Meituan Shows You Can Make (Adjusted) Food Delivery Profit

Morning Markets: A ray of light in the somewhat crepuscular world of on-demand goods. You can make money on delivery, it turns out.

This morning Meituan Dianping announced its third-quarter results, including 44.1 percent revenue growth to 27.5 billion RMB ($3.91 billion), and post-tax profit of 1.3 billion RMB ($189.1 million). Meituan improved from stiff year-ago losses on both an operating and net basis, making its growth and incomes all the more notable.

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The company, which provides deals, reservations, and on-demand delivery, went public last year worth around $55 billion. Today it is worth about $68 billion; shares of the company fell just over 5.5 percent in trading today, following the announcement of its results.

All that’s well and good, but what matters is that inside of Meituan Dianping’s earnings were positive notes regarding its food delivery business. Food delivery is a key growth driver for companies like Uber and Postmates, and the entire game for firms like DoorDash and GrubHub. So, what Meituan has to say about the economics of food delivery matters; can the Chinese giant make it work?

It seems that the answer is mostly yes. Here are the key excerpts from its earnings report, regarding food delivery (emphasis Crunchbase News):

[R]evenue from our food delivery business increased by 39.4% year-over-year to RMB15.6 billion for the third quarter of 2019 from RMB11.2 billion in the same period of 2018. Gross profit from our food delivery business increased by 64.5% to RMB3.0 billion for the third quarter of 2019 from RMB1.9 billion in the same period of 2018, while gross margin expanded to 19.5% from 16.6%. Although gross margin decreased by 2.8 percentage points on a quarter-over-quarter basis due to unfavorable weather conditions, we were able to achieve positive adjusted operating profit for our food delivery business for the third quarter of 2019.

Food delivery made up about 57.5 percent of Meituan’s gross transaction volume (total platform spend) in the third quarter. Yes, the firm’s profit note regarding the portion of its business that we care the most about was adjusted profit (removing “share-based compensation expenses, amortization of intangible assets resulting from acquisitions,” along with various impairment charges), but that’s still better than nothing.

Recall that Uber and Lyft are only promising full-business adjusted profit to begin in 2021; Meituan Dianping is already there with its whole business and food delivery operation. Uber Eats, generated negative adjusted EBITDA (another adjusted profit metric) of $316 million in Q3 off $392 million in adjusted net revenue ($645 million in un-adjusted top line). Those numbers are worse.

So What?

Meituan making money on delivery shows that it is possible to do so. And it was able to make money on food delivery in a market as competitive as China, and one that is slowing down. Turning a profit on delivery, it turns out, is not an impossible feat.

We don’t want to hold our breath for it, but perhaps if Meituan Dianping can generate adjusted profit on food delivery, others can too. (Food delivery is a crowded space in the U.S., which could complicate short-term profitability.)

It’s probably too bold to say that Meituan’s news will prompt Postmates to get off the sidelines public (Postmates’ CEO said market conditions are the reason for its delayed IPO, but it would be unusual for a company to go public in the midst of the holidays). Nevertheless, Meituan’s delivery profit is a good sign for all of the players in the space.

Illustration: Dom Guzman