Source: Wall Street News

Three years ago,$MEITUAN-W (03690.HK)$With a market capitalization of 2.4 trillion dollars, it has become the third-largest Internet company in China by market capitalization, and the scenery is limitless.

Since then, Meituan's stock price has been falling all the way down, and has dropped 63% since last year. On January 17, after Meituan fell below the issue price of HK$69 at the time of listing, the decline continued. As of January 31, Meituan's market capitalization fell from a high point to 2.08 trillion yuan.

Meituan, the king of local life, and Wang Xing, who is at its helm, seem to have entered the darkest hour.

In the past year, Meituan's apparent threat was an attack launched by Douyin on local life; the hidden reason is that Meituan's business model has not been successfully verified, the moat is not strong enough, and takeout continues to lose money, and community group purchases are burning money, leaving investors full of concerns.

Today is different from the past. Investors are no longer willing to pay for money and hope; they just want to reap ready-made profits and fruits.

Meituan and Wang Xing have once again reached a crossroads. Meituan must choose a clearer and more thorough route whether to continue to diversify, or to shrink back to the takeout and in-store business and focus on profit.

Meituan, who won the Battle of the Hundred and Thousand Teams, enjoyed years of unrivaled local life, but innovation is happening all the time, and challengers will appear at any time. In this vast market in China, no one can always be king.

Under pressure

Over the past year, Douyin and Meituan's clandestine disputes over local life have been a hot topic in the Internet industry.

Douyin tore apart local life with its in-store business, leaving the boss Meituan in a passive situation.

According to recent market rumors, Douyin is in the process of buying, are you hungry? The two sides have already reached the price negotiation stage. On December 19, the day the news broke, Meituan's intraday decline once reached 8%. In the following month, Meituan's intraday decline reached 18.56%.

Although Yu Yongfu, chairman of Ali Local Life Group and CEO of Hungry, personally refuted the rumor that the acquisition was fake on January 24, he still failed to resolve market concerns.

A local lifestyle industry insider said that Douyin's acquisition of Hungry has business rationality. Hungry can make up for Douyin's offline capabilities, and if cooperation is achieved, it will cause a greater impact on Meituan.

In fact, since the beginning of last year, Douyin has shown ambition for local life, which has also continued to put pressure on Meituan's stock price.

On February 8, 2023, it is rumored that Douyin will launch a nationwide takeout service. Douyin sources also revealed that it will be carried out in some pilot cities.

On the same day, Meituan fell more than 9% intraday and closed down 6.48%. Investors exclaimed “The wolf is here.” Since then, Meituan's stock price has “shaken” and changed color.

In the past, Meituan's profit logic was that takeout services supported by millions of riders formed huge traffic entrances. Although takeout losses were lost, the traffic it brought empowered Meituan's online business. With high gross profit margins, the in-store, hotel, and travel businesses contributed considerable profits to Meituan.

However, with the online advantage of 700 million daily activities, Douyin quickly expanded its in-store business by leveraging large-scale growth through low-cost group purchases. According to the data, the total transaction volume of Douyin Life Service Platform increased by 256% in 2023.

In addition, according to Haitong International Research Report, Douyin Local Life GTV (total transaction volume) accounted for about one-third of Meituan in 2023, close to 200 billion yuan.

Meituan is deeply threatened by such rapid growth. Zhuang Shuai, founder of Bailian Consulting, believes that the in-store business can tear apart the seemingly indestructible walls of Meituan. TikTok has launched an attack.

Facing aggressive opponents, Zhang Chuan, senior vice president of Meituan and president of Meituan's store business group, issued a rare internal letter on January 7 stating that their opponents are getting stronger. The opponents Meituan defeated in the past all had weaknesses, and now they are all all-rounder players.

Zhang Chuan frequently mentioned words such as war and change, which gave the outside world a glimpse of Meituan's pressure, and also made people see that Meituan is anxious to seek change.

This is the first time in recent years that Meituan, the king of local life, has faced such a strong threat, and investors suddenly discovered that Meituan is not without rivals; its uniqueness in the capital market is disappearing.

future

On the surface, the fall in Meituan's stock price is due to Douyin's takeout market, but fundamentally speaking, Meituan's decline is also due to hidden concerns about its business model.

