Prospect | MEITUAN-W's first-quarter takeaway profits may exceed expectations! The "Douyin quick battle" is slowing down, and the recovery of in-store services is accelerating.

Tonight, on Thursday, May 25th, MEITUAN-W will release its first quarter results. Can its core business continue to grow at a high quality?

The Xie Chen team of Zheshang Securities predicts that MEITUAN-W will achieve revenue of 57.4 billion yuan in the quarter, a year-on-year increase of 24%, in line with expectations; adjusted net profit of 2.3 billion yuan, exceeding consensus expectations by 11.65%, mainly due to the better-than-expected profitability of takeout.

The above analysts have seen a significant rebound in service consumption such as catering and tourism in China in the first quarter, and MEITUAN-W's in-store travel, takeout and other businesses have benefited significantly, and are expected to continue in the second quarter.

For the future development of MEITUAN-W, the above securities firms also have two expectations that exceed expectations: 1. The growth space and profitability of takeout and flash purchase exceed expectations; 2. The recovery of the business climate of in-store business and the marginal slowdown of competition.

1. The penetration rate, frequency, market share, and profit margin of takeout and flash purchase exceed expectations. The increase in penetration rate is mainly in the sinking market, the increase in frequency is mainly the conversion of low-frequency users to high-frequency users, the increase in market share is mainly due to the scale effect of the performance system, and the increase in profit margin is mainly due to the increase in advertising realization rate and the decrease in subsidy margin.

2. The marginal slowdown of the competition pattern of in-store business is mainly due to the optimization of the epidemic, the overall recovery of the catering industry, and the marginal decrease in demand for ByteDance's low-priced group buying.

Takeout exceeds expectations

In terms of business, Zheshang Securities predicts that MEITUAN-W's takeout + flash purchase revenue in the quarter can reach 32.15 billion yuan, a year-on-year increase of 21.5%, of which takeout revenue is 29 billion yuan, a year-on-year increase of 20.1%; flash purchase revenue is 3.15 billion yuan, a year-on-year increase of 37%; takeout + flash purchase operating profit reached 3.955 billion yuan, of which takeout operating profit was 4.13 billion yuan, and flash purchase operating profit was -170 million yuan.

In terms of takeout, it is