(Bloomberg) — Chinese food-delivery giant Meituan’s shares jumped more than 10% after Chief Executive Officer Wang Xing unveiled better-than-expected financial results and detailed plans to address government concerns about its business practices.
Shares surged after the company’s first-quarter revenue more than doubled from the year-earlier period, and Xing said the company is working with regulators to make changes to its business. That has kept most analysts positive on the stock even as some have slashed price targets to account for new investments.
“Despite near-term overhang from regulatory headwinds, overall growth momentum across all three major business segments remains intact,” Citigroup Inc. analysts including Alicia Yap wrote in a note on Sunday.
On Friday, Wang reassured investors that Meituan is working to resolve regulators’ concerns, including setting up a dedicated team to work with government officials and changing certain practices that had sparked an antitrust probe. He said he anticipates the company will be able to navigate the government scrutiny without significant negative consequences.
“In terms of our day to day operation, we haven’t been significantly impacted,” the 42-year-old billionaire said during the earnings call. “This event will not jeopardize the competitive advantage of our food delivery business.”
Beijing announced an investigation into the tech giant in April over alleged antitrust violations. Financial regulators then imposed wide-ranging restrictions on its fintech operations, alongside those of peers like Didi. Renewed scrutiny over the treatment of its delivery riders added to concerns that labor expenses could rise and cut into profitability.
Meituan’s selloff accelerated in May after Wang posted a classical poem about book burning during the Qin dynasty that some interpreted as a veiled criticism of Beijing. The entrepreneur deleted it days later and issued a clarification that he used the poem in reference to the company’s competitors.
Meituan offered a response in both its regulatory comments and its financial results. The company reported nearly 121% growth in revenue during the March quarter from a year ago, the highest increase since its listing, thanks to a strong comeback from Covid-19 lows last year. Its core food delivery business swung back to black this quarter, while ticketing and travel services have also recovered as life within China has largely returned to normal.
During its earnings call on Friday, the Beijing-based company pledged to proactively work with regulators and improve its compliance standards. It also promised to provide insurance for millions of its delivery drivers — many of them work as part-time personnel and lack proper employee benefits — and has started to reform its commissions scheme in a move to cut fees for partner restaurants.
In addition, Meituan joined Chinese tech giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in promising to invest in technological innovation — a priority set by Chinese President Xi Jinping. Meituan raised $10 billion from investors to boost its spending in autonomous delivery technology in April, days before China’s antitrust watchdog unveiled its probe into the company.
“The 2Q core business outlook appears better than we feared, and we expect in-store to accelerate further,” Morgan Stanley analysts including Gary Yu wrote in a note on Sunday.
(Updates share price move from first paragraph)
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