TMTPost -- China’s top delivery platform Meituan is preparing for entry into the Middle East while exploring expansion into other markets outside homeland China. 

Credit：Meituan

Following one-year operation in Hong Kong through its unit KeeTa, Meituan became mmore confident that it has the ability to build a food delivery business from scratch in overseas markets, and is actively evaluating entry into many different markets beyond China or mainland China, including the Middle East or the Gulf countries, Meituan’s Chief Financial Officer (CFO) Chen Shaohui responded to a question about overseas expansion at an earnings conference.  

Chen said the fact that Meituan received immediate coverage of Middle East operations so early surprised him for the company is just doing some preparation, adding that it is looking for some other markets, including some European countries and Southeast Asian ones. Considering food delivery markets are not very open in most of countries and existing players there, selection of potential new entry region needs highly careful evaluation of a wide range of factors, such as the total adjustable market, the penetration rate and the potential for the rate in future, the competition landscape, the average order value (AOV) and the cost structure, Chen noted.

Chen stressed Meituan is still at a very early stage for global expansion on the ground research and has not reached any definite conclusions. From the financial perspective, Meituan will be very cautious in assessing opportunities, maintain financial discipline and be more return on investment (ROI)-oriented when deploying the capital as it will approach the expansion outside China with a very measured pace, Wang said.

At the same earnings call, Meituan suggested its on-demand delivery will resume to normal growth in the current quarter following a stellar growth in three months earlier. On-demand delivery continued to grow healthily in the recent months despite the impact from macro environment, while as we enter the second quarter, we no longer benefit from a low order base of last year, so the year-over-year (YoY) order volume growth rate in the quarter is expected to trend down to a normal level, which will reflect the current consumption environment, said Chen. Chen said Meituan will continuously refine operation of food delivery to cope with different consumption scenarios which should lead to steady increase in the base of medium to high frequency users and their purchase frequency.

For Meituan Instashopping, Chen said the company expects the order volume growth in Q2 and for the full year to be much higher than for delivery, possibly more than double as it believes on-demand retail will continue to benefit from digital transformation.

Chen listed Meituan’s efforts on both the supply side and the consumer side. On the supply side, Meituan is partnering with more premium brands and offline retailers, enriching the quality and variety across product categories and will continue to broaden selection in long tail categories. On the consumer side, the firm will convert more high frequency delivery users from Meituan Instashopping users and boost their frequency during efficiency promotion and enhanced platform supply. Given macro environment, Meituan will continue to waive on AOV for its on-demand delivery business, but it anticipated that the YoY change in AOV should gradually normalize in the second half of the year.

The recent earnings report showed Meituan’s top and bottom line for the quarter ended March 31 beat Wall Street estimates. Its revenue increased 25% year-over-year (YoY) to RMB73.28 billion (US$1.0 billion), compared with analysts’ expectation of RMB69 billion. On non-IFRS basis, the adjusted net profit surged 36.4% YoY to RMB7.49 billion and operating profit increased to RMB5.29 billion, up 45.9%, whereas analysts projected RMB6.0 billion and RMB4.03 billion, respectively.

Meituan’s mainstay business maintained double-digit growth in the March quarter. Its local-commerce segment, which includes food delivery and the in-store, hotel and travel businesses, as well as non-food delivery service Meituan Instashopping, generated RMB54.63 billion with a 27.4% YoY growth, topping analysts expected RMB50.74 billion.  And operating profit increased 2.7% YoY to RMB9.7 billion with a margin of 17.8%. Revenue from delivery services rose 24.6% YoY to RMB21.07 billion, and revenue from commission, online marketing services and other services and sales grew to RMB20.66 billion, RMB10.31 billion and RMB21.16 billion, up 26.7%, 33.1% and 33.1% YoY, respectively.