Meituan lost 2 trillion

Author | Liu Baodan

Edit | Zhang Xiaoling

Three years ago, Meituan's market capitalization was as high as 2.4 trillion yuan, making it the third largest Internet company in China by market capitalization.

Since then, Meituan's share price has been declining, falling 63% so far last year. On January 17, Meituan fell below the issue price of HK$69 at the time of listing, but still did not stop its decline. As of January 31, Meituan's market capitalization has lost 2.08 trillion yuan at its peak.

Meituan, the king of local life, and its helmsman, Wang Xing, seem to have entered their darkest moments.

In the past year, Meituan's obvious threat has been an attack on Douyin's local life, and the hidden reason is that Meituan's business model has not yet been proven successful, the moat is not strong enough, and investors are worried about the continuous loss of food delivery and the burning of money in community group buying.

This is no longer the case. Investors are no longer willing to pay for burning money and hope, they just want to reap the ready-made profits and fruits.

Meituan and Wang Xing have once again come to a crossroads. Whether to continue to diversify, or shrink and return to takeaway and in-store business, focusing on profits, Meituan must choose a clearer and more thorough route.

Meituan, which won the battle of 100 regiments and 1,000 regiments, has enjoyed a good time of being invincible in local life for several years, but innovation is always happening, challengers can appear at any time, and no one can always be king in this vast market in China.

Under pressure

In the past year, the battle between Douyin and Meituan over local life has been a hot topic in the Internet industry.

Douyin has opened up the opening of local life with its in-store business, making the boss Meituan fall into a passive situation.

Recently, there have been market rumors that Douyin is acquiring Ele.me, and the two sides have reached the stage of price negotiation. On December 19, the day the news broke, Meituan fell by 8% intraday, and in the following month, Meituan fell by 18.56%.

Although on January 24, Yu Yongfu, chairman of Ali Local Life Group and CEO of Ele.me, personally refuted the rumors, saying that the acquisition was fake, it still failed to resolve the market's concerns.

A local life industry insider said that Douyin's acquisition of Ele.me is a business justification, and Ele.me can make up for Douyin's offline capabilities, and if the cooperation is reached, it will deal a greater blow to Meituan.

In fact, since the beginning of last year, Douyin has shown its ambitions for local life, which has also put pressure on Meituan's stock price.

On February 8, 2023, it was rumored in the market that Douyin would launch a nationwide takeaway service, and Douyin sources also revealed that it would be carried out in some pilot cities.

On the same day, Meituan fell more than 9% intraday and closed down 6.48%, and investors exclaimed "wolf". Since then, Meituan's stock price has changed color.

In the past, Meituan's profit logic was that the food delivery service supported by millions of riders formed a huge traffic entrance, and although the food delivery was at a loss, the traffic it brought empowered Meituan's online business, and the in-store, hotel and travel business contributed considerable profits to Meituan with high gross profit margins.

However, Douyin, with its online advantage of 700 million daily active users, leveraged the growth of scale through low-cost group buying, and quickly expanded its in-store business. According to the data, the total transaction volume of the Douyin life service platform will increase by 256% in 2023.

According to Haitong International Research Report, Douyin's local life GTV (total transaction value) will account for about one-third of Meituan in 2023, close to 200 billion yuan.

Such rapid growth makes Meituan feel deeply threatened. Zhuang Shuai, the founder of Bailian Consulting, believes that the in-store business can tear through Meituan's seemingly impregnable thick walls. TikTok has launched an attack.

In the face of aggressive opponents, on January 7, Zhang Chuan, senior vice president of Meituan and president of Meituan's in-store business group, issued a rare internal letter saying that opponents are becoming stronger, and the opponents defeated by Meituan in the past have weaknesses, and now they are all-rounders.

Zhang Chuan's frequent references to words like war and change give the outside world a glimpse of Meituan's pressure, and also let people see a Meituan that is eager for change.

This is the first time in recent years that Meituan, the king of local life, has encountered such a powerful threat, and investors have suddenly discovered that Meituan is not without rivals, and its uniqueness in the capital market is disappearing.

future

On the surface, Meituan's share price fell because of Douyin's entry into the food delivery market, but fundamentally, Meituan's decline is more due to the hidden concerns of its business model.

