Meituan, a takeout expert, is trading at almost half its high of HK $439.20 at the start of the year. Of course, this can be blamed on the bad luck of the big Internet companies. after all, Tencent (00700.HK) also experienced a decline from HK $759.40 to HK $462.40.
Management has many stories to tell on earnings announcements, such as the upgrading of the strategy from "food + platform" to "retail + technology", but no matter how good the story is, it depends on whether investors sell or not, judging from the stock price performance on the day after the results are announced. it's clear that investors don't buy it. Meituan's share price fell 7.06% to HK $245 on the day.
How to evaluate Meituan's performance?
Meituan is mainly accounted for by three businesses: 1) the most well-known catering takeout, 2) arrival, hotel and tourism business, and 3) new business and other, that is, bike-sharing and retail business, including Meituan shopping, Meituan flash shopping and Meituan selection.
In the third quarter of 2021, Meituan's income increased by 37.93% year-on-year to 48.829 billion yuan (in RMB, the same below).
Among them, the most important catering takeout business increased by 27.99% year-on-year to 26.485 billion yuan, accounting for 54.24% of total revenue, down from 58.45% in the same period last year. Revenue from the arrival, hotel and tourism business with the highest profit increased by 33.08% year-on-year to 8.621 billion yuan, accounting for 17.66% of total revenue, down from 18.30% in the same period last year. The fastest-growing new business and other income surged 66.74% year-on-year to 13.723 billion yuan, accounting for 28.10% of total revenue, up from 23.25% in the same period last year.
See below, Meituan's overall income maintained strong growth, of which the growth of new business is the most significant, and its share continues to rise, which is the strategic location for its "retail + technology" upgrading. However, at present, the business is still in a serious money-burning stage, and the loss during the period has further expanded. It is precisely because of this that Meituan's overall loss has also increased significantly.
In the third quarter of 2021, the operating loss of the new business and other divisions increased by 437.53% year on year to 10.906 billion yuan, the largest loss since the launch of the community group buying business, completely offsetting the operating profit of 876 million yuan for catering takeout and 3.784 billion yuan for the hotel, hotel and tourism business, as shown in the figure below.
It is worth noting that the antitrust fine of 3.442 billion yuan in the second half of the year was also recorded in the third quarter, so the net loss attributable to Meituan's shareholders in the third quarter reached 9.994 billion yuan, an increase of 197.62 percent over the previous quarter, and a net profit of 6.321 billion yuan over the same period last year.
Excluding non-recurrent items such as fines imposed by the anti-monopoly law, income from investment, impairment and expenses, and amortization of intangible assets resulting from acquisitions, Meituan's adjusted loss in the third quarter was 5.527 billion yuan, an increase of 149.3 percent from the net loss of 2.217 billion yuan in the previous quarter, and a net profit of 2.055 billion yuan over the same period last year.
In the first three quarters of 2021, Meituan's cumulative income increased 68.59 percent year-on-year to 129.605 billion yuan, while the net loss attributable to shareholders reached 18.199 billion yuan, compared with 6.952 billion yuan in the same period last year and 779 million yuan in the first three quarters of 2019. After deducting the above non-recurrent items, Meituan made an adjusted loss of 11.636 billion yuan in the first three quarters of 2021, compared with an adjusted profit of 4.557 billion yuan in the same period last year and 2.386 billion yuan in the first three quarters of 2019.
Takeout and arrival business still maintain steady development.
In the 12 months to September 30, 2021, the number of trading users of Meituan increased by 40.1% year-on-year to 667.5 million; the average number of transactions per transaction user increased by 28.5% year-on-year to 34.4; and the value of catering takeout transactions increased by 29.5% year-on-year to 197.098 billion yuan.
See the chart below, the curve of the number of trading users has steepened significantly so far this year, reflecting an increase in growth, which may be related to a low base in the first half of 2020 as a result of the epidemic.
The expansion of trading users and the increase in the frequency of transactions per user led to an increase of 29.5% in the transaction value of catering takeout. Meituan takeout, which accounts for half of catering takeout, achieved 27.99% income growth in the third quarter of 2021. The author estimates that the realization rate of the takeout business is about 13.4%, up 0.1% from 13.3% in the previous quarter and 2 percentage points lower than 13.6% in the same period last year.
However, it is worth noting that although the revenue of the catering takeout business increased by 27.99% in the third quarter, the operating profit increased by only 14.01% to 876 million yuan, and the operating profit margin decreased to 3.31% from 3.71% in the same period last year. Meituan explained that it was mainly due to the increase in trading user incentives and marketing activities.
The quarterly revenue of the arrival business with the highest profit increased by 33.08% year-on-year to 8.621 billion yuan, while the operating profit increased by 35.76% to 3.784 billion yuan, and the operating profit margin increased to 43.89% from 43.03% in the same period last year. Mainly due to the increase in revenue from the more profitable online marketing services, up 42.39% year-on-year to 4.481 billion yuan, accounting for 51.98% of the store business revenue.
As can be seen from these data, Meituan's two advantageous businesses, takeout and arrival, still maintain a steady performance. However, management said at the results conference that they expected a recurrence of the epidemic in the fourth quarter, which would affect the takeout business and hit the takeout business to a greater extent in the fourth quarter and the first few quarters of next year.
