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.)

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Editing by Pete Sweeney and Katrina Hamlin

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