Meituan Q2 Financial Report Review: Unbeatable Resilience

When the consumer market tries to deliver air conditioning to everyone, Meituan handed in a hot second-quarter report. This article will analyze this financial report from multiple perspectives such as performance evaluation, business progress, competitive situation, Meituan's characteristics, and overseas prospects. If it is helpful for you to understand Meituan's growth, future, and values, I will be deeply honored.

I. Almost Perfect

Yes, Meituan handed in an almost perfect financial report.

However, two days before the financial report was released, Meituan's stock price was dragged down by Pinduoduo, as Pinduoduo plummeted by nearly 40% in the two days after its financial report, causing investors to worry that Meituan's financial report might not be good either.

Believe it or not, I was a bit worried too. On the day I wrote "Q2 Meituan Performance Outlook," Pinduoduo happened to release its financial report. Originally, my forecast was revenue of 81.7 billion and adjusted net profit of 13.6 billion. Seeing that Pinduoduo's performance fell short of expectations, especially with core advertising revenue growth nearly halved to 29%, I quickly opened my calculator, reset the parameters, adjusted revenue to 81.1 billion, and Non-IFRS net profit to 12.9 billion.

The financial report showed that Meituan's second-quarter revenue was 82.3 billion, a year-on-year increase of 21%, surpassing the market's expected 80.4 billion. Among them, core local business revenue was 60.7 billion, an 18.5% year-on-year increase, and new business revenue was 21.6 billion, a 28.7% year-on-year increase, both exceeding market expectations, especially the new business.

If you understand the growth of Chinese concept stocks in the second quarter and the general situation of the Chinese consumer industry in the second quarter, you will know how difficult it is for Meituan to achieve such revenue growth in this scale and environment. Moreover, the new business has accelerated growth for two consecutive quarters, combined with a significant reduction in losses on a quarter-on-quarter basis, making it even more commendable.

Adjusted EBITA profit in the second quarter was 13.6 billion, surpassing the market's expected 10.6 billion, with a profit margin of 16.5%. Among them, core local business EBITA profit was 15.2 billion, with a profit margin of 25.1%, showing stable improvement; the progress in reducing losses in new businesses far exceeded expectations, with a quarterly loss of 1.31 billion, a loss rate of 6.1%, narrowing by 25 percentage points year-on-year and by 8.7 percentage points quarter-on-quarter. The market's consensus was a loss of 2.1 billion, and this performance of the new business segment may be the biggest financial surprise of this quarter.

My view in the second-quarter outlook was:

It is expected that the loss in the fourth quarter for the preferred selection (peak season) may be controlled to around 1.5 billion, while the total profit of other new businesses expands to around 500 million, with an overall loss of around 1 billion, revenue around 22 billion, and the loss rate decreasing to around 4.5%At that time, we can use the SOTP valuation method to separately value the new business positively.

Now it seems that we can do this as early as this quarter.

Not only did revenue exceed expectations, but Meituan also showed more discipline in spending this quarter.

Gross profit margin reached 41.2%, hitting a new high in the past 15 quarters, with a significant increase of 6.1 percentage points quarter-on-quarter; in terms of expenses, marketing expenses only grew by 1.4% year-on-year, achieving a 21% revenue growth with a 1.4% marketing growth, indicating a more efficient return on investment in spending. Research and development and administrative expenses remained relatively stable, but due to operating leverage, their proportion in revenue decreased by 1.2 percentage points year-on-year.

The combined proportion of marketing, research and development, and administrative expenses decreased by 4.6 percentage points year-on-year, coupled with a 6.1 percentage point decrease in costs, and the effect of operating leverage, the results are self-evident.

Operating cash flow for the quarter reached 19.1 billion, which I would call the second biggest surprise of this quarter's financial report.

With strong operating cash flow, Meituan's cash and cash equivalents at the end of the quarter reached 54.7 billion, with a net increase of 3.75 billion quarter-on-quarter. This was achieved even after implementing the largest buyback of 2 billion USD in history in the second quarter. With short-term investment, Meituan's cash reserves reached 133.2 billion.

Driven by strong cash flow, Meituan announced an additional 1 billion USD buyback authorization at the performance meeting after the financial report. Considering that a large portion of Meituan's business is still in the investment phase and overall profitability is still relatively weak, this buyback authorization is quite conscientious. I would call it the third biggest surprise of this quarter's financial report: even with only a 3 billion USD buyback, corresponding to a market value of approximately 80 billion USD, it represents close to a 4% shareholder return.

If we must nitpick on the financial aspects of this quarterly report, there are perhaps two points worth discussing.

First, the growth rate of instant retail orders did not significantly exceed market expectations.

