Chinese tech companies record substantial losses due to extensive spending

As a result of extensive spending, major Chinese companies, including Meituan, Pinduoduo and Kuaishou are sustaining substantial losses as they prioritise long-term opportunities over immediate profitability.

According to the Wall Street Journal (WSJ), the revenue of Hong Kong-listed food-delivery company Meituan has more than doubled in the first three months of this year as compared to 2020, as demand for online services increased during the COVID-19 pandemic.

However, losses rose even faster, to 4.8 billion yuan, equivalent to USD 750.7 million, or a loss of more than 13 cents for every dollar the company took in.

Chinese tech companies, including both publicly traded ones and unlisted startups, often try to outspend rivals, subsidising their offerings in pursuit of market dominance.

The stock prices of Meituan and Pinduoduo are down more than 30 per cent from their highs earlier in the year, while Kuaishou has fallen 50 per cent, all worse than their more established rivals such as Tencent and Alibaba.

Tech stocks have been under pressure in China for several reasons in recent weeks, including a shift in investor focus to old-economy businesses, rising interest rates and the government's clampdown on the sector, reported WSJ.

The losses in the tech companies are due to their determination to be major players in the so-called community group buying, a rapidly growing form of e-commerce in China.

Pinduoduo has recorded a net loss for every one of the 12 quarters it has reported since going public in 2018. For the first three months of 2021, the company reported a net loss equivalent to about USD 444 million.

Kuaishou has been racking up losses with an eye on e-commerce opportunities, reports WSJ, despite an upsurge in revenue of almost 37 per cent.

The losses exclude a valuation charge triggered by Kuaishou's initial public offering.

( With inputs from ANI )

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