Meituan's Business Health Check

Things have not been easy for Meituan entering 2021: the indisputable leader in the Chinese local services market gets unwanted attention from both regulators and media for the antitrust case and working conditions of its delivery army. Meanwhile, the fast-growing community group buying business competition escalates quickly as rivals like Pinduoduo deem it a war they must win. Meituan's CEO, Xing Wang, thought of it the same way and joined the fight with no hesitation. The heavy investment could easily scare investors while you are constantly hitting heated headlines. No surprise, the stock was off as much as 45% from its peak at its worst point.

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Quotes from Xiang Wang on Earnings Call

Last week's earnings call finally gave investors a chance to ask: what's really going on? Let's put all the headline risks and stock underperformance aside and conduct a thorough health check of Meituan's fundamental businesses.

  • Better than expected growth. The revenue grew 120.9% YoY to 37 billion RMB, 3.8% above the consensus. The adjusted net loss was 4.2 billion RMB, better than the feared loss of 5.3 billion RMB. What's more exciting? The company printed 59 million transacting users addition in one quarter (26.9% YoY), and the order frequency was also up nicely (see charts below). These numbers speak volumes of the company's execution excellence.

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Annual Active Users on Meituan Platform
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Average Purchase Frequency at Meituan
  • Growth across the board. All three business segments saw triple-digit YoY increases.

    • The food delivery benefited from the stay-at-home order during the Chinese Spring Festival, with both transaction GTV (Gross Transaction Value) and monetization rate up. Meituan noted that long-distance food delivery orders had become a more significant portion (20%) of the total. Then the recent delivery fee structure change works better as it covers more for the riders' cost of long-distance orders.

    • High-end/luxury hotel penetration inched higher, up to 16.7% in the quarter. Meituan is becoming more competitive against Trip.com ($TCOM) in high-end hotel bookings.

    • New initiatives booked heavy operating losses of 8 billion RMB, primarily due to the aggressive expansion of Meituan Select (community group buying). Meituan Select nonetheless made solid progress: 1) AOV (average order value) and order volume grew significantly; 2) has achieved nationwide market coverage; 3) improving unit economics is the next step.

  • Clear growth path. Xing Wang made it clear that Meituan Select is THE growth driver of the company in the next five years. Despite the heavy losses and regulatory headwinds, Meituan's long-term thesis, a comprehensive local life service platform with hundreds and millions of users and various monetization methods, stays intact.

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