The daily average number of instant retail orders this quarter was 67.77 million. It is known that last year's Q2 daily average orders for food delivery and flash sales were 52.69 million and 6.66 million respectively. Meanwhile, this year's Q2 flash sales order growth rate was three times that of food delivery, which can be calculated to be approximately 58.8 million daily average orders for food delivery, with a year-on-year growth rate of 11.6%, and approximately 8.97 million daily average orders for flash sales, with a year-on-year growth rate of 34.7%. This performance is slightly faster than market expectations, but it is still influenced by some macroeconomic consumption trends

Core Local Business Marketing Service Revenue Appears Slightly Flat

In the second quarter, the year-on-year growth rate of delivery service revenue was 13%, slightly lower than the 14.2% growth rate in order volume. This may be mainly due to the impact of the macroeconomic consumption environment combined with the increase in the proportion of low-priced orders such as "Pindao Fan", which is considered a normal performance.

Commission service revenue increased by 20.1% year-on-year, which is very outstanding, significantly surpassing the growth rate of order volume. This is mainly due to the strong rebound in in-store wine and travel, transportation ticketing, and homestay businesses.

Marketing service revenue increased by 19.7% year-on-year. At first glance, this growth rate seems to have decreased compared to the first quarter, and it has started to lag behind the commission growth rate. This is actually because the first quarter of 2023 was still a quarter with relatively low technology, which caused the advertising revenue growth rate to be higher in Q1 this year. Additionally, the base number was higher in Q2 last year, and at that time, advertising elasticity was much higher than commission, making the year-on-year growth rate in the second quarter seem relatively "flat".

Moreover, advertising revenue in the second quarter increased by nearly 20% compared to the previous quarter, which is definitely an excellent achievement. If we look at the proportion of the three revenues in the core local business, the marketing service revenue proportion has reached 20.2%, setting a new high in the past 9 quarters.

Business Progress

1. Instant Retail

The growth rate of takeaway orders was 11.6%, while the flash purchase order growth rate was 34.7%. It seems that the growth rates have decreased compared to the previous quarter, mainly due to benefiting from a low base last year in the first quarter. Another factor is the consumption environment. Considering the current macro environment, these growth rates are already very good performances.

Furthermore, the growth rates are actually a result of balance. If one-sided pursuit of order volume growth sacrifices more profit and increases more subsidies, it can be achieved. Therefore, the current performance is actually a dynamic, rational, and actively controlled result, which is the best result after comprehensive consideration of business scale, profit model, employment pressure, merchant, rider, and consumer acceptanceIn addition, reaching a double-digit growth rate in order volume for food delivery is good, but sustainable growth is more important. This quarter, the peak order volume for Pinghao Fan reached 8 million, with a daily average order volume of around 6.5 million, and the growth potential is promising, expected to drive long-term double-digit growth in food delivery volume in the future.

Flash purchase is still in a high-growth period, making a small profit in the first half of the year but still focusing on scale as the primary goal in the future. The company expects to reach a GTV scale of trillions in 5 years, with an estimated daily average order volume of around 9.7 million this year, and the annual GTV is expected to reach around 275 billion, which may mean a 5-year CAGR of about 28% for order volume and a 5-year CAGR of about 30% for GTV.

Looking ahead, flash purchase will have better monetization potential due to higher marketing demand for the brand. As a super new channel closest to consumers, flash purchase will greatly benefit from this.

Therefore, overall, the core business of instant retail is still to maintain growth momentum, with no need to worry about profitability, social security issues, etc.

This year, Meituan's "First Cup of Milk Tea in Autumn" campaign was very successful, creating a peak order volume of 98 million in instant retail, with 100 million peak volume within reach.

Instant retail is expected to reach a daily average order volume of about 70 million this year, and if it maintains a 13% annual compound growth rate, this indicator will reach a daily average of 100 million by 2027, with the quarterly average of 100 million likely to be achieved in Q3 2026.

As for competition, there seems to be little need to worry about the food delivery and flash purchase businesses, whether existing or potential competitors.

The characteristic of the instant retail business is that the larger the order volume, the more riders, merchants, and consumers there are, the better the consumer experience, the lower the average fulfillment cost per order, the more elastic the marginal profit, and the deeper the moat.

With such a stable momentum, Meituan can explore various initiatives more calmly, such as testing 15-minute ultra-fast delivery, exploring self-operated supply chains for specific categories like Waima delivering alcohol, and trying out satellite delivery models in cooperation with various brand restaurants to explore the possibility of high-quality and low-priced brand dining. Flash warehouses and Pinghao Fan are actually tested high-quality projects.

2. In-store Wine and Travel

This business, which was once widely worried about by investors, may be entering its "turnaround moment".

