Meituan loses 2 trillion in market value

Author: Liu Baodan

Editor: Zhang Xiaoling

Three years ago, Meituan had a market value of 2.4 trillion yuan, becoming the third largest internet company in China by market capitalization, with unlimited glory.

Since then, Meituan's stock price has been declining, dropping by 63% from last year to the present. On January 17th, after Meituan fell below its IPO price of HKD 69, the downward trend continued. As of January 31st, Meituan's market value has dropped by 2.08 trillion yuan from its peak.

The king of local life, Meituan, and its leader Wang Xing, seem to have entered their darkest moment.

In the past year, Meituan's explicit threat came from ByteDance's attack on the local life sector, while the implicit reason is that Meituan's business model has not been successfully validated, and its moat is not strong enough. Continuous losses in food delivery and burning money in community group buying have made investors worried.

Times have changed. Investors are no longer willing to burn money and hope for future returns. They only want to reap immediate profits and rewards.

Meituan and Wang Xing have once again come to a crossroads. Should they continue to expand and diversify, or should they retract and focus on food delivery and in-store businesses to maximize profits? Meituan must choose a clearer and more thorough path.

Meituan, which emerged victorious in the battle of a hundred and a thousand groups, enjoyed years of dominance in the local life sector. However, innovation is always happening, and challengers can emerge at any time. In the vast Chinese market, no one can be king forever.

Under Pressure

In the past year, the fierce competition between ByteDance and Meituan in the local life sector has been a hot topic in the internet industry.

ByteDance, with its in-store business, has opened up a new front in the local life sector, putting the industry leader Meituan in a passive position.

Recent market rumors suggest that ByteDance is acquiring Ele.me, and the two parties have entered the price negotiation stage. On December 19th, the day the news broke, Meituan's stock price dropped by 8% at one point. In the following month, Meituan's stock price fell by 18.56%.

Although on January 24th, Yu Yongfu, Chairman of Alibaba's local life group and CEO of Ele.me, personally denied the acquisition rumors, the market's concerns have not been resolved.

An industry insider in the local life sector said that there is business rationale for ByteDance to acquire Ele.me. Ele.me can complement ByteDance's offline capabilities, and if the cooperation is successful, it will deal a bigger blow to Meituan.

In fact, since the beginning of last year, ByteDance has shown ambitions in the local life sector, putting continuous pressure on Meituan's stock price.

On February 8th, 2023, market rumors spread that ByteDance will launch nationwide food delivery services, with insiders revealing that it will be piloted in select cities.

On that day, Meituan's stock price dropped by more than 9% during trading and closed down 6.48%. Investors exclaimed, "The wolf is coming." Since then, Meituan's stock price has been fluctuating.In the past, Meituan's profit logic was that the massive traffic generated by the food delivery service supported by millions of riders empowered Meituan's online businesses. Although the food delivery service was losing money, the traffic it brought enabled Meituan to contribute substantial profits through its in-store, hotel, and travel businesses, which had higher gross profit margins.

However, ByteDance, with its 700 million daily active users and online advantages, quickly expanded its in-store business through low-price group buying, leveraging its scale. Data shows that ByteDance's total transaction volume on its lifestyle service platform is projected to grow by 256% by 2023.

According to Haitong International's research report, ByteDance's local lifestyle Gross Transaction Value (GTV) is expected to account for about one-third of Meituan's by 2023, reaching nearly 200 billion yuan.

This rapid growth has posed a significant threat to Meituan. Zhuang Shuai, the founder of Bailian Consulting, believes that the in-store business can break through Meituan's seemingly invincible fortress. ByteDance has already launched an attack.

Facing such a formidable opponent, on January 7th, Zhang Chuan, Senior Vice President of Meituan and President of Meituan's In-store Business Group, issued an internal letter, stating that the competition is getting stronger, and the opponents Meituan has defeated in the past all had weaknesses, but now they are all versatile players.

Zhang Chuan frequently mentions words related to war and change, revealing the pressure Meituan is under and showing that Meituan is eager for change.

This is the first time in recent years that the king of local lifestyle, Meituan, has encountered such a strong threat, and investors have suddenly realized that Meituan does have competitors, and its uniqueness in the capital market is disappearing.

Future

Superficially, the decline in Meituan's stock price is attributed to ByteDance's entry into the food delivery market. However, fundamentally, Meituan's downfall is due to concerns about its business model.

On the one hand, Meituan, which once had the last laugh in the battle of a thousand group buying platforms, is seeing its moat built with millions of riders being breached, leading to a decline in the profitability of its local lifestyle business. On the other hand, its new businesses continue to burn money and incur losses. Over the past three years, the total loss from these new businesses has exceeded 70 billion yuan.

In an industry where the internet as a whole is entering a stage of cost reduction and efficiency improvement, such losses are no longer sustainable.

Shen Meng, a director at Xiangsong Capital, believes that Meituan's advantage lies in its infrastructure for local lifestyle services. Currently, the challenges it faces are not only competition pressure but also operational risks such as shrinking demand and rising costs.

Meituan is a unique presence among Chinese internet companies. Wang Xing emphasized that Meituan has no boundaries and can do almost anything, from food delivery and group buying to hotel and travel services, and even supermarkets and medical aesthetics.

Meituan's core weapon is low-cost operations. Wang Xing summarized it as "three highs and three lows," achieving high quality through high technology and high efficiency, while maintaining low costs, low prices, and low gross margins. Meituan has become invincible in the market with this strategy.

For the past seven years, Meituan has always been the leader in local lifestyle services, allowing its market value to soar even when it was losing money after going public.But the good times 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 ratio valuation, focusing on the overall profitability of the company rather than valuing different sectors separately.

In response to this, Wang Xing publicly stated during a conference call in the third quarter of last year that the secondary market severely undervalued MEITUAN, and that the current stock price only reflects the valuation of the food delivery business, which does not align with the company's intrinsic value.

However, investors did not heed this call. The stock price of MEITUAN continued to decline. Big names such as Ma Huateng and Shen Nanpeng, who once stood behind MEITUAN, also began to cash out and exit.

In August of last year, Sequoia China reduced its holdings of MEITUAN in a clearance sale, cashing out HKD 3.416 billion and reducing its stake from 12.05% at the time of MEITUAN's listing to 1.86%; in 2022, Tencent also reduced its holdings of MEITUAN through dividend distribution.

However, over the past year, MEITUAN did not sit idly by, but actively fought back.

Zhang Chuan believes that MEITUAN still has its advantages, including the user mindset of "low price + fast" and "comprehensive + high quality," as well as the ever-changing supply and coverage of merchants, which bring about absolute low costs.

In the industry's view, as long as MEITUAN firmly holds onto its cost advantage, it can curb the expansion of its competitors.

MEITUAN is also actively focusing on and improving its core business, even venturing into ByteDance's territory. In July of last year, MEITUAN's app officially launched live streaming, and three months later, the monthly GMV had exceeded 2 billion.

Conservatively estimated, by the end of 2023, the transaction volume of MEITUAN's live streaming could reach tens of billions. Insiders at MEITUAN told Wall Street News that the actual numbers may be even higher. The company is currently relatively low-key, with the short-term goal still being to improve the foundation of live streaming.

At the same time, MEITUAN is also trying to tap into new incremental markets. In May 2023, MEITUAN launched a brand new food delivery brand called KeeTa in Hong Kong, and by December, KeeTa's market share in Hong Kong had risen to 37%, ranking second.

UBS believes that KeeTa poses a serious threat to European food delivery platforms Delivery Hero and Deliveroo in Hong Kong and elsewhere, with the latter facing strong competition.

However, in the industry's view, MEITUAN's core business model is supported by delivery riders, and compared to e-commerce expansion, MEITUAN faces more complex challenges, such as cultural systems and regulatory policies. In addition, whether the market size of food delivery can cover labor costs is also a huge test.

Over the past decade, MEITUAN has experienced the Hundred Regiments War and the food delivery war, growing from fierce market competition to become the king of local life.

At its peak, MEITUAN was the third largest internet company in China, second only to Tencent and Alibaba. In Shen Nanpeng's eyes, Wang Xing is one of the few thinkers who has a clear understanding of the brutal growth of China's internet landscape.Wang Xing once fought fiercely in the local life battle and paved the way for Meituan to become the king. Now, he must find a new path to growth and restore Meituan's former glory.