Beijing leaves slim profit pickings for Meituan

Meituan delivery worker in Beijing amid COVID-19
A sign of Meituan delivery service is seen on a delivery box on a scooter, in Beijing's Central Business District, China July 15, 2020. REUTERS/Tingshu Wang - RC2GTH94Y89C

HONG KONG, Feb 18 (Reuters Breakingviews) - China's Meituan (3690.HK) just can't catch a break. Investors deducted $28 billion in market value from the company’s shares after the government on Friday unveiled new measures aimed at helping service sectors like retail and catering, which will include caps on fees and commissions charged by food delivery apps. The rules are part of Beijing's efforts to prop up the country's pandemic-decimated industries.

Details have yet to be disclosed, but any limit on how much Meituan can charge restaurants will bite. The company is already spending more on driver compensation and benefits to appease regulators. At the same time, strict Covid-19 lockdowns and overall weak consumption is likely to weigh read more on order volumes.

Operating margins at Meituan's food delivery business, which accounts for over half its top line, were a razor-thin 3.3% in the three months to September. And thanks to boss Wang Xin's costly bet on online groceries, the company is expected to deliver a net loss of $2.7 billion for 2021, per analyst estimates on Refinitiv. Shareholders can brace for lean times ahead. (By Robyn Mak)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

Follow @Breakingviews on Twitter

Capital Calls - More concise insights on global finance:

Xpeng maps smart route through listings minefield read more

Continental split could accelerate value read more

Hardware chain owner struggles to go against grain read more books 996 culture a one-way ticket L1N2US033

Theme park deal rollercoaster takes downward lurch read more

Editing by Pete Sweeney and Katrina Hamlin

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.