In the second quarter, overall order volume grew by over 60%, GTV grew by over 35%, and it is expected to grow even faster in the second half of the year. More importantly, its competitive landscape has stabilized. As per my prediction, in the second quarter, the ratio of Meituan's GTV to that of its competitors before reconciliation has remained stable, and after reconciliation, the ratio has actually increased slightly, indicating a slight increase in market share.

This progress is almost completely in line with my prediction from last year, where I forecasted a turning point by the latest third quarter of this year. As for the logic, industry competition sooner or later transitions from subsidy-driven to ROI-driven, from the change in leadership at Douyin to the commercialization team leading local life, this kind of change is actually predictableThis is why when I analyzed the local life market in the fourth quarter financial report last year, I concluded that the "war" had ended, but the "competition" would continue.

In terms of ROI competition, Meituan clearly has the advantage. Its overall operating costs for merchants are significantly lower because it does not need to share profits with expensive live stream influencers.

TikTok's advantage has always been traffic, but the value of traffic in the local life sector faces the challenge of uneconomical scale. The model of flooding massive traffic for explosive orders is difficult for few merchants to handle, as the service capacity of merchants is significantly limited within a unit space.

TikTok grew rapidly in the early stages due to its traffic scale and algorithm-recommended business model. As it develops into a mature stage and includes top merchants such as brands, chains, and internet-famous restaurants, its high-cost strategy becomes increasingly awkward at the level of small and medium-sized merchants. It is like using heavy artillery to deal with mosquitoes, which is very unprofitable.

This limited traffic advantage is gradually weakening with the introduction of Meituan's live streaming, special group discounts, premium members, and the removal of departmental barriers. The appearance of Meituan's group buying brand integrates resources from various categories such as dining in-store, travel, and entertainment, and reuses traffic. Special group discounts, premium members, and live streaming break down the traffic barriers of the entire Meituan app, supplemented by subsidies for users at different levels.

Today, Meituan is further integrating its home delivery and in-store businesses. The premium members are the first product of this integration. The 500 million+ active users of home delivery will effectively support the in-store business. Both sectors have a large amount of manpower, backend resources that can be reused from the sales end, product end to the technical end, saving costs. It is said that just by integrating the front-end sales teams of in-store businesses, about 2 billion in manpower costs can be saved annually. These expenses can be invested in cultivating merchants and consumers, as well as improving profit margins.

Meituan has a strong user mindset in the food sector. Its current strategy is to prioritize the deep integration of home delivery and in-store dining, and the combined scale of the two in the overall online operation of merchants has an overwhelming advantage. This will ensure that it can better allocate industry resources, including pricing power, SKU richness, package availability, service quality, and more.

The food industry is very experience-oriented, and consumers are very picky. We are highly certain that Meituan's unmatched advantage in this area, once strengthened, will strategically establish a commanding position. You know what I mean.

3. New Business

The changes in Meituan's selection can be described as a transformation.

Meituan has finally reorganized its thinking and is managing this very important retail strategic scenario in a way that suits Meituan itself.

I have always tended to believe that selection is a strategic business.

The future of retail channels lies in being closer to consumers, as this will be more conducive to influencing consumer decisions.

The changes in selection include:

Adjusting the number of SKUs, streamlining the quality of SKUs, selecting products and suppliers that better fit Meituan's core user group, rather than simply competing on price.

Adjusting warehouse layout, optimizing grid warehouses in some peripheral cities, uniformly adjusting them to central warehouses in other core cities, while improving fulfillment efficiency and user experienceSimplify the agent's work module, take back the regional promotion, operation and other work to self-operate, while reclaiming this part of the expenditure, improve efficiency, save costs, spend less money and achieve better actual results.

In this case, it optimizes the markup rate of goods, enhances core user satisfaction, and increases sales volume in a sustainable way while reducing losses.

XiaoXiang Supermarket and KuaiLv are the core drivers of accelerated revenue growth in the second quarter. These three businesses are actually Meituan's exploration in the multi-trillion-dollar food and grocery retail market. XiaoXiang may be the most robust among the three at present, as it has unparalleled operational leverage and is at the forefront of Meituan's exploration of its own brands and deep supply chain.

In the second quarter, the loss scale of Meituan's preferred business is in the range of 1.6-1.8 billion, while other new businesses have achieved overall profitable scale, with EBITA profit of 300-500 million.

III. Invincible Resilience

In the second quarter, Meituan's annual active buyers reached 753 million, annual active merchants reached 13 million, and the average annual consumption frequency of platform users has been continuously increasing for 17 consecutive quarters. This indicates that Meituan is constantly improving in terms of users, merchants, and activity. As an ecosystem, it is becoming increasingly close, healthy, and resilient. This is why in the second quarter and beyond, regardless of how the consumer market changes, I have more confidence in Meituan.

