Meituan Shares Fall as Soft Guidance Outweighs Solid Earnings

By Ben Otto

Shares of Chinese food-delivery specialist Meituan fell sharply early Wednesday as investors looked past solid earnings and a share buyback to guidance for slowing growth in the final months of the year.

Shares of Beijing-based Meituan, one of China's most valuable internet companies, were down 11% at 92.15 Hong Kong dollars (US$11.82) in morning trade, on track for their biggest one-day loss of the year. The decline put losses this week at 16% and for the year at 47%.

The drop comes after Meituan's third-quarter profit tripled from a year earlier on higher sales, helped by the removal of Covid-era restrictions in China, and after the company unveiled plans to spend up to US$1 billion to buy back shares beginning Dec. 1.

It also flagged relative weakness to come in the fourth quarter, saying growth in food-delivery revenue, its biggest source of income, would likely to slow sequentially. Meituan cited factors including the macroeconomic environment, recovery of competitors that had operations suspended a year ago during the pandemic, and declining order value due to a higher share of volume coming from the company's group purchasing channel.

It also said it will need to continue spending on promotions to boost customer loyalty, potentially cutting into margins.

Analysts were mostly upbeat, interpreting Meituan's longer-term growth story as intact.

Nomura analyst Jialong Shi highlighted "largely in-line" results and guidance for narrowing losses of the grocery segment and Meituan's denial of media reports that it could pursue the acquisition of Delivery Hero's food-delivery business in Southeast Asia. The analyst kept a buy rating with a target price of HK$184.

Citi analysts kept a buy rating on "execution track record and undemanding valuation," but trimmed target price to HK$179 from HK$214, and revised 2024-25 revenue forecasts downward by 3.3% and 8.0%, respectively, to account for the company's guidance and concerns about consumption.

Write to Ben Otto at ben.otto@wsj.com

(END) Dow Jones Newswires

November 28, 2023 22:38 ET (03:38 GMT)

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