Meituan announced its 4Q23 earnings report on March 23. 4Q23 achieved revenue of $73.7 billion, up 22.6% year on year; 4Q23 instant delivery transactions were 6.05 billion orders, up 25.2% year on year; 4Q23 adjusted EBITDA of 3.7 billion yuan, as of December 31, 2023, of $33.3 billion in cash and cash equivalents.
Brief review:
We believe that the company will have three major inflection points in the future. (1) Performance was consolidated, and losses were drastically reduced in the new business plan.
In 2024, Meituan Preferred adjusted its strategy to improve its business model, with the goal of drastically reducing operating losses. Rather than focusing on market share, more emphasis will be placed on building core competitiveness and improving user experience. In the future, it is planned to increase the product price increase rate and reduce subsidies, and pay more attention to the long-term growth of the natural retention rate of users. (2) Continuous optimization of the in-store business model. In 2023, the amount of in-store, hotel and travel transactions increased by more than 100% year over year, and the number of annual transaction users and annual active merchants increased by more than 30% and 60%, respectively. We are optimistic that the company will consolidate barriers and gain incremental share through rich merchant supply and continuously optimized digital capabilities. (3) Improved operating efficiency after organizational structure adjustment. According to the WeChat account of Xinhuanet Finance, in February, Meituan integrated a number of core local business-related businesses and further raised the priority of businesses related to technology and internationalization. We are optimistic that management efficiency will improve after the organizational structure is adjusted.
Business Overview: (1) Performance: 4Q23 achieved revenue of 73.7 billion yuan, an increase of 22.6% year on year; gross profit margin of 35.3%, an increase of 1.4 pct month on month; the company's 4Q23 operating profit was 1.8 billion yuan, and the operating profit margin was 2.4%. Adjusted EBITDA was 3.7 billion yuan, up 26.5% year on year; adjusted net profit was 4.4 billion yuan, up 427.6% year on year.
(2) Operating data: In 4Q23, the number of instant delivery transactions was 6.05 billion, an increase of 25.2% over the previous year. Among them, ① Meituan Flash Sale: Order volume increased by more than 40% year on year in 2023, annual active merchants increased by nearly 30% year on year, and Meituan Lightning Store has covered more than 200 cities. ② In-store, hotel and travel: In 2023, in-store, hotel and travel transaction amounts increased by more than 100% year-on-year, and the number of annual trading users and annual active merchants increased by more than 30% and 60%, respectively. ③ New business: The front warehouse business, Meituan Grocery Shopping, was upgraded to a new brand, and officially transformed from a grocery category to an online supermarket. The transaction amount increased by about 30% year-on-year in 2023.
(3) Division: ① Core local business: Core local business revenue of 55.1 billion yuan, an increase of 26.8% over the previous year. Operating profit increased 11.1% year over year to $8 billion, and operating margin was 14.5%. ② New business: 4Q23 revenue of 18.6 billion yuan, up 11.5% year on year; operating loss of 4.8 billion yuan, narrowing 24.1% year over year, loss rate of 26.0%, narrowing 1.2 pct month on month.
Expenses: The total cost of 4Q23 was 24.9 billion yuan, with a cost rate of 33.8%, an increase of 3.1 pct over the previous year. Among them, sales and marketing expenses were 16.7 billion yuan, an increase of 55.3% over the previous year, and the sales and marketing expenses ratio was 22.7%, an increase of 4.8 pcts over the previous year. Motivation, promotion and advertising expenses for trading users increased mainly due to the recovery of consumption and changes in the business environment and business strategy. R&D investment was 5.4 billion yuan, which remained stable year on year. The R&D cost rate was 7.4%, a decrease of 1.3 pct year over year, benefiting from improved operating leverage; administrative expenses were 2.7 billion yuan, up 10.2% year on year, and the administrative expense ratio was 3.7%, which remained stable year on year.
Cash reserves are sufficient. As of December 31, 2023, the company held $33.3 billion in cash and cash equivalents and invested $111.8 billion in short-term financial management. The company's net operating cash flow for the full year of 2023 was 40.5 billion yuan; net investment cash flow - 24.7 billion yuan; and net financing cash flow - 2.8 billion yuan.
Updated profit forecast and valuation: Revenue for 2024-2026 is expected to be RMB 3288, 3817, and 437.4 billion yuan, respectively, up 19%, 16%, and 15% year-on-year, and adjusted net profit of RMB 376, 478, and 59.7 billion yuan, respectively. Takeout, flash sales, in-store wine tours, and new businesses use SOTP valuations. The overall rating is “superior to the market” with a reasonable market value range of HK$0.70 trillion to HK$0.81 trillion in 2024 and a reasonable value range of HK$113-130 per share for H shares.
Risk warning: Industry competition intensifies; new business falls short of expectations; market regulation risks; infrastructure economies of scale are not significant.