UBS: Alibaba's launch of the "Gaode Street Ranking" is the first step in entering the in-store business, competing with Meituan has expanded from instant retail to in-store

UBS released a report stating that Alibaba-W (09988.HK) subsidiary Amap officially launched the "Amap Street Ranking" feature yesterday. Compared to traditional user evaluations, Amap has adopted an AI-driven ranking method based on users' real behaviors, including the number of users navigating to a certain merchant, repurchase rates, willingness to visit, and the diversity of visitors. The system also integrates personal profiles and credit ratings of Alipay users to enhance accuracy. Amap emphasized that this ranking is not designed for monetization, initially covering over 300 cities and providing recommendations for 1.6 million local merchants, including restaurants, hotels, and attractions. To encourage user participation, Amap will invest 1 billion RMB as platform subsidies to support travel and in-store consumption. The bank expects these measures to bring an additional 10 million user visits daily to local merchants. Meanwhile, Meituan-W (03690.HK) announced that it will integrate its self-developed large language model (LLM) into Dianping, upgrading the review filtering mechanism, and will launch a consumer-facing "Agentic AI" service within a week.

In terms of in-store business, this demonstrates Alibaba's ambition in local life services. Following increased investments in food delivery and instant retail, the bank believes Amap's upgrade is the first step in its entry into in-store business, contrasting with Meituan's local search-focused model. According to QuestMobile data, Amap currently has 170 million daily active users, handling over 120 million searches and 13 million local merchant navigations daily, while Dianping has 33 million daily active users (about one-fifth of Amap). However, Meituan still holds advantages in user perception, accumulated reviews, and merchant relationships in local services. The bank will continue to monitor Amap's progress in local life services, including the upcoming pilot launch of in-store group buying features (some cities have already begun testing).

Regarding food delivery, UBS indicated that merchant expansion for Alibaba's Ele.me is expected to accelerate. Channel surveys show that Meituan's food delivery covers about 5.6 million restaurants, while Ele.me covers 3.4 million, showing a significant gap (QuestMobile data). Based on Amap's LBS (location-based services) and user behavior data, it may help Ele.me more effectively expand into small and medium-sized merchants, especially in third- and fourth-tier cities, potentially narrowing the merchant supply gap with Meituan.

As for Amap's long-term monetization potential, although it remains primarily non-monetized in the initial phase, if Amap's measures are successfully implemented, user traffic growth is expected to bring advertising, brand placement, and other monetization opportunities in the future. Currently, Amap is still categorized under Alibaba's "Others" segment, recording a loss of 1.4 billion RMB as of the June quarter.

UBS believes that Amap's upgrade reflects the dynamic competitive landscape of local life services and has extended from instant retail to in-store business (Meituan's most profitable segment). Looking ahead to the fourth quarter, the focus is expected to shift from food delivery to non-food instant retail (after the summer peak season and Double 11) and in-store business (potentially leveraging traffic during the Golden Week). Currently, the e-commerce segment remains relatively volatile. In terms of stocks, the bank is more optimistic about Alibaba, citing reasons such as peak investment in instant retail, strong performance from the core Taotian Group, and the ongoing development of AI themes. If executed properly, Alibaba's long-term value is expected to be released JD-SW (09618.HK) currently has a forecasted core price-to-earnings ratio of only 7 times for 2025, indicating a low valuation. The short-term risk-reward is attractive, but due to potential lower-than-expected investment in food delivery, core e-commerce remains stable, though the market still needs to observe whether core profits can stabilize.

As for Meituan, the firm maintains confidence in its moat and execution capability, believing its long-term leadership position remains unchanged. However, it is cautious in the short term, as Meituan is relatively passive in dynamic competition, and the market still has doubts about the intensity and duration of its competition