In the first 7 months of this year, the retail sales data for social and service industry shown by the statistics bureau are not optimistic.

If we look closely at first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, this sense of pessimism is even more pronounced.

In this special moment, Meituan's growth undoubtedly injects vitality into the entire economy and society.

In the first half of the year, delivery-related cost expenditures reached 48.03 billion yuan, a year-on-year increase of 19.2%, while delivery service revenue was 44.09 billion yuan, with a year-on-year growth rate of 18.3%. This indicates that Meituan not only spent about 4 billion to subsidize riders and merchants in the delivery part, but also spent even faster in terms of expenditures.

Assuming a rider's average monthly income of 3000 yuan can create an effective job, 6 months is 18,000 yuan, Meituan's delivery expenditure is equivalent to creating 2.67 million full-time rider job positionsAt the performance meeting, the management clearly stated, "We aim to protect the long-term development of local small and medium-sized businesses, have no intention to increase the long-term monetization rate, and will also provide riders with more flexible leisure space and reasonable income."

This is truly balancing social, industry, and shareholder value. Slow is fast, and being steady can take you further.

But what impressed me the most about Meituan's resilience is not these, but the fact that in the past two years, it has directly confronted the peak of Douyin and Pinduoduo, not only did not retreat—even under immense market pressure—but also did not let go, reorganizing its troops, adjusting its organizational structure three times in six months, and ultimately, it faced the crisis without fear and stabilized.

I believe any investor who understands Meituan would agree that, operationally, today's Meituan is much more stable than it was a year ago.

This is not to say that it has defeated Douyin or Pinduoduo, but it has defeated itself.

It has found the path of differentiated competition, creating real value for users.

Take the example of in-store wine and travel, which is still in the rapid online stage of incremental market. Douyin still has advantages in brand marketing for chain stores, internet celebrities, and new openings, and the overall GTV scale will continue to expand. However, Meituan has also found its own areas of strength. Its market breadth and operational depth in the catering category are unparalleled, and its advantages will further expand. Meituan Optimal and Duo Duo Mai Cai are also likely to focus on their core users, and their future development will become more and more differentiated.

IV. Outlook for Overseas Expansion

The risks on the domestic business operational front are gradually being released, with new businesses reducing losses, in-store wine and travel stabilizing development, and instant retail continuing to expand. These directions have become clearer, which means that leaving aside the macro perspective, Meituan's domestic business will enter a relatively stable development period, and the potential for future growth may also depend on overseas expansion.

Traditionally, people think that without a domestic supply chain to support takeout services, it seems difficult to make progress overseas. Expanding business in every foreign city involves complex legal, regulatory, and resource bottlenecks, which are much more difficult and slower than e-commerce going global.

Takeout services going global cannot conduct blitzkrieg operations like e-commerce, that's for sure.

But being slow doesn't mean it's not good; relying on local supply chain development may be safer.

The overseas experiences of Shein, AliExpress, TEMU, and TikTok provide references for Keeta's overseas development. In the long run, to develop overseas, one must integrate into local culture and trade rules.

It cannot be denied that TikTok's predicament is more due to geopolitical factors, but have they made operational mistakes due to insufficient familiarity with local politics and cultural backgrounds? I think this is worth discussing.

China's fully managed e-commerce has developed rapidly, but have they considered long-term issues such as intellectual property protection, labor protection, and environmental protection, apart from being detached from the local tax system, supply chain ecosystem, and beyond local regulations? The strictness of the European and American markets on these issues is incomparable to the domestic market, and the actions in the Asian, African, and Latin American underdeveloped regions are actually influenced by the changes in the European and American markets.

When doing business in someone else's territory, of course, one must abide by their rules. Local life naturally relies on local supply chains and human resources, which may actually drive Meituan to more comprehensively avoid these long-term issues from the beginningHonestly, apart from TikTok, if we strictly abide by local rules, the non-operational risks are actually not that great, and it is worth investing in long-term development.

As the saying goes, the stable Meituan is back.

Lastly, in the recent financial reports of Meituan, it seems that they have not been very lucky. The US stock market plunged last night, with Chinese concept stocks falling even more sharply. This is because Li Auto, XPeng, and BOSS Zhipin all missed their performance to varying degrees. BOSS Zhipin fell by more than 20%, Li Auto by over 16%, XPeng by 9%, and Pinduoduo continued to plummet by over 7%. Meituan ADR opened up more than 7 points last night, but unfortunately, it only closed up by 3.7% after opening high and falling low. I wonder how the Hong Kong stock market will perform today, and whether Meituan can break out of its independent trend.

Author: Zouma's Hanzi, Source: Zouma Finance, Original Title: "Meituan Q2 Financial Report Review: Invincible Resilience"