TMTPOST --   The American   depository   receipts ( ADRs )   of Meituan    traded on the over-the-counter   ( OTC )   market   in the U.S.   closed   9.7%   lower on Wednesday   after the   Chinese food   delivery giant   posted steeper-than-anticipated   decline   in profit, fueling investors ’   concerns over   its profitability   and   ability to maintain market   dominance amid   harsh   price war in   homeland market.

Credit：Freepik

Meituan   reported profit   of RMB365.3 million   ( $51 million )   for the quarter ended June 30, representing a year-over-year   ( YoY )   fall of   96.8%. That   was much worse than   analysts estimated profit of   RMB70.7 billion polled   by LSEG, while the   company   recorded   a YoY 87.3% increase in profit three months ago.   Operating profit   shed 98% YoY to RMB226.35 million   after   a gain of 12.2%   for the previous quarter. On non-IFRS basis, adjusted net   profit slumped   89% YoY to   RMB14.93   billion, also   missing expected RMB9.85 billion.

Meituan ’ s top line for the second quarter   slowed down.   Revenue climbed   11.7%   YoY   to RMB91.84 billion,   falling   short of estimated RMB93.6 billion.   The January to March period saw   the revenue rose 18.1%   YoY. Meituan ’ s   cash   cow--   Core   Local Commerce   including food delivery generated RMB65.3 billion   with a   7.7% YoY increase,   compared with a   17.8%   rise for the preceding quarter. Operating profit of the segment plunged 75.6%   YoY to RMB3.7 billion,   and operating margin dropped 19.4 percentage points YoY   to 5.7%,   after a   39.1% YoY increase in profit with   a margin of 21.0%   fo the March quarter.

Meituan ’ s New Initiatives in part   offset its revenue slowdown.   Revenue from the segment jumped 22.8%   YoY   to RMB26.5 billion   after   a   rise   of 19.2%   for   the first quarter. Operating loss for the   segment widened 43.1% YoY to RMB1.9 billion,   while operating margin improved 3.1% sequentially to negative 7.1%.   In comparison, the segment recorded a margin of negative 10.2%   and   operating loss of RMB2.3 billion, narrowing   17.5% YoY.

The plunge in bottom line highlighted the profit squeeze as the intense price war   in China bites.   Meituan attributed the deep decline in operating profit   to "the   irrational competition"   in   the food   delivery sector.  

"China ’ s food delivery sector has entered a full-scale delivery war ... this is a battle Meituan cannot afford to lose," commented   ThirdBridge analyst Jamie Chen."Subsidy intensity is expected to ease gradually after the third quarter before platforms shift their focus to unit economic discipline next year."

Meituan CEO Wang Xing   at an earnings   call   acknowledged headwind   due   to the severe   competition   while pledging to defend   its market   leadership.   "We firmly oppose the current competitive dynamic, and regulators have made it very clear that they do not want such   competition like   rat race   in the market. However, if competition continues to intensify and become more intense, we will do our utmost to defend our market position,"   Wang told analysts.  

Wang   said   the industry "entered a new phase of intense competition"   in the second quarter, but no matter   what happens   in the market   or   amid the competition,   Meituan   will "focus   on doing the right thing and getting back to the basics, which is providing a better selection, making sure we can offer   quick   and reliable   delivery   and prices that are always affordable."

Meituan, Alibaba Group Holding Ltd., and JD.com Inc. in late July vowed to curb disorderly competition but the price-based rivalry seems not cease at any time soon.  

"We   expect   there will be continued fierce competition in the near term, and that will   bring negative   impact on our   financial results,"   said Chief Financial   Officer   Chen   Shaohui   on Wednesday.   He also   said Meituan   sees   "significant   loss"   for its Core Local Commerce in the third quarter.