(Yicai Global) March 29 -- Shares in Meituan crashed today as the Chinese on-demand food delivery firm logged a nearly four-fold drop in profit to a loss of CNY2.85 billion (USD435 million) in the fourth quarter from the same period the year before due to huge investments in new initiatives.

Meituan’s stock [HKG:3690] plunged 7.35 percent to close at HKD279.80 (USD36). Earlier in the day it had dropped 9 percent to HKD274.40.

The firm, which has been spending heavily to extend its community online bulk buying empire into China’s rural areas, racked up losses of CNY6 billion (USD915 million) in the three months to Dec. 31, posing a huge drag on profits despite an overall good year, the company said in its earnings report released on March 26. Revenue for the quarter was up 34.7 percent to CNY37.92 billion (USD5.8 billion).

While the Covid-19 pandemic affected its hotel and tourism businesses last year, the Beijing-based company saw a strong uptick in its main food delivery business as people turned to take-aways during lockdown.

Meituan delivered 10.1 billion takeout orders over the course of 2020, a 24.5 percent leap from the year before, at an average unit price of CNY48.20 (USD7.35), the report said. As a result, food delivery revenue jumped 20.8 percent to CNY66.3 billion.

For the year, profit surged 61.6 percent year on year to CNY4.3 billion (USD655.7 million) and revenue jumped 17.7 percent to CNY114.8 billion, the report said.

High Fees

However, the firm is facing a squeeze on revenue as a number of government departments call for Meituan and other dominant platforms to lower their fees, which can be more than 20 percent the cost of a meal, forcing out small caterers.

It is unfair to suggest that Meituan charges more than its competitors, founder Wang Xing said at the earnings conference.

At present, the commissions charged by some platforms are too high for smaller vendors to bear, which has a negative impact on their development potential and their market participation, Zhu Keli, executive director of the China Information Industry Association, said earlier this month.

"We will make some adjustments to our charges to make them simpler and easier to understand,” Wang said. “We hope that this will help our merchants and the authorities will understand the pricing mechanism better, so as to create an improved business environment for us," Wang said.

Editor: Kim Taylor