Douyin is at different stages of business development, and the estimated merchant coverage rate is about 30% of Meituan. 1) Food delivery: The coverage of merchants is relatively complete, and the number is growing steadily; 2) To the market: the growth rate of the number of retail merchants is slowing down, but new categories continue to be developed; 3) Wine tourism: the entry rate of merchants continues to increase, and live streaming has become a new growth point. From the perspective of merchant coverage, at the end of 2023, Douyin Life Service Business cooperated with 4.5 million stores. According to Meituan's financial report, the number of active Meituan merchants in 2022 was 9.3 million, an increase of more than 60% in 2023, and is estimated to be 14.88 million.

Both Douyin and Meituan have stable basic markets. Meituan is better than operations, Douyin is better than products, and Douyin develops new differentiated businesses.

ü We believe that Douyin's products break the regional scale effect model, are suitable for large KA operations, and standardize services. For large chain merchants, they can boost the country through Douyin, turning group purchase service vouchers into a form similar to e-commerce sales. Furthermore, Douyin's video and live streaming formats have expanded categories that Meituan did not have before, such as real estate, retail vouchers, driving schools, etc.

ü Since Meituan's evaluation system is more suitable for merchants to operate effectively, small and medium-sized businesses are the basic market. For merchants, Douyin is a higher-level operating method; content production is difficult, talent costs are high, and the distribution ratio is not large, making Douyin unfriendly to small and medium-sized businesses. Although Douyin is trying to use cloud chains to sell standardized products from small to medium businesses, Douyin has no time to consider more non-standardized small and medium-sized service providers. Meituan has a strong marketing team, and through the company of offline sales teams, small and medium-sized businesses operate steadily on Meituan.

Overall, we believe that since this year, Douyin GTV's growth has been relatively weak. It is not only a short painful period brought about by organizational adjustments, but also a correct strategy based on the development stage. As merchant penetration gradually completed, Douyin embraced its product advantages and explored new differentiated businesses rather than winning competition through price wars.