Meituan share price rose by over 2.75% on Monday to H$133.4, up from the year-to-date low of H$116.2. It has now crashed by nearly 40% from last year’s high of H$216.
Why the Meituan share price rose
The Meituan stock price rose slightly on Monday morning as Chinese authorities moved to temper the ongoing price wars in the sector, which has led to low margins.
In a statement, the State Administration for Market Regulation (SAMR) said that it had summoned the three biggest players in the sector for a meeting to address the ongoing price wars.
The meeting comes at a time when the Meituan share price has slowed following JD’s entry into the business. JD’s food and grocery delivery business started by offering substantial discounts to its customers as it sought to boost its market share in the industry.
JD’s entry and continued price war has affected Meituan, Alibaba, which owns Ele.me, and many other smaller companies in the industry. These competitors have had to respond, with Ele.me launching its subsidies last month.
The same competition and price wars has happened in other countries, including the US, where Uber, Postmates, Grubhub, and DoorDash have fought for market share. These firms have recently slowed the price wars and are now becoming more profitable.
The same happened in India, where top companies like Zomato, Swiggy, Blinkit, and EatClub have been competing for market share.
Meituan growth could be hit
The most recent results showed that Meituan’s business continued to grow. Its revenue jumped to RMB 86.55 billion in the first quarter, a 18% increase from what it made a year ago.
Most of this revenue came from its delivery services, which made over RMB 21 billion last quarter. It also generated RMB 20 billion in commissions, while its online marketing services and other services generated RMB 10 billion and RMB 3.2 billion, respectively.
Its operating profit jumped from RMB 5.2 billion to RMB 10.56 billion, but the management expects the competition to hurt its growth. Meituan still commands a 70% market share in China, has over 14.5 million merchants, and a well-established logistics infrastructure.
Meituan has other advantages as well. It is boosting its non-food delivery services, which is known as Instantshopping, which is already gaining market share and handling millions of deliveries a quarter.
Meituan is also growing internationally through its Keeta platform that is available in Brazil and Hong Kong.
Meituan stock price technical analysis
The daily chart shows that the Meituan stock price has been in a downtrend in the past few months. It has moved from a high of H$216 in October to H$130 today.
The stock has formed a descending channel as concerns about JD’s competition rose. It remains below the 50-day and 200-day Exponential Moving Averages (EMA).
The stock has moved below the 50% Fibonacci Retracement level, a sign that bears are in control. Therefore, the stock will likely remain under pressure in the near term, as traders wait for its earnings report, scheduled on August 21.
The post Here’s why the Meituan share price is rising today appeared first on Invezz
