Source: Wall Street News

The king of local life$MEITUAN-W (03690.HK)$In 2023, the position was disrupted by the fierce siege by Douyin. Amid questioning, Meituan's market capitalization fell to 2 trillion dollars from a high point.

Meituan founder Wang Xing launched a counterattack with a series of internal reforms to refocus on core business. The results are now reflected in financial reports.

On March 22, Meituan released its annual report showing that the operating profit of the local core business was slightly higher than market expectations. In addition, online marketing resumed growth. Furthermore, new businesses continued to reduce losses, allowing investors to see Meituan's resilience.

Meituan's stock price also surged against the market on March 25. It rose 9.69% during the intraday period, and finally closed at HK$93.3 per share. Compared to the low in early February, Meituan's stock price rebounded by more than 50%.

However, Wang Xing didn't have time to take a break yet. The battleground of local life is rapidly changing. Douyin, Ali, Kuaishou, JD, etc. are all increasing their investment, and the market landscape will usher in a major reshuffle. As a big brother, Meituan will undoubtedly become a target for everyone. The real crisis may have just begun.

In this competition that has taken the entire internet by storm and rearranged the industry, it is still unknown whether Meituan will continue to take the throne.

counterattack

Faced with rival attacks and capital market questions, Meituan quickly adjusted its status and gradually found a rhythm to deal with it.

Its 2023 financial report shows that the market position of Meituan's home delivery business is gradually stabilizing, and the core local business shows flexibility in growth. Meituan is slowly recovering from its previous passive situation.

According to financial reports, Meituan's retail, hotel and travel business transaction amounts increased by more than 100% year-on-year in 2023, while annual trading users and annual active merchants increased by more than 30% and 60%, respectively.

In particular, in the fourth quarter, Meituan's commissions and online marketing services in core local businesses achieved revenue of 19.4 billion yuan and 10.9 billion yuan, with growth rates of 32.7% and 40.8%, returning to high growth. The growth rate of online marketing services increased by 10 percentage points over the previous quarter.

In the core takeout business, Meituan adopted a “price for quantity” approach to stimulate consumer demand by reducing takeout delivery costs.

In the fourth quarter, Meituan's distribution service revenue was 21.9 billion yuan, an increase of 10.9% over the previous year. The growth rate was lower than the performance of the previous three quarters. However, after reducing delivery fees, Meituan's takeout order volume was further increased. In the fourth quarter, Meituan's real-time delivery transactions amounted to 6 billion, an increase of 25.2% over the previous year. In 2023, Meituan's real-time delivery transactions amounted to 21.89 billion, an increase of 23.9% over the previous year.

The profitability of Meituan's core business has also begun to recover. In the fourth quarter, Meituan's operating profit from core local businesses was 8 billion yuan, up 11.1% year on year. The growth rate was 2.8 percentage points higher than in the third quarter, but it was still lower than in the first and second quarter.

In terms of performance, it was Meituan's series of counterattacks. From a content strategy that invigorates live broadcasts and short videos, to the frequent deployment of military personnel, Wang Xing promoted five vice presidents at once in September last year, and Meituan changed the situation where they had previously sat and waited to die.

Moreover, even the new business that Wang Xing values very much, Meituan has made a strategic shift, and the new business that has always plagued Meituan's performance has clearly reduced losses.

In the fourth quarter, Meituan's new business losses were reduced to 4.8 billion yuan, and losses in a single quarter fell below 5 billion yuan. In 2023, Meituan's new business lost a total of 20.2 billion yuan. Compared with 28.4 billion yuan and 35.9 billion yuan in the past two years, it has been drastically reduced.

Furthermore, Wang Xing gave clear guidelines for further loss reduction in the new business in 2024. In his earnings report, he acknowledged that the community group buying market is more difficult than previously anticipated. “In 2024, we will make strategic adjustments and improve our business model, with the goal of drastically reducing operating losses.”

