"Burned" 58.6 billion, Meituan's "defense war" is fierce, and the market smells the risk?

"Rushing high and falling" and "opening high and going low" are the secondary market's reactions to Meituan's latest financial report.

On the first trading day (March 25) after Meituan released its earnings report, Meituan's share price rose and fell back from 9% to 5% throughout the day, and on the second trading day (March 26), after Meituan opened more than 2% higher, its stock price plummeted, falling more than 1% intraday to finally close at HK$93.4 per share, with the latest total market value of HK$582.32 billion.

It can be seen that the market is worried about Meituan's financial report, what are the hidden risks?

On the surface, Meituan's latest fourth-quarter and annual 2023 earnings report cards are a gratifying report card.

According to the financial report, Meituan achieved revenue of 276.74 billion yuan (RMB, the same below) last year, a year-on-year increase of 25.8%, adjusted net profit of 23.25 billion yuan, a year-on-year increase of 721.6%, and revenue of 73.7 billion yuan in the fourth quarter, a year-on-year increase of 22.6%, and adjusted net profit of 4.38 billion yuan, a year-on-year increase of 427.6%.

So, what exactly is the market worried about?

Local life, the war is back

Meituan started with group buying, and "local life" is undoubtedly an important base for Meituan, and it is also the core business that drives Meituan.

At present, the traffic giants led by Douyin and Kuaishou are launching an onslaught on the local life service track, and they have made a lot of gains. According to the "2023 Annual Data Report" released by Douyin, the total transaction volume of Douyin's life service platform will increase by 256% in 2023, with more than 4.5 million stores, covering 370+ cities, the number of settled service providers will increase by 1.79 times, the number of merchants cooperated with service providers will increase by nearly 2 times, and the total transaction volume of service providers will increase by nearly 8 times.

At the same time, the number of group buying influencers on the Douyin platform increased by 2.89 times, and the number of influencers visiting stores helped physical merchants increase their income by 94.6 billion, and compared with 2022, the transaction volume of short videos on the platform increased by 83%, and the transaction volume of live broadcast on the platform increased by 5.7 times.

It can be seen that Douyin is storming Meituan's strategic hinterland, which will undoubtedly affect Meituan's future growth. This is perhaps one of the most worrying risk points in the capital market.

In the face of Douyin's ferocious offensive, Meituan decided to fight, and a strategy codenamed "Beacon" emerged within Meituan: in 2023, this strategy is seen as a key plan to deal specifically with Douyin's offensive in the field of local life.

It can also be seen from the latest financial report that Meituan began to play against Douyin.

First of all, Meituan's "burning money" subsidy is increasing, specifically:

Sales and marketing expenses for the first quarter of 2023 were RMB10.4 billion, representing a year-on-year increase of 14.6%;

Sales and marketing expenses for the third quarter of 2023 were RMB16.9 billion, up 55.3% year-on-year and 16.2% quarter-on-quarter.

Sales and marketing expenses for the fourth quarter of 2023 were RMB16.7 billion, representing a year-on-year increase of 55.3%, and the selling expense ratio increased from 17.9% to 22.7%.

For the full year of 2023, Meituan's sales and marketing expenses reached 58.6 billion yuan, a year-on-year increase of 47.5%, and the proportion of revenue also increased from 18.1% in the previous year to 21.2%.

In other words, Meituan spent one-fifth of its revenue on marketing last year.

In this regard, Meituan said that the increase in the amount of sales and marketing expenses and the percentage of revenue was mainly due to the recovery of consumption, the business environment and changes in business strategies that led to the increase in user incentives, promotion and advertising spending. The decrease in operating profit was mainly due to the higher subsidy rate.

Meituan's active response seems to have temporarily held the base.

In the fourth quarter of 2023, Meituan's core local business revenue increased by 26.8% year-on-year to RMB55.1 billion, and operating profit increased by 11.1% year-on-year to RMB8.0 billion. However, the core local commercial segment operating margin declined to 14.5% in the fourth quarter from 16.6%.

Secondly, from the perspective of specific strategies, Meituan is aggressively increasing live broadcasts/special group purchases, increasing user incentives, etc., and has launched a first-level entrance for short videos and live broadcasts on the homepage of the APP.

In January this year, Zhang Chuan, president of Meituan, said in an internal open letter that the key to 2024 is low prices every day.

From this point of view, the pace of Meituan's "burning money" subsidy will not slow down for the time being, which will also restrict Meituan's profitability.

Judging from the external environment, the Internet giants, which have massive traffic in their hands, are likely to not stop attacking the local life field in the short term.

In the face of competitors with traffic advantages, Meituan's in-store business is vulnerable to shock.

The great retreat of new business

In the face of this earnings report, another risk point that the market is worried about may be that Meituan's future growth imagination space is getting smaller and smaller.

This is mainly due to the fact that Meituan's strategy for new businesses has begun to shrink aggressively.

According to the financial report, Meituan's new businesses include Meituan Preferred, Little Elephant Supermarket, Kuaidun, online car-hailing, bicycles and motorcycles, power banks, restaurant management systems, etc.

At the moment when the Internet dividend is disappearing, the strategies of various giants have begun to turn, reducing costs and increasing efficiency to "survive".

In this context, the new business that continues to lose money has undoubtedly become a big burden for Meituan. Among them, Meituan's preferred loss situation is particularly severe, and it has become the main target of Meituan's contraction.

In 2021, the operating loss of Meituan's new business was as high as 38.394 billion yuan, of which Meituan's cumulative loss exceeded 20 billion yuan.

Meituan suddenly realized that community group buying was a constant battle. As a result, Meituan began to lay off employees in April 2022, shut down the city, and shrink its community group buying business, and the contraction trend has continued until now.

According to the financial report, in 2023, as the market size of community e-commerce will be basically flat year-on-year, the growth rate of Meituan Optimal will slow down. Although Meituan's efficiency has improved in 2023, the amount and rate of losses are still significant.

Meituan said that although Meituan's efficiency has improved in 2023, the loss amount and loss ratio are still significant, because the growth of business scale is lower than expected, which makes it difficult to significantly reduce the average performance cost.

In addition, fierce market competition has made it more difficult to increase the markup rate and reduce subsidies, and Meituan also said in its earnings report that the community group buying market is more difficult than the company previously expected.

Wang Xing, founder and CEO of Meituan, also set the tone at this performance analysis meeting, saying that priority should be given to capital allocation in areas with high-quality return on investment.

This means that Meituan's contraction of new business will continue and at a faster pace. On the other hand, the contraction of new business also led to a reduction in losses.

According to the latest financial report, in the fourth quarter of 2023, Meituan's new business loss was 4.833 billion yuan, with a loss rate of 26%, the lowest level in history. The main reason for the decrease in losses was that Meituan reduced its investment.

This has naturally led to a slowdown in the expansion of Meituan's new business. In the fourth quarter of 2023, Meituan's new business achieved revenue of 18.565 billion yuan, a year-on-year growth rate of 11.5%, reaching a record low.

This means that Meituan's core business has limited room for growth, and new businesses are still burning money and losing money, and there is no high growth, which may be one of the internal reasons for the secondary market's concern about Meituan.