Introduction

Shares of Meituan, a leading Chinese food delivery platform, dropped over 5% following CEO Wang Xing’s warning of a slowdown in food delivery in the next quarter. This article discusses the reasons behind the projected slowdown and its impact on the company.

Meituan recently reported strong second-quarter results, with revenue reaching 67.96 billion Chinese yuan ($9.33 billion), a 33.4% increase compared to the same period last year. The company also achieved a profit of 4.69 billion Chinese yuan, a significant improvement from the previous year’s loss of 1.11 billion Chinese yuan.

However, CEO Wang Xing acknowledged that they faced short-term challenges due to weather conditions and the macro economy. Extreme rain and flooding in certain regions, along with the impact of Typhoon Doksuri, affected food delivery operations.

Consumers’ pent-up demand for offline consumption is further released, and this will lead to a temporary squeeze on food delivery transactions as people go out more often.

According to Wang, the projected slowdown in food delivery is primarily driven by consumers’ increased preference for dining out as the economy recovers. The pent-up demand for offline consumption is being released, resulting in a temporary decrease in food delivery transactions.

Meituan currently holds almost 70% of the food delivery market share in mainland China. In addition to food delivery, the company operates various other services, including ride-hailing, on-demand delivery, hotel and travel booking, movie ticketing, and entertainment.

Xiaolin Chen, head of international at KraneShares, expressed optimism about Meituan’s future prospects. The investment firm has set a price target of 205 Hong Kong dollars ($26.14) for the stock, anticipating a 35.2% upside from the current price.

Credit rating agency Fitch Ratings predicts China’s gross domestic product (GDP) to grow by 5.6% in 2023, slightly higher than the government’s target of around 5%. This follows weak consumption growth in the previous year due to the pandemic. Despite the projected slowdown, Meituan’s CEO remains confident in the long-term growth potential of the food delivery business.

Meituan is actively exploring the use of artificial intelligence (AI) and autonomous delivery to improve costs and services for clients. The company has partnered with Pony.ai to develop unmanned vehicles for food delivery services. Additionally, Meituan recently launched a sister app in Hong Kong as part of its expansion efforts beyond mainland China.