In China’s food delivery market, a prolonged battle has caused Alibaba Group’s market value to shrink by $100 billion, with no end in sight to the damage to profits and investor confidence.
According to Bloomberg, as of Friday (July 11), Alibaba’s Hong Kong-listed stock has plunged 27% from its March high, nearly double the decline seen in the Chinese tech industry. With the Chinese government attempting to curb “internal competition,” Alibaba’s competitors such as JD.com and Meituan have also experienced similar drops.
As the years-long market battle enters its latest phase, since the end of June, at least four brokerages including Goldman Sachs and HSBC have lowered Alibaba’s target price by an average of 8%.
Lo King, Investment Director at Value Partners Group in Hong Kong, stated that the battle “may last longer than expected.”
He added that compared to the previous round, these competitors have stronger financial positions, more cash reserves, and better cash flows.
Since JD.com officially entered the food delivery market in February, they have been actively challenging Meituan and Alibaba’s “Ele.me,” including plans to recruit 100,000 full-time riders to expand new business.
This is a costly battle. Nomura Holdings estimates that in just the second quarter, Alibaba, Meituan, and JD.com have spent around $4 billion on discounts alone.
Goldman Sachs warns that following the food delivery battle between Alibaba, Meituan, and JD.com, short-term profit levels will be under pressure. Alibaba’s food delivery business is expected to lose 41 billion yuan ($6 billion) in the next 12 months; JD.com will lose 26 billion yuan, and Meituan’s EBIT profit will decline by 25 billion yuan.
Nomura believes that Alibaba will determine the intensity and scale of future coupon wars.
On July 5, Alibaba’s “Taobao Flash Sale” and “Ele.me” suddenly launched a “Flash Sale Day,” offering high-value red envelope subsidies, including discounts such as “spend 25 get 21 off” and “spend 16 get 16 off,” allowing users to practically have “free meals.” The news caused a sensation across the internet, with many users sharing their delivery orders for “0 yuan for milk tea” or “4 yuan for a burger”.
In response to Alibaba’s quick move into “flash attack” mode, Meituan upgraded subsidies to “spend 19 get 19 off,” also offering many “0 yuan purchases,” with daily orders surpassing 120 million, reaching a record high and even causing the app to crash temporarily.
This week, JD.com’s food delivery announced the official launch of the “Double Hundred Plan,” investing over 10 billion yuan to support merchants.