.

Meituan is properly positioned for this massive endeavor, even if level of competition is fierce. It already provides a range of 3rd-bash products and solutions from foods to retail goods, and has a growing logistics network. And through its shipping and bicycle-share services—which are readily available together with a variety of other companies in a one do-it-all app—it is by now on more than 100 million phones in China, in accordance to iiMedia Research.

Meituan’s e-commerce drive entails expanding the solutions it gives in its supply system, but also escalating both equally third-occasion suppliers and its have items. It is producing a number of spheres inside its e-commerce vertical that goal diverse consumer demands. Chinese media even described that Meituan was creating actual physical retailers, a great deal like

Alibaba Group Keeping’s (BABA) Tmall has carried out, from which drivers select up goods to be delivered.

Meituan has also just lately opened an overseas searching portal for cross-border revenue, letting Chinese people to buy goods from formulated marketplaces like the U.S. That is previously a crowded subject, on the other hand, dominated by

Alibaba’s Tmall,

JD.com (JD), and

Pinduoduo (PDD), with

NetEase’s (NTES) Kaola,

Amazon.com (AMZN), and

Suning (002024.China) having scaled-down parts, in accordance to Analysys.

Even shorter-online video apps like Douyin (China’s initial edition of TikTok) and

Kuaishou Technologies (1024.Hong Kong) have begun viewing significant earnings via sales of buyer goods obtainable by using click on throughs. But income is slowing for the 3 big e-commerce leaders, Alibaba,

JD.com, and Pinduoduo.

On an earnings contact this week, Meituan went further than noting that its massive food-shipping and delivery user foundation would give it an edge diving into e-commerce, hinting that its several e-commerce platforms would enable travel up its classic verticals.

So when it bleeds dollars, it nevertheless has the self esteem of a lot of observers.

“As we think it is realistic to preserve the companies in decline, we value the corporation by earnings. We feel earnings will rise by 29% in 2022 and 25% in 2023,” Ming Lu, Chinese equities analyst at Aequitas Study, wrote in a note this 7 days. “We conclude an upside of 20% for the yr conclude 2022, which implies a value goal of HK$160 ($20.44).”

As for the slew of new initiatives that are driving losses, Fitch Rankings explained going ahead it “expects improved self-discipline above investment decision in new businesses that do not generate financial enhancement.”

Analysts at Nomura were being much more dour, positing that draw back risks of Meituan inventory consist of “intensifying competitors from Alibaba in the two foods shipping and in-store consumption verticals, and even worse-than-envisioned effectiveness in the new initiatives” these kinds of as e-commerce.

Even though Meituan’s inventory fell Thursday, it was still up nearly 15% for the 7 days.