On the one hand, Meituan, which had the last laugh in the Battle of the Thousand Teams, the moat built with millions of riders is being broken by rivals, and the profit margin for local life is falling; on the other hand, the new business continues to burn money and lose money. Over the past three years, the total loss of the new business has exceeded 70 billion yuan.

After the Internet industry as a whole has entered a stage of cost reduction and efficiency, no one can afford such losses anymore.

Shen Meng, director of Chanson Capital, believes that Meituan's advantage is that it has the infrastructure to live locally. In addition to competitive pressure, the challenges it is currently facing are more business risks such as shrinking demand and rising costs.

Meituan is a unique presence among Chinese internet companies. Wang Xing emphasized that Meituan has no boundaries and can do almost anything from takeout and group purchases to wine tours and ticketing, to supermarkets, medical and aesthetic businesses.

Meituan's core killer is low cost operation. Wang Xing summed it up as “three highs and three lows”, achieving high quality through high technology and high efficiency, and achieving low cost, low price, and low gross profit. With this, Meituan is invincible in the world.

Over the past seven years, Meituan has always been the leader in local life, allowing its market value to soar even after losing money after going public.

But the good days are over. A Meituan investor believes that with China Securities falling into a slump, the second-tier market's valuation paradigm for technology stocks has changed to PE price-earnings ratio valuation, focusing on the company's overall profit level, and no longer valuing different sectors separately.

In response, during a conference call in the third quarter of last year, Wang Xing publicly stated that the secondary market seriously underestimates Meituan, and that the current stock price only reflects the valuation of a single takeaway business and is not in line with the company's intrinsic value.

Investors didn't listen to this shouting. Meituan's stock price is still falling incessantly. Big names such as Ma Huateng and Shen Nanpeng, who used to stand behind Meituan, have also begun to cash out.

In August of last year, Sequoia China liquidated its holdings of Meituan and cashed out HK$3.416 billion. The shareholding ratio fell to 1.86% from 12.05% at the time of Meituan's listing; in 2022, Tencent already reduced its holdings in Meituan through dividends.

However, in the past year, Meituan did not sit back and wait, but actively fought back.

Zhang Chuan believes that Meituan's advantages still exist, including the “low price+fast” and “comprehensive+high quality” user mentality. The changing supply and coverage of merchants over time has brought absolute low costs.

In the industry's view, as long as Meituan keeps its cost advantage to the end, it can curb the expansion of competitors.

Meituan is also working hard to focus on and enhance its core business, and even go deep into the Douyin hinterland. In July of last year, the Meituan app was officially launched for live streaming. Three months later, GMV in a single month has already surpassed 2 billion.

It is conservatively estimated that by the end of 2023, the transaction volume of Meituan Live will reach 10 billion dollars. Meituan insiders told Wall Street News that the actual numbers may be higher. The company is currently keeping a low profile, and the short-term goal is still to improve basic live streaming capabilities.

At the same time, Meituan is also trying to open up new incremental markets. In May 2023, Meituan launched a new takeaway brand KeeTA in Hong Kong. In December, KeeTA's market share in Hong Kong rose to 37%, ranking second.

UBS believes that Keeta poses a serious threat to European takeout platforms Delivery Hero and Deliveroo in Hong Kong and elsewhere, and the latter are facing strong rivals.

However, in the industry's view, the bottom layer of Meituan's core business model is supported by riders. Compared to e-commerce going overseas, Meituan faces more complex challenges, such as cultural systems and policies and regulations. Furthermore, whether the size of the takeout market can cover labor costs is also a huge test.

Over the past ten years, Meituan has successively experienced the Hundred Regiments War and the Takeout War, and has grown from a fierce market competition to the king of local life.

At its peak, Meituan was the third-largest Internet company in China after Tencent and Ali. In Shen Nanpeng's eyes, Wang Xing was one of the few thinkers with a clear understanding of the barbaric growth of the Chinese Internet landscape.

Wang Xing once broke out in the fierce clashes of local life and brought Meituan to the position of king. Now, he must once again break out on the path of growth and restore Meituan's former glory.

editor/tolk