China’s Internet giants want to grow after zero-Covid | Jobs Recent

Two Chinese internet companies that have emerged as corporate winners in the pandemic are adapting to renewed competition as the country begins to scrap its zero-Covid policy.

Meituan food delivery group and app Pinduoduo made a combined profit of Rmb11.8bn ($1.7bn) in the three months to the end of September, as consumers shifted from spending on food delivery to buying more basic goods.

Meituan and Pinduoduo also increased sales by 28 percent and 65 percent year-on-year, respectively, beating the country’s tech giants. At the same time, Tencent’s revenue fell while Alibaba’s grew by only 3 percent.

But with Beijing announcing a broad relaxation of President Xi Jinping’s controversial zero-Covid restrictions this week, both companies are looking for another way to raise money.

“These are two of the top companies in China’s Internet world,” said Robin Zhu, an analyst at AB Bernstein. “Both were quick in the face of the Shanghai shutdown,” referring to the Chinese capital’s shutdown in the spring that lasted for weeks. He noted that both platforms are quick to implement ways to ease delivery to residents who are stuck at home, such as group purchasing services for residents in one apartment.

Meituan and Pinduoduo have also been beneficiaries of Beijing’s crackdown on ecommerce giant Alibaba, which has forced some retailers to sign up on its popular shopping platforms Taobao and Tmall. In the three months to the end of September, Pinduoduo’s online marketing services revenue – which includes the retailer’s advertising spend – grew to Rmb28.4bn, a 58 percent increase from a year ago.

Meituan was able to raise prices as competitors withdrew and food delivery costs increased. “Meituan’s profits have improved during this period of violence as people are unable to travel or leave their homes,” said Li Chengdong, head of the Haitun ecommerce think-tank. “They were spending a lot of money on local programs like food delivery.”

“The epidemic has destroyed competition in the market,” said one former Meituan employee, who left the company due to job cuts in April. “As long as a company can deliver food with limits, it doesn’t need to have competitive prices or better products.”

Meituan’s popularity may seem timeless. The loosening of Beijing’s rules on anti-competitive behavior has opened the way for new players sponsored by deep-pocketed rivals.

On Monday, Douyin, the Chinese version of social media app TikTok, announced a partnership with three companies to provide food delivery services, putting it in direct competition with Meituan.

Li said the move means restaurants will shift some advertising money from Meituan to Douyin.

Alibaba is also poised to fight for market share, having cut spending in recent months. “Alibaba has scaled back its price war and promotion campaign to grow its food delivery business this year, which has allowed Meituan to be freed from financing,” Zhu said.

Still, Meituan’s stable of diversified businesses means the company could still benefit as China reopens. Zero-Covid control has hurt the hotel and tourism sector, its most profitable business before the pandemic.

Meituan and Pinduoduo are both trying to secure future revenue streams, the former through its travel and Yelp-like restaurant service and Temu, a Shein-like fast fashion app targeting western consumers.

Analysts say that Meituan and Pinduoduo were able to take drastic measures that put them ahead of the competition when the shutters were closed because the two were still led by the founders.

Meituan’s Wang Xing still leads the company as CEO, and although Pinduoduo’s Colin Huang has officially stepped down as CEO, he remains the largest shareholder and continues to play a key role in guiding the company’s direction, according to two people close to Pinduoduo. .

Insiders said Meituan made deep spending and layoffs that helped turn a profit. In the results of an April survey of the industry, China’s powerful Cyberspace Administration said that technology employment remained stable, despite its crackdown and depressed stock prices.

But after presenting a good employment idea to the regulator, “Meituan started laying people off”, said the former employee. “The cuts were made worse because the normal migration of workers after the release of new year bonuses in China did not happen.”

Pinduoduo and Meituan did not respond to requests for comment.

Despite Meituan’s growth and profits, investors have been shaken by a move by major shareholder Tencent to divest its stake in the group, responding to pressure from Beijing to reduce the size of its Internet empire in China, according to people familiar with the decision.

Meituan’s Hong Kong-listed share price has fallen more than 20 percent in the past 12 months to HK$189 ($24), while Pinduoduo’s Nasdaq stock has risen nearly 50 percent to $91.

Pinduoduo benefited as homebound shoppers turned to bargain hunting through its flagship app. But after reporting most of the quarter of accelerating sales growth and rising profits, former backer Neil Shen of Sequoia Capital China, who was considered the country’s venture capitalist, decided to leave his board and release some of the fund’s profits.

Shen last month said he was stepping down “to focus on my other interests and my conversations”. Businesses linked to Sequoia applied to sell Pinduoduo shares worth up to $390mn on the same day.

The move comes as Pinduoduo entered the space of another Sequoia-backed business, Shein, in September with the launch of fast fashion Temu, targeting the insatiable desire for cheap clothing among Gen Z consumers in the US. The group has filled new buyers with price deals and encouraged clothing manufacturers to sign up.

“Pinduoduo will have to invest a lot of money to enter this sector,” said Zhu. “But the potential is huge, especially as American consumers shift to cheaper retailers as the country moves into a weaker economy.”

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