Meituan shows China tech isn’t delivering yet
Investors in Chinese technology stocks hoping to catch a break after last year’s brutal crackdown are finding themselves dodging new curveballs instead.
Chinese food-delivery giant Meituan is the latest case in point. Shares of the Hong Kong-listed company lost 18%—or around $32 billion in market value—in two trading days after China’s state planner suggested Friday that online food-delivery platforms should cut fees to help struggling restaurants. Meituan shares have more than halved from their peak of around a year ago.
Friday’s policy guidelines, from the state economic planner and 13 other government bodies, aim to help industries that have been hit hard by the pandemic such as restaurants and retail. The guidelines also include other measures meant to support the service sector like tax breaks and subsidies.
China’s retail sales have been lagging behind other drivers of economic growth. Small- and medium-size businesses are doing particularly poorly.
There is no mention of how, or for how long online food-delivery platforms should cut fees. Meituan’s take of every dollar spent on food delivery on its platform in the third quarter of 2021 was around 13.4%. Morgan Stanley estimates that a one-percentage-point drop in that monetization rate would lower Meituan’s overall food-delivery revenue by 7%. Meituan made more than half of its revenue from food delivery in the third quarter, though its higher-margin hotel and travel segment delivered higher profits.
The market may be overreacting if this proves to be only a short-term measure to shore up struggling restaurateurs. Meituan provided subsidies and rebates to its merchants at the outset of China’s initial Covid-19 outbreak in 2020, but its sales quickly recovered after the pandemic there came under control.
But investors seem to be taking away a harsher message. Other Chinese technology stocks, which shouldn’t really see much direct impact from the new guidelines have fallen too. Alibaba and Tencent have both dropped around 7% in the past two trading days.
Predicting consumer-technology companies’ long-term growth and profits obviously becomes more difficult if their pursuit clashes with other high-level objectives of Beijing, such as curbing large private conglomerates’ market power. Such worries were, of course, behind the precipitous declines in Chinese tech stocks last year.
These new guidelines show shares aren’t out of the woods yet by any means. Moreover, with China apparently prepared to stick with its “zero-Covid” approach for quite some time still, service-sector consumption in general could be a long time recovering.
China’s tech sector had been relatively resilient this year compared with the carnage in the U.S. Now investors are realizing they may have been too complacent: Regulatory risks clearly aren’t going away yet.
This story has been published from a wire agency feed without modifications to the text
Never miss a story! Stay connected and informed with Mint.
our App Now!!
Stay connected with us on social media platform for instant update click here to join our Twitter, & Facebook
We are now on Telegram. Click here to join our channel (@TechiUpdate) and stay updated with the latest Technology headlines.
For all the latest Technology News Click Here
For the latest news and updates, follow us on Google News.