Competition in China's food delivery sector has become less cut-throat as companies roll back profit-damaging subsidies, which in turn has allowed Meituan to capitalise on its first-mover advantage over rivals in the country's smaller cities.

According to research firm Trustdata, Meituan has steadily increased its share of China's food delivery market to 65.8% as of end-September, compared with 60.1% a year earlier.

Revenue for Meituan, which is China's third-biggest internet company by market value and is backed by gaming giant Tencent Holdings Ltd, came in at 27.49 billion yuan ($3.5 billion) for the July-September quarter, up from 19.1 billion yuan in the same period a year earlier.

That compares with a market consensus estimate of 25.92 billion yuan drawn from 11 analysts, according to Refinitiv I/B/E/S data.

It booked a profit of 1.33 billion yuan, its second consecutive quarter of profit since listing last September.

"The two consecutive quarters of profitability gives investors more confidence on the food delivery business model," said David Dai, an analyst at Bernstein Research.

Meituan's food delivery division - its core business - reported revenue of 15.58 billion yuan in the quarter, a 39.4% increase from a year earlier.

"Strong execution enabled Meituan to sustain [the] growth momentum, improve unit economics, and enhance the market position of core businesses," said Wang Xing, chairman and chief executive of Meituan, adding that consumers from lower-tier cities would become the future source of growth.

Meituan said gross transaction volumes for the quarter rose 33.6% to 194.6 billion yuan, while the annual number of transacting users climbed 14% to 435.8 million.    Valued at some $72 billion, Meituan operates one of China's most popular apps, also offering travel bookings, restaurant recommendations, movie tickets, bike sharing and map services. It has also set up a grocery retail business Meituan Maicai.

By Yingzhi Yang and Brenda Goh