Meituan enters the ladder media advertising industry: "Number One" Focus Media faces new variables

A piece of news from Meituan (3690.HK) scared the leading elevator media company Focus Media (002027.SZ) with a market value loss of 4 billion.

On July 11th, the public account "Meituan Takeout Partner City" released a recruitment announcement for video elevator media advertising partners, mentioning Meituan's plan to recruit video elevator media advertising partners in lower-tier cities.

Meituan will provide equipment and business support, while partners will be responsible for equipment installation, sales, and ad production.

The market is concerned about Meituan's entry into the elevator media business, aiming to seize market share from the leading Focus Media.

On the day the news was released, Focus Media dropped over 6% after the midday break, closing down 4.65% at 5.74 yuan per share.

Focus Media publicly stated on the same day that they have reached a cooperation intention with Meituan to accelerate the development and operation of elevator video media in lower-tier cities. Focus Media and Meituan will first select some cities as pilot projects for this cooperation and gradually expand coverage based on the operation of these pilot cities.

Focus Media's founder Jiang Nanchun also responded on social media, saying, "We are working with Meituan to promote the operation of elevator video media in lower-tier cities, hoping to provide more comprehensive and high-quality services to small and medium-sized enterprises in the sinking market. Welcome to join."

It seems to have been a false alarm.

On July 12th, Focus Media closed up 5.57% at 6.06 yuan per share, recovering the previous day's decline completely as the opening price was the same as on July 11th.

However, questions remain. According to Meituan, they will provide equipment and business support to partners, who will be responsible for equipment installation, sales, and ad production. From upstream equipment procurement to downstream equipment installation and ad placement, Meituan and partners cover these aspects and share the benefits.

In which aspect will Focus Media, claiming to cooperate with Meituan, participate?

Focus Media's main profit model is to collect advertising fees from self-owned elevator media locations;

Will Meituan act as a key account customer of Focus Media, adopting a centralized procurement of elevator media resources for distribution, which determines the role Meituan plays in the cooperation with Focus Media.

TradeWind01 inquired about Focus Media and Meituan's cooperation-related questions, and the response was that they are still in the pilot preparation stage, with further information to be disclosed later.

Meituan officials also stated that they have no more information to provide.

From a business perspective, the benefits of the "partnership" between the two seem to align.

Regarding Meituan, since entering the local life business with Douyin, Meituan has faced significant pressure. Last year, Meituan issued a call for agents in towns and lower-tier markets, using a series of low-price actions such as group buying and flash sales to resist Douyin's attack.

Zheng Securities analyst Zhang Fengqi believes that Meituan's layout in elevator media is aimed at precise traffic diversion for Meituan merchants. For Meituan, with abundant local merchant resources, it is convenient to convert advertising placements from online to offline.

As for Focus Media, as early as this year's performance briefing, Jiang Nanchun stated that Focus Media will increase development in lower-tier cities this year, planning to add 100,000 building TVs in lower-tier cities.

As of the first quarter of this year, Focus Media had a total of 1.051 million self-operated elevator TV media, with 897,000 units in mainland China, over 90% located in first- and second-tier cities, and 72,000 units distributed in third-tier and below cities, accounting for only 8% Jiangnanchun believes that "for major advertisers in the current weak consumption situation, the business strategy is to focus on sinking." Compared to internet companies with millions of advertisers each year, Focus Media's main revenue gap lies in small and medium-sized clients, especially in lifestyle service clients. Focus Media can have a significant impact on businesses within a three-kilometer radius.

An analyst from a securities firm in East China told Xinfeng (ID: TradeWind01) that Focus Media's publication rate in the sinking market is relatively low. Introducing local life merchants from Meituan may increase the publication rate of some locations, thereby increasing Focus Media's revenue in the sinking market.

As early as 2019, Focus Media had already expanded its locations targeting the sinking market.

The 2019 interim report showed that as of July of that year, Focus Media's self-operated locations reached 2.705 million, with 557,000 locations in third-tier cities and below, accounting for as high as 21%. However, due to lower than expected publication rates, they have been continuously shrinking since then, with the proportion now reduced to only 8%.

Now, it seems urgent for Meituan, which needs to hold onto the sinking market, to enter the same market as Focus Media.

It is worth mentioning that as early as the "Thousand Group Battle" in 2012, Wang Xing explained his views on advertising:

"Spending money is always very easy. Everyone advertises, but others may not remember you. You have to continue to invest, but you can't afford it, otherwise you are just feeding Focus Media."

Ten years have passed, and Meituan's competitors have become fewer and stronger.

However, it is still unknown how much advertising Meituan can bring to Focus Media.

This depends on the form of cooperation between the two, as well as Meituan's determination to spend money. After all, Meituan still has loss-making businesses such as Meituan Select, Xiaoxiang Supermarket, and international operations that need financial support