Under a set of punches, the three main factors plaguing Meituan's performance: competition in the in-store business, the slowdown in takeout order growth, and continued losses in new businesses, have all gradually stabilized their positions, and there are ways to deal with them.

Agencies such as Citibank, J.P. Morgan Chase, and Macquarie are also optimistic about Meituan's changes over the past year, and have raised Meituan's target price or ratings one after another.

Macquarie said that although the competitive environment still exists, Meituan has successfully stabilized its market position and continuously expanded its user and merchant base, which will help Meituan achieve more stable development in the future. The bank believes that Meituan will reach a profit inflection point in the second half of this year.

Kuramori

Fourteen years ago, Meituan pioneered a new field of local life, and overcame fierce market competition to become the king of local life.

However, the strong entry of Douyin with over 600 million daily activity revealed a flaw in Meituan's apparently unbreakable moat; the departure of long-term investors heightened market concerns. In 2023, Meituan's stock price dropped by another 60%, and its former glory gradually faded.

Through a financial report in 2023, Wang Xing proved that Meituan's years of accumulation in the local lifestyle market could not be destroyed overnight. However, Douyin's attack destroyed Meituan's outer defenses, and Meituan's days of comfort came to an end.

Next, the local lifestyle market will enter a race for real giants. Zhuang Shuai, an expert in the retail e-commerce industry and founder of Bailian Consulting, believes that Meituan's challenge is competition in the in-store business brought about by Douyin Kuaishou's content platform, Xiaohongshu's community platform, and WeChat's social networking platform.

At the end of last year, Pu Yanzi, head of commercialization at Douyin Group, took over the local lifestyle business and updated the sales target from 400 billion yuan to 600 billion yuan to achieve double growth. Kuaishou also recently announced that it will invest 1 billion in platform subsidies and 100 billion dollars in traffic, so that all group purchases will be made at Kuaishou.

The old rival Ali is even more prepared to go. At the end of March, Ali Local Life Group will usher in a management iteration, and a group of management with technical backgrounds will step up to the front desk. Ali, who has been dormant for a long time, may take the initiative to boost takeout and instant retail by taking advantage of being hungry.

Even JD needs to get a leg up on instant retail. Recently, Wall Street News learned that JD Retail has decided the three major winning battles for 2024, including instant retail.

Meituan has become the target of division among the Internet powerhouses, and everyone wants to get a foothold in the local lifestyle market.

Wang Xing is also well aware of the current fierce competition in the market. He is focusing Meituan's efforts on raising his own moat.

In February, Meituan launched the biggest restructuring in recent years, merging the Dajia and Dantian business groups and uniformly handing them over to senior vice president Wang Puzhong. In March, Meituan made adjustments to the heads of the restaurant and other departments, so that more “young people” came to the front desk.

Meituan is also working hard to find new possibilities, including expanding into new markets. In February, Meituan further raised the priority of exploratory businesses such as technology and internationalization, with Wang Xing personally leading the charge.

After launching the takeaway brand KeeTA in Hong Kong, Wang Xing saw the possibility that Meituan's core competencies could be exported overseas. However, he also said that it took Meituan ten years to establish the current takeout business system domestically, and it also needs to be patient with the development of overseas business.

Meituan has begun to bet heavily on technology. It has successively invested in big model companies such as AI Unicorn Company Dark Side of the Moon and Smart Spectrum AI, as well as unmanned technology and robotics companies. Meituan is trying to enhance competitiveness through technology.

All of these actions suggest that Meituan is trying to regain its combat strength during the Battle of the Hundred Regiments and return to its “wolf nature.”

However, if Meituan, which has been at ease for a long time, wants to win the third war of local life, it may have to work far harder than the previous group buying and takeout wars.

After being baptized in the capital market in 2023, Meituan and Wang Xing will definitely think more clearly about the reshuffle of the Internet landscape. The commercial market is not stable, and for Meituan, more challenges are yet to come.

editor/tolk