On the one hand, Meituan, which had the last laugh in the battle of a thousand regiments, is being breached by its opponents with the moat built by millions of riders, and the profit margin of local life is declining; on the other hand, it continues to burn money and lose money in new business, and the total loss of new business has exceeded 70 billion yuan in the past three years.

After the Internet industry as a whole entered the stage of reducing costs and increasing efficiency, no one can afford such losses.

Shen Meng, director of Xiangsong Capital, believes that Meituan's advantage lies in its local living infrastructure, and the current challenges lie not only in competitive pressure, but also in business risks such as shrinking demand and rising costs.

Meituan is unique among Chinese internet companies. Wang Xing emphasized that Meituan has no borders, and can do almost anything from takeaway, group buying, wine and tourism, ticketing, to supermarkets, medical beauty and other businesses.

Meituan's core killer weapon is low-cost operation. Wang Xing summed it up as "three highs and three lows", achieving high quality through high technology and high efficiency, and achieving low cost, low price and low gross profit, with which Meituan is invincible all over the world.

For the past seven years, Meituan has been the boss of local life, allowing its market value to soar even if it loses money after going public.

But the good days are over. A Meituan investor believes that as Chinese concept stocks enter a downturn, the valuation paradigm of technology stocks in the secondary market has shifted to PE price-to-earnings ratio valuation, focusing on the company's overall profitability and no longer valuing different sectors separately.

In this regard, in the third quarter of last year's conference call, Wang Xing publicly stated that the secondary market seriously undervalued Meituan, and the current stock price only reflects the valuation of a single food delivery business, which is not in line with the company's intrinsic value.

Investors did not heed the call. Meituan's stock price is still falling. Big bosses such as Ma Huateng and Shen Nanpeng, who used to stand behind Meituan, also began to cash out.

In August last year, Sequoia China liquidated its stake in Meituan, cashing out HK$3.416 billion, reducing its shareholding from 12.05% at the time of Meituan's listing to 1.86%, and in 2022, Tencent has paid dividends to reduce its stake in Meituan.

However, in the past year, Meituan has not sat still, but has actively fought back.

Zhang Chuan believes that Meituan's advantages are still there, including the user mentality of "low price + fast" and "comprehensive + high-quality", and the supply and coverage of merchants that change with time have brought absolute low costs.

In the eyes of the industry, as long as Meituan sticks to its cost advantage, it can curb the expansion of its competitors.

Meituan is also working hard to focus on and improve its core business, and even penetrate into the hinterland of Douyin. In July last year, the Meituan app was officially launched for live broadcast, and three months later, the monthly GMV has exceeded 2 billion.

It is conservatively estimated that by the end of 2023, the transaction volume of Meituan Live will reach 10 billion. Meituan insiders told Wall Street that the actual number could be higher. The company is now relatively low-key, and the short-term goal is still to improve the basic ability of live broadcasting.

At the same time, Meituan is also trying to open up new incremental markets. In May 2023, Meituan launched a new food delivery brand KeeTa in Hong Kong, and in December, KeeTa's market share in Hong Kong rose to 37%, ranking second.

UBS believes KeeTa poses a serious threat to European food delivery platforms Delivery Hero and Deliveroo in Hong Kong and elsewhere, which are facing strong rivals.

However, from the perspective of the industry, Meituan's core business model is supported by riders, and compared with e-commerce, Meituan faces more complex challenges, such as cultural systems and policies and regulations. In addition, whether the market size of takeaway can cover labor costs is also a huge test.

Over the past decade, Meituan has experienced the Battle of 100 Regiments and the War of Food Delivery, and has grown from a brutal market competition to the king of local life.

At its peak, Meituan was China's third-largest Internet company after Tencent and Alibaba, and in Shen's eyes, Wang Xing was one of the few thinkers with a clear understanding of China's savage growth of the Internet landscape.

Wang Xing once carved a bloody path in the fierce battle of local life and put Meituan on the throne, and now he must forge a new path of growth and restore Meituan's former glory.