Breakingviews - Meituan is having its cake and eating it too - Reuters

Cakes baked at CakeLove bakery are put on display at the Love Cafe in Washington, D.C. on October 18, 2005. REUTERS/Molly Riley

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HONG KONG, June 6 (Reuters Breakingviews) - China’s technology companies need not sacrifice growth for profitability. The $142 billion Meituan (3690.HK) reported operating profit in its core food delivery business jumped 41% year-on-year to 1.6 billion yuan ($241 million) in the three months to March, partly thanks to an easing subsidy war with rivals. At the same time, the company grew annual users by over a fifth to 693 million. E-commerce giant Alibaba (9988.HK), , which also has a competing food delivery app, grew users by just 2% over the same period.

That Meituan is winning over customers without having to splurge on marketing is a promising sign its food delivery unit, which accounted for 52% of revenue, is getting healthier. Operating margins in the quarter increased to 6.5%, compared to 5.4% in the same period last year. Meituan’s Hong Kong shares surged 8% on Monday; the stock is up by a third over the past three months.

Executives have flagged takeout orders will “materially decelerate” in the second quarter, as tough Covid-19 lockdowns across Shanghai and other major cities bite. And it’s still racking up huge losses in new ventures like groceries. Still, Meituan is proving to investors it can grow while delivering profit. (By Yawen Chen)

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Editing by Robyn Mak and Katrina Hamlin

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