Meituan Says Antitrust Investigation Still Ongoing, Possible Heavy Fine

This is an English adaptation of a FoodBud historical article originally published on August 30, 2021.

On August 30, 2021, Meituan released its second-quarter 2021 results and disclosed that the antitrust investigation launched by China’s State Administration for Market Regulation was still ongoing.

For international foodservice operators, the filing matters because Meituan was one of China’s dominant food delivery platforms, and the investigation centered on platform conduct that could affect merchants, competitors, and operating practices.

Q2 2021 results

During the reporting period, Meituan recorded revenue of RMB43.8 billion, up 77% year on year.

The company’s new initiatives and other segment generated RMB12.032 billion in revenue, up 113.6% year on year. Its operating loss in that segment widened to RMB9.238 billion, compared with RMB1.460 billion in Q2 2020 and RMB8.044 billion in Q1 2021.

Meituan reported total segment operating profit of RMB6.1 billion in Q2 2021, up from RMB3.1 billion in the same period of 2020. Adjusted EBITDA and adjusted net loss fell year on year to negative RMB1.2 billion and RMB2.2 billion, respectively.

Net cash inflow from operating activities decreased from RMB5.6 billion in Q2 2020 to RMB2.9 billion. As of June 30, 2021, Meituan had RMB71.4 billion in cash and cash equivalents and RMB51.1 billion in short-term treasury investments. As of March 31, 2021, those balances were RMB17.8 billion and RMB35.3 billion, respectively.

Antitrust investigation

Meituan said in its results that, at that stage, it could not predict the status or outcome of the investigation. The company said it could be required to change its business practices and/or face a substantial fine.

The filing stated that in April 2021, the State Administration for Market Regulation opened an investigation into the company under the Anti-Monopoly Law of the People’s Republic of China. As of the reporting date, the investigation was still ongoing, and Meituan said it was actively cooperating.

On August 9, 2021, The Wall Street Journal reported, citing people familiar with the matter, that Chinese antitrust regulators were preparing to fine Meituan about US$1 billion over alleged abuse of market dominance that harmed merchants and competitors.

According to the same report, the penalty decision could be announced in the following weeks, and Meituan would be required to rectify its business and end “choose one of two” exclusivity practices. Such arrangements pushed many small businesses to choose sides in China’s competitive retail market.

On August 30, China’s market regulator also said that, under its administrative guidance, eight shared-consumption brands and operators including Hello, Qingju, Meituan, Monster, Xiaodian, Laidian, Jiedian, and Soudian had made rectifications. The regulator said price increases in the shared-consumption sector had been effectively curbed and pricing had become more transparent and standardized. It also said it was reviewing Soudian’s acquisition of Jiedian and investigating Meituan’s acquisition of Mobike for failure to file the transaction as required.

Food delivery

In Q2 2021, Meituan’s food delivery transaction value increased 59.5% year on year to RMB173.6 billion.

Average daily food delivery transactions rose 58.9% year on year to 38.9 million. Revenue from the segment increased 59.0% to RMB23.1 billion. Operating profit rose 95.2% to RMB2.4 billion, while operating margin improved from 8.6% to 10.6%.

In-store, hotel and travel

Meituan’s in-store, hotel and travel segment continued to grow steadily in Q2 2021. Revenue increased 89.3% year on year to RMB8.6 billion.

Operating profit rose 93.7%, from RMB1.9 billion in Q2 2020 to RMB3.7 billion in Q2 2021. Operating margin increased from 41.6% to 42.6%.

New initiatives and other

Revenue from new initiatives and other businesses increased 113.6% year on year to RMB12.0 billion.

The segment’s operating loss widened year on year and quarter on quarter to RMB9.2 billion in Q2 2021, while its operating loss margin continued to improve by 4.8 percentage points to negative 76.8%.

Note: Regulatory expectations and possible penalty amounts described above were historical as of August 30, 2021.