The loss of the new business is expanding, and the turnaround is still a long way off.
Meituan's new businesses include flash buying, bike sharing, community group buying and fresh retail. At present, large domestic Internet companies have laid out races such as community group buying and fresh retail, in order to reach more users from the sinking market, increase user stickiness and user consumption frequency.
In the third quarter of 2021, Meituan's new business income increased by 66.74% compared with the same period last year to 13.723 billion yuan, while the operating loss increased by 480.95% year-on-year to 10.906 billion yuan. In other words, the operating expenditure of the new business in the third quarter was almost twice its income.
The advantage of community group buying lies in the cost savings of logistics to home in the end. The head of the community replaces offline stores, replacing the rent and operating costs of offline stores with about 10% to 20% commission, while at the same time gaining more customers by going deep into the community. This is the logic of the development of community group buying. At present, the major Internet enterprises are laying out the input of logistics to the community, so the whole is still in the stage of burning money.
Fresh business, generally used is the front warehouse, fast delivery home, cabinet pick-up. Judging from the latest results of two US-listed companies, Dingdong (Cayman) Limited (DDL.US) and Missfresh Limited (MF.US), losses are still widening.
In the third quarter of 2021, Dingdong (Cayman) Limited's total sales value (GMV) increased 1.08 times year-on-year to 7.019 billion yuan, while income increased 1.11 times to 6.19 billion yuan. The net loss attributable to non-accounting shareholders is still as high as 1.976 billion yuan.
The total sales value (GMV) of the pioneer Missfresh Limited in the third quarter of 2021 increased 41% year-on-year to 2.573 billion yuan, income increased 47.2% year-on-year to 2.122 billion yuan, and non-accounting standards net loss increased by 88.66% over the same period last year to 974 million yuan.
From these two examples, we can see that the growth of goods value and income of fresh business is very strong, but this may be due to attracting new customers through promotional activities and low prices, so their gross profit margin is not high, Missfresh Limited is 12.3%, Dingdong (Cayman) Limited is 18.23%. The proportion of performance expenses (that is, logistics, warehousing and other operating costs) to income has reached 12.07% and 32.89%, respectively, indicating that it is unlikely to reverse losses in a short period of time. First of all, we have to solve the problem of expenditure.
Meituan may enjoy some advantages because of its scale, but from the point of view that these operators do not hesitate to invest heavily in attracting new customers, it may be difficult for Meituan to compete for market share, and a huge investment is inevitable.
In announcing results for the third quarter of 2021, Pinduoduo, who started with a sinking market and started with unboiled water, said he focused more on R & D investment than on sales and marketing as before.
Pinduoduo's income has increased significantly in recent years, and the gap between the income scale of Pinduoduo and Meituan has narrowed, as shown in the chart below.
From the perspective of Pinduoduo's early development, its growth mainly depends on marketing investment. See the chart below. Pinduoduo's marketing expenditure accounted for more than 60% of income from 2017 to 2020, and the proportion of marketing expenditure decreased gradually with the expansion of income in the fourth quarter of 2020. Meituan, on the other hand, has maintained about 20 per cent since 2019.
Pinduoduo's R & D expenditure in the third quarter increased 34.21% year-on-year to 2.422 billion yuan, accounting for 11.26% of income, up from 10.11% in the second quarter of 2021. By comparison, Meituan's marketing expenditure accounted for only 9.66 per cent of income in the third quarter. See the picture below, Pinduoduo's R & D investment has surpassed that of Meituan.
Thus it can be seen that the substantial increase in net cash outflow from Meituan's business activities does not seem to be spent on marketing expenses and R & D expenses, or more on promotions or concessions to attract users, and its gross profit margin is 8.5% lower than the same period last year. 6.5% month-on-month decline or proof.
At the beginning of its takeout business, Meituan used this trick to establish his leading position. In new business, profit seems to be an effective way to compete for the market, but in the face of more fierce competition, there are large e-commerce platforms that are more willing to spend money and have more comprehensive ecology, as well as small and lean start-ups backed by financing consortia. Can Meituan still be invincible?
Summary
Meituan, who went public in 2018 and turned a profit in 2019, has a good hand. If he does not tell the story well at the time of listing, then the turnround in the second year and the strong profit growth in the third year are enough to bring it a winner's halo. The capital market has always worshipped heroes, and the turnround from losses to profits in 2019 and 2020 has given it ample room for appreciation, and its valuation has indeed risen sharply, and reached a high point at the beginning of this year.
Community group buying, launched in the second half of 2020, brought new stories and new losses to Meituan. The market once ignored losses and continued to push up Meituan's share price, but as regulation tightened, market confidence in large Internet companies began to shake. The model in which Internet companies used to be able to enjoy huge profits by controlling the ecological entrance of traffic is no longer applicable to the new situation, so their valuations have been remeasured.
Meituan's takeout and arrival business in the next few quarters may be under pressure due to the repetition of the epidemic, while it will take some time for the new business to turn around, and the short-term valuation may not be able to support it.