(Yicai) Dec. 1 -- Meituan, the largest on-demand delivery service provider in China, has turned a profit into a loss in the third quarter of the year, mainly due to massive subsidies released to fend off competitors in the takeaway sector.

Net loss exceeded CNY18.6 billion (USD2.6 billion) in the three months ended Sept. 30, compared with a CNY12.9 billion net profit a year earlier, according to the third-quarter earnings report the Beijing-based firm released on Nov. 28. Revenue rose 2 percent to CNY95.5 billion (USD13.5 billion).

Meituan's Core Local Commerce segment, which includes food delivery, saw its operating profit turn negative to reach an operating loss of CNY14.1 billion, with an operating margin of minus 20.9 percent. Its revenue declined 2.8 percent to CNY67.4 billion.

"Delivery services revenue declined modestly year over year, as a result of the significantly increased incentives deducted from delivery services revenue in response to the intensified competition to convert new users and enhance user stickiness," Meituan explained.

Meituan's Chairman and Chief Executive Officer Wang Xing reiterated during the earnings conference call that the food delivery price war is an example of low-quality, low-price involution-style competition, which the company firmly opposes. "The last six months have proved one thing: it [the price war] doesn't create any real value for the industry, and cannot be sustainable."

Despite that, the subsidies seem to have defended Meituan's leading position in the food delivery sector. The company's gross transaction value market share for orders with a net average order value above CNY15 (USD2.10) is more than two-thirds, while that for orders with a net AOV above CNY30 is above 70 percent, according to data disclosed by Wang.

Both daily active users and monthly transacting users of the food delivery business reached all-time highs in the third quarter.

Revenue from the New Initiatives segment, which includes grocery retail, climbed 16 percent to CNY28 billion in the third quarter from a year earlier. However, its operating loss widened to CNY1.3 billion due to investments in international expansion.

Keeta's Hong Kong business became profitable in October. "It took us 29 months to get to that milestone, ahead of our original three-year plan," Wang noted, adding that after launching in Qatar in August, Keeta entered Kuwait and the United Arab Emirates in September. In late October, it launched pilot operations in Brazil.

Selling and marketing expenses surged 91 percent to CNY34.3 billion in the period, driven by costs related to promotion, advertising, and user incentives.

Research and development expenses jumped 31 percent to CNY6.9 billion, accounting for 7.3 percent of the total revenue, mainly because of increased corporate-level investments in artificial intelligence.

Meituan released its LongCat-Flash series of open-source models and launched the Xiaomei smart assistant in the third quarter.

Future Outlook

"Market competition has remained overheated recently," Meituan pointed out. "Accordingly, we expect the operating loss trend to persist in the fourth quarter for both the Core Local Commerce segment and the company as a whole."

However, signs suggest the industry may be cooling. Competitors, including Alibaba Group Holding and JD.Com, have hinted at a pullback from aggressive subsidies. JD.Com said in its third-quarter earnings report that its overall investment has gradually narrowed.

"We are confident in maintaining our leading position by continuing to strengthen our core competitiveness," Wang said. "We will continue to refine our products and services to better meet consumers' very diverse local services needs while empowering merchants through technology innovation and AI application, altogether to drive the sustainable and healthy development of the whole industry."

On the profitability point, Wang noted that Meituan is confident it will recover solid profitability over the medium to long term once market dynamics stabilize.

Editor: Futura Costaglione