Instant Commerce War Takes A Toll On Meituan

China's leading online-to-offline services company said it expects to report a loss of up to 24.3 billion yuan for 2025, translating to a fourth-quarter loss of about 15.7 billion yuan Key Takeaways: Meituan lost more than $2 billion in the fourth quarter, though the figure represented an improvement from its $2.7 billion third-quarter loss China's market regulator called in Meituan, Alibaba and JD.com for a meeting last week to try and tamp down their overheated competition in the emerging instant commerce field There's not much positive you can say about a 15.7 billion yuan ($2.3 billion) loss, which is roughly what online-to-offline (O2O) services leader Meituan (OTC:MPNGY) (OTC:MPNGF) (3690.HK) recorded in the fourth quarter, based on a profit warning issued by the company last Friday. The only slight positive we can see is that the latest loss represents a slight improvement over the third quarter, when the company lost an even larger 18.6 billion yuan. That means perhaps the bad times at Meituan have bottomed out, as the company remains locked in a turf war in China's emerging instant commerce sector with e-commerce juggernauts Alibaba (NYSE:BABA) (9988.HK) and JD.com (NASDAQ:JD) (9618.HK). That war has lasted nearly a year, kicked off when Alibaba and JD.com both made nearly simultaneous new moves into the space last spring. China's market regulator has stepped in repeatedly to try and ease the competition, which has seen all three companies spend billions of dollars on subsidies for both consumers and retailers and restaurants to try and get them to do more business on their platforms. Signals coming from some of those merchants last fall seemed to indicate that Alibaba, JD.com and Meituan were indeed scaling back their cutthroat ways, perhaps explaining the slight improvement on Meituan's bottom line in the fourth quarter. But lest anyone think the war has ended, the State Administration for Market Regulation (SAMR) called in six major internet companies just last week for yet another round of knuckle-rapping over excessive competition, according to numerous media reports. In addition to Meituan, Alibaba and JD.com, others called in for the latest dressing-down included Tencent, Baidu and Douyin, the Chinese version of TikTok. That seems to show there's still plenty of competition occurring in this space, and it's unclear who will back down first. Meituan is the most vulnerable in this war since the instant commerce services at the heart of the battle are one of its core businesses, unlike Alibaba and JD.com, whose main revenue source is their online marketplaces. In a sign of the times, instant commerce services, called "delivery services" in Meituan's financial reports, slipped from its biggest revenue source to the third biggest in last year's third quarter. According to its profit warning, issued on Friday, Meituan expects to report a net loss of between 23.3 billion yuan and 24.3 billion yuan for all of last year, reversing a 35.8 billion yuan profit a year earlier. That represents a remarkable swing of about 60 billion yuan, or around $8.6 billion, in just the space of a year, showing just how intense the latest price war has been. Some number crunching shows that the midpoint of the forecast loss range translates to the 15.7 billion fourth-quarter loss we previously mentioned, easing from the even bigger 18.6 billion loss in the third quarter. The company was still profitable in last year's second quarter, though barely, with a 365 million yuan profit for that period, down 97% year-on-year. The price war has taken a toll on Meituan's stock, which has lost about half of its value over the last 52 weeks. By comparison, JD.com's stock is also down about 30%, though Alibaba's shares are actually up about 30% over that time. ‘Unprecedented' competition Meituan was quite direct in explaining its huge reversal of fortune, blaming "unprecedentedly intense industry competition" last year, which led it to "strategically increase" its investments across its entire ecosystem. "Those included increased marketing, promotions, increased courier incentives to ensure service quality, and proactive investment in resources for merchants to help them maintain their operational efficiency," Meituan said. The heavy spending was quite prominent in Meituan's third-quarter report last year, when its marketing expenses rocketed to 34.3 billion yuan, or about 36% of its revenue, from 18 billion yuan, or 19% of revenue, a year earlier. It was also reflected in the company's cost of revenue, which jumped 24% year-on-year on incentive programs for merchants, far faster than the 2% growth for its actual revenue. Meituan also blamed its recent overseas expansion under its Keeta takeout delivery brand, which is running into similar competition overseas from local players as well as at least one Chinese rival, DiDi Global, in Brazil. In addition to Brazil, where it launched service last October, Keeta also operates in Saudi Arabia, the UAE, Kuwait and Qatar, as well as closer to home in Hong Kong. That operation is being personally overseen by Meituan founder Wang Xing, showing how serious the company is about the business. Meituan said it expects its losses to continue into the current quarter due to ongoing competition, but tried to reassure investors by saying its operations remain "sound and stable." It added it also has sufficient cash to support its business development. Despite those reassuring words, Meituan's stock still continued to sag on Monday, the first trading day after the profit warning, with the shares down 2.2% shortly after the market opened. Meituan has been one of the most effective of China's internet companies when it comes to M&A, which is one reason why we like this company and think it will ultimately emerge stronger from this latest price war. The company started out as a Chinese version of Groupon (GRPN.US), offering group buying bargains, and scored a major advance when it merged with Dianping, China's version of Yelp (YELP.US), in 2015. It also made headlines in 2018 with its purchase of Mobike, one of China's leading operators of a popular shared bicycle service. Both of those acquisitions have thrived and continue to be leaders in their spaces. Meituan was back in the M&A headlines two weeks ago when it announced a deal to buy Dingdong (DDL.US), China's leading online grocer, for $717 million. That deal represented an important step in the consolidation of China's instant commerce sector, since groceries ordered online are arguably one of the biggest segments of instant commerce. What's more, the acquisition will nicely complement Meituan's own Xiaoxiang and Kuailv online grocery services. But while the departure of Dingdong as a rival will help to ease competition somewhat, there's no possibility of anything similar happening with Alibaba or JD.com, which are both quite large and look determined to stay in the instant commerce sector for the time being. That means the instant commerce price war may ease slightly, but is likely to continue for most of this year, despite the attempts by China's market regulator to turn down the temperature. To subscribe to Bamboo Works weekly free newsletter, click here Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.