Last Friday,$MEITUAN-W (03690.HK)$The fourth quarter and full year results of 2023 were announced. As of press release, Meituan opened 5% higher today.

Financial reports show that in the fourth quarter of 2023, Meituan achieved revenue of 73.696 billion yuan, a year-on-year increase of 22.6%; operating profit of 1,758 billion yuan, and adjusted net profit of 4.375 billion yuan.

Looking at the full year, Meituan's revenue for the full year of 2023 reached 276.745 billion yuan, an increase of 25.8% over the previous year, operating profit of 13.415 billion yuan, and adjusted net profit of 23.253 billion yuan, achieving another reversal in annual operating profit and a record high. At the same time, although the new business is still in a state of loss, the loss rate continues to decline.

Furthermore, at the performance meeting, Meituan executives also revealed the development of overseas business. According to reports, currently Meituan's business in Hong Kong, China is growing well. According to Meituan management, takeout is developing globally, and new growth opportunities may be in the US and Saudi Arabia. Currently, Meituan is evaluating new overseas markets.

Core local businesses such as in-store and wine tourism businesses are the “most profitable”

By business, the revenue of its core local business segment was 206.9 billion yuan, an increase of 28.7% over the previous year.

Meituan's core local businesses include takeout, flash sales, and in-store wine tours. The distribution business had annual revenue of 82.19 billion yuan, an increase of 17.3% over the previous year. The financial report explained that the increase in revenue was mainly due to an increase in the number of transactions and the number of active merchants. In 2023, Meituan instant delivery transactions amounted to 21.9 billion, an increase of 23.9% over the previous year.

GTV of in-store wine tours increased by more than 100% year-on-year throughout the year, with annual transaction users increasing by more than 30% and annual active merchants by more than 60%, all of which reached record highs.

Among them, the number of merchants active in the takeout business reached a new high every year. The data shows that in 2023, the number of Meituan instant delivery orders increased by 24% year-on-year to 21.9 billion.

In addition, Meituan Flash Sale also ushered in a continuous increase in order volume, with an annual order growth rate of more than 40% year-on-year. In the fourth quarter of 2023, the average daily order volume of Meituan flash sales reached 8.3 million. Young consumers gradually became the main users of Meituan flash sales, and the transaction frequency of core users increased by more than 20% over the same period last year.

Meituan management said during the earnings call that it is expected that the on-site wine tourism business will maintain high GTV growth in 2024, and maintain long-term confidence in the competitive landscape of the on-site, hotel, and travel business.

The loss rate of new businesses continues to decline, and it is preferable not to pursue expansion

Meituan's new businesses include Meituan Premium, Meituan Grocery Shopping, Catering Supply Chain Express Donkey, Online Car-hailing, Bike-Sharing, Motorbike Sharing, Power Banks, and Restaurant Management Systems.

Financial reports show that Meituan's new business revenue in 2023 was 69.8 billion yuan, an increase of 18% over the previous year; operating losses narrowed from 28.4 billion yuan in 2022 to 20.2 billion yuan in 2023, with a loss improvement ratio of 28.9%. Meituan said that it is mainly due to the improvement in operating efficiency of the new business.

Notably, the loss rate for new businesses has dropped from 70% in 22Q1 to 26% in 23Q4.

Little Elephant Supermarket (formerly Meituan Grocery Shopping) saw the most significant increase. The transaction amount for the full year of 2023 increased by about 30% year-on-year, making it the most prominent part of the new business.

However, in addition to this, businesses such as Meituan Premium are all facing contraction pressure.

In 2023, the development of the community e-commerce market came to a standstill, and there was a shortage of new players, while the original operators silently withdrew or disappeared one after another due to factors such as cost, scale, and efficiency, or moved to local regional operations.

In this context, the growth rate of Meituan Preferred has slowed, and the lack of scale effects, reduced subsidies, and competition from other channels have all led to significant annual losses and loss rates.

Financial data shows that the growth rate of Meituan Preferred will slow down in 2023. Meituan said that although the efficiency of Meituan Preferred has improved in 2023, the loss amount and loss rate are still significant. The reason is that the growth in the scale of the business fell short of expectations, making it difficult to drastically reduce the cost of each contract. Furthermore, fierce market competition makes it more difficult to raise commodity price increases and reduce subsidies. Meituan acknowledged in its earnings report that the community group buying market is more difficult than the company's previous expectations.

Regarding this business, Meituan said it will make strategic adjustments and improve the business model in 2024, with the goal of drastically reducing operating losses. At the same time, Meituan no longer emphasizes market share, plans to increase product price increases and reduce subsidies, and pay more attention to long-term growth in the natural retention rate of users.

Obviously, Meituan management realized that Meituan's preferred business was more difficult than expected. In the past, the highly competitive market for community group purchases made Meituan have to maintain high subsidies and low price increase rates. At the same time, contract fulfillment costs were also affected by the size of users, making it difficult to further reduce them.

As can be seen, Meituan's attitude towards preferential selection is shifting to retaining user operations, prioritizing existing customers and not pursuing expansion.

Drones actually completed more than 220,000 orders last year

It is worth mentioning that with the gradual implementation of low-altitude economic plans in many places, Meituan's drone business continues to expand to many cities and regions across the country.

Financial reports show that by the end of 2023, Meituan drones had completed more than 220,000 orders, covering various scenarios such as offices, communities, universities, scenic spots, municipal parks, and medical care.

Among them, during the Spring Festival holiday this year, over 80% of takeout orders from some merchants surrounding Shenzhen Talent Park were delivered by Meituan drones, driving sales of various products to increase more than fivefold over the “Eleventh” holiday.

It is worth mentioning that in February of this year, Meituan CEO Wang Xing announced a new round of organizational adjustments via email. In particular, drones and overseas business reported directly to Wang Xing. This highlights the importance Wang Xing attaches to the drone business.

“This has clear strategic value for future growth, but we can still see some uncertainty.” Wang Xing explained this arrangement at the performance analysis meeting, “I directly lead these tasks, and the relevant teams will report directly to me, so when flexible adjustments are needed, we can all respond quickly.”

Local life is quite stressful

It is worth noting that Meituan's stock price has been falling continuously. In order to stabilize the stock price, Meituan has continued to buy back since January 10. However, the buyback did not stop the decline; it once fell to HK$61 on February 16.

As to whether there is a repurchase plan in the future and how to view future shareholder return plans.

Wang Xing said at today's performance analysis meeting that prioritizing capital allocation in areas with a high-quality return on investment. If we have sufficient liquidity to conduct business, stock repurchases are our first choice to increase shareholder returns.

In the field of local life, in addition to Douyin, other platforms are also actively developing. For example, in September 2022, Kuaishou upgraded its local lifestyle business to an independent business division and established a local lifestyle division. Although it has only been a year and a half since it was founded, it is growing very fast

On March 21, Xiao Gu, senior vice president of Kuaishou and head of the local lifestyle division, said at the Kuaishou Local Life Concentration Ecology Conference that as an incremental platform with 700 million old iron users, the data showed that in the fourth quarter of 2023, the number of Kuaishou Local Life order users increased 23 times year on year, and GMV increased 25 times year over year.

What is behind the fall in stock prices reflects the pressure of Meituan's local life. Meituan is also increasing its investment in the live streaming business. In the fourth quarter of 2023, it not only deepened shelf-model merchant cooperation, but also further enhanced live streaming capabilities, enriched live streaming categories, and increased the frequency of live broadcasts.

Furthermore, recently, the organizational structure of Meituan's in-store and home-visit businesses is gradually being rejuvenated to cope with market competition. Recently, a reporter from New Consumer Daily learned that Meituan announced plans for a new round of rotation appointments for business leaders in the form of an internal letter. Among them, Wei Wei, vice president of Meituan, will be in charge of the restaurant division, Zhang Ruoyu will take over the position of head of the takeout fulfillment platform, while Xue Bing, who is a fresh graduate from the school, will become the head of the takeout division.

Editor/Somer