While investors are still awaiting quarterly results from Alibaba Group Holding Ltd. — set to land on Friday — earnings from its peers make clear that hyper-competition in the sector is taking a toll. JD.com Inc.’s recent food delivery losses were bigger than expected, while Meituan’s shares tumbled this week after it warned of big losses due to “irrational competition.”
Investors are expecting Alibaba’s earnings to follow the trend, with cloud computing profits likely to be overshadowed by the cost of subsidies and discounts in the food delivery sector. That may fuel rising questions about the outlook for the three companies’ share prices, given expectations that an all-or-nothing price war is only going to get worse.
“We’re not very optimistic about a sector that’s defined by price wars,” said Nicholas Chui, portfolio manager at Franklin Templeton. “If a market dominated by one company turns into one with three or even four players, the competition will get fiercer and fiercer. It’s hard to see where the end will be.”
Investors will be closely watching segment results from Alibaba’s local services group, which includes food and grocery delivery services such as Ele.me and Amap. The unit is likely to have lost 3.3 billion yuan in the quarter ending June, its biggest quarterly loss since 2023, according to a Bloomberg survey based on earnings before interest payments, tax and amortization.
But more important than last quarter’s figures will be any hints Alibaba’s management team gives about how much they are willing to spend to grab market share.
“Food delivery competition is now dominated by Alibaba’s investment strategy, as it has the most financial resources and strongest commitment to gaining market share,” wrote JPMorgan Chase & Co. analysts including Alex Yao in a note on Thursday, adding that they expect Alibaba to maintain “aggressive investments” in food delivery over the next 12 months.
For companies engaged in price wars, earnings pain among competitors isn’t necessarily a bad omen. The chance that rivals might be forced to back down first can encourage even more aggressive expansion. Bernstein analysts including Robin Zhu wrote in a Thursday report that Meituan’s “blood in the water” will have encouraged Alibaba, even though the three companies previously vowed to curb disorderly competition.
But for investors, the latest crop of earnings reports offers a clear warning about the damage of intense competition. The average price target given to Meituan’s shares by analysts has fallen 26% since the start of the second quarter, while JD.com’s average price target has dropped 22% and Alibaba’s is down 11%.
Multiple analysts cut their price target for Meituan’s stock after its earnings this week.
Morgan Stanley expects Alibaba’s investments in instant commerce, which includes food deliveries, to hit 20 billion yuan in the three months ending September — double the previous quarter. JPMorgan analysts expect the street to cut its earnings consensus for the company after Friday’s results, since it may continue burning cash to gain market share.
Meituan accounted for about 47% of China’s food delivery market by volume last month, while Alibaba had a market share of 43%, according to Goldman Sachs Inc. Both Meituan and JD.com have said they remain committed to the food delivery business.
This article was generated from an automated news agency feed without modifications to text.
