Why is the profitability of Meituan's in-store segment so important? Meituan's core local business includes two parts: home delivery (takeout, flash sales) and on-site wine travel. The core local business accounted for 75% of Meituan's total revenue in 23 years, and is Meituan's ballast stone. Among them, the in-store segment is still an arena for major internet companies due to its huge online potential.
Due to the rapid development of Douyin's local lifestyle, Meituan's market share and OP margin both declined in '23. However, the operating profit of the in-store business accounts for nearly half of Meituan's overall operating profit. We hope to systematically sort out the competitive environment Meituan faces, the current organizational structure, and the profit model of the in-store business, and try to give an elastic range of Meituan's door-to-door business OPM and operating profit under different levels of competition.
From fierce fighting to slowing competition, in the short term, Meituan and Douyin are focusing more on improving internal effectiveness. According to our estimates, the battle between Meituan and Douyin in 23 years may have drastically reduced the monetization rate and OPM of Meituan's in-store business. We believe that the battle between the two sides has eased somewhat in '24, and that both Meituan and Douyin have made many organizational structure adjustments with the aim of organizing and improving internal operating efficiency. Among them, Meituan integrates into the store+home business group, emphasizes core business collaboration, and strengthens supply-side advantages. Douyin, after changing the head of the business at the end of 23, placed more emphasis on commercializing local life in 24. Looking at the strategies behind both business leaders, Meituan may have long-term plans, and Douyin may focus on short-term breakthroughs. The market is worried that Douyin may continue to increase subsidies in the second half of '24, but we believe that Douyin under the current organizational structure will further balance the efficiency of local life and commercialization in other sectors, making it difficult to have aggressive subsidy strategies.
Profit elasticity estimation of Meituan's in-store business: We think the main background of the calculation is that during the window period when competition between the two sides eases, Meituan still needs to stabilize its market share. It is expected that under a neutral assumption, Meituan24's in-store OPM bottomed out and reached 34.5% throughout the year, but it will show a quarter-on-quarter improvement trend in '24; in '25, it will usher in a rebound in the next year, with a long-term steady increase.
1. According to estimates, the potential revenue range for Meituan's in-store business in 24 years is 50.8-62.7 billion, with a core of 56.6 billion; OPM's range is 32.5%-36.5%, and the core is 34.5%; the corresponding in-store operating profit range is 16.5-22.9 billion, and the core is 19.5 billion.
2. Based on pessimistic assumptions, the operating profit of Meituan's in-store business for 24-26 is 17.2/22.7/26.7 billion; under neutral assumptions, the operating profit for 24-26 is 19.5/26.5/32 billion; under optimistic assumptions, the operating profit for 24-26 is expected to be 22/30.6/38.2 billion. For 24-26, there is still 2.5/4.1/6.1 billion of flexible space from neutral to optimistic assumptions.
It is expected that local participants (Xiaohongshu, Kuaishou, Video) living locally in the short term will have less impact on the competitive landscape. The reason is: 1) Monetizing traffic alone is still walking on one leg, and there is no offline gripper. New players lack mature investment networks and business transaction systems in the vast offline system. 2) Based on prudent investment in the current macro environment. 3) Starting late, new players may have missed the “golden period” to seize the market. Comparing content platforms for newly introduced local lifestyle services horizontally, each company adopted a light operation model and carried out in-depth and refined operations in their respective vertical fields of expertise.
Investment advice: Considering that the company's revenue and profit exceeded expectations in the second quarter of '24, the external competition pattern is gradually becoming clear, and the core local business is expected to further unlock profit potential. We expect the company to achieve revenue of 332.9/391.9/445.3 billion yuan in 24-26 (previous value was 321.2/369.5/423.2 billion yuan), YOY +20%/18%/14%. We used the Segment Valuation Method (SOTP) and used local lifestyle service companies around the world as valuation references. Under a neutral assumption, we gave the net profit of the 24-year home business 20 x PE and the net profit of the in-store business 20 x PE, respectively, and carefully gave the new business 0xPE. Based on a neutral assumption, we gave Meituan a target price of HK$143.92 and maintained the “Recommended” rating.
Risk warning: Changes in policies and competition patterns; technological iterations change business models; macroeconomic fluctuations; subjective predictions of estimates and models may be biased.