Meituan "learning from" Pinduoduo

Author | Liu Baodan

Editor | Zhou Zhiyu

Following Alibaba and JD's copying of billion-dollar subsidies, Meituan also began to "learn from" Pinduoduo. Wang Xing applied the low-price group buying model to local life, stabilizing the competitive situation with Douyin.

On June 6th, Meituan released a better-than-expected quarterly report. In the first quarter of 2024, Meituan achieved revenue of 73.3 billion yuan, a year-on-year increase of 25%. Although the growth rate was slightly lower than the same period last year, it performed better than the previous two quarters, maintaining high growth.

In terms of profitability, Meituan's net profit and adjusted EBITDA for the period were 5.37 billion yuan and 8.07 billion yuan, with growth rates of 60% and 29% respectively. Especially, the adjusted EBITDA reflecting core operating performance remained at a high level in the past three quarters.

As of the closing price today, Meituan's stock price was 110.400 Hong Kong dollars, rebounding by 80% from its low point in February this year.

Market expectations for Meituan are also rising. Citigroup, Morgan Stanley, and Jefferies have raised Meituan's target prices to 140 Hong Kong dollars, 120 Hong Kong dollars, and 135 Hong Kong dollars respectively. Citigroup stated that Meituan's first-quarter net profit exceeded the bank's and market expectations by 18.6% and 29% respectively. Meituan quickly adapted to consumer shifts and market dynamics, receiving a "buy" rating.

As expected by the market, the core factor in Meituan's improved profitability is the reduction of losses in its community group buying business. At the same time, Meituan has also made efforts in cost control.

In the first quarter, Meituan's new businesses, including community group buying, operated at a loss of 2.8 billion yuan, the lowest level in recent years, with a year-on-year narrowing of 45.2%. The loss amount was nearly halved, reducing by 23 billion yuan compared to the same period last year, with the reduced losses being actual retained profits.

During the performance conference call, Meituan stated that the preferred business has been strictly focused on efficiency since February, taking measures such as raising prices, reducing subsidies, and closing inefficient warehouses and sites, achieving a significant reduction in losses.

Meituan has been frugal in terms of costs, with its sales cost growth rate in the first quarter at 22.6%, 2.4 percentage points lower than the revenue growth rate; research and development expenses were 5 billion yuan, remaining stable year-on-year; general and administrative expenses were 2.3 billion yuan, with a growth rate of only 15.2%.

Although Meituan's core business did not contribute much to profit growth, in the first quarter, the operating profit of Meituan's core local business was 9.7 billion yuan, with a year-on-year growth rate of only 2.7%, hitting a low point since 2023. However, Meituan aims to exchange profits for market share, and from this perspective, Meituan's strategy has been effective.

Meituan has stabilized the competitive situation in local life. In the first quarter, Meituan's core local business achieved revenue of 54.6 billion yuan, a year-on-year growth of 27.4%, slightly higher than the same period last year, and has been at a high level in the past four quarters. Meituan and Douyin's market shares have also not changed significantly.

To win in the market competition, Meituan is also willing to spend real money. In the first quarter, Meituan's sales and marketing expenses reached 13.9 billion yuan, a 33% year-on-year increase In response, Meituan stated that the increase in user transaction incentives and promotional expenses was mainly due to changes in the business environment and business strategies, as well as an increase in employee compensation expenses.

Two years ago, Meituan launched a Pinduoduo version of local life called "Pindao Fan". This business segment saw explosive growth in the first quarter, with a daily order volume close to 5 million, reaching a new high and accounting for nearly 10% of Meituan's food delivery business.

"Pindao Fan" not only caters to users' demand for low prices but also brings more traffic to merchants. Based on this, Meituan has achieved comprehensive growth in orders, users, and merchants.

During the conference call, Meituan stated that the annual active users of food delivery have continued to grow to nearly 500 million, with a significant increase in transaction frequency. At the same time, the annual active users and transaction frequency of Meituan's real-time shopping have also increased.

A more positive signal is that Meituan's advertising revenue has become a core growth engine. In the first quarter, Meituan's online marketing service revenue was 10.3 billion RMB, a year-on-year increase of 33%, with growth outpacing delivery and commissions. Compared to the same period last year, the growth rate has increased significantly by 23 percentage points.

It can be said that Wang Xing is leading Meituan back on an upward trajectory. Of course, Meituan is far from being worry-free.

Currently, although Meituan has stabilized its market, it still needs to improve its profitability as soon as possible.

From the perspective of local life business, Meituan is still in an active defensive stage. Douyin Group's commercialization head, Pu Yanzi, has set the sales target for local life at 600 billion RMB, aiming for exponential growth. Kuaishou has also started providing support for merchants in delivery-related services in recent months, hoping to gain a share of the market.

Meituan has also taken proactive measures. In April, Meituan announced the appointment of Wang Puzhong as the core CEO of local commerce. Prior to this, Meituan had merged businesses such as in-store and at-home services into "core local commerce" in order to strengthen business synergy and improve operational efficiency.

Wang Xing is also actively seeking new growth points. In March, Meituan had already achieved the top market share in Hong Kong and began actively preparing for the next step in going global. Currently, Meituan is actively forming an overseas team and has started recruiting in Saudi Arabia.

In response during the conference call, Wang Xing mentioned that the Middle East is an option, with no business progress launched yet, and the company is evaluating other markets without making any final decisions. "The company is also looking at Southeast Asia, Europe, and other regions, proceeding cautiously with globalization and capital investment."

"The food delivery business was launched in November 2013 and has a history of more than 10 years. It has been a great journey, but it takes a long time. So we are very patient, and we may still need 10 years to establish a presence in overseas markets."

With intense domestic competition in local life and the more complex international market, Meituan is entering a new stage of development, where opportunities and challenges coexist. Wang Xing's global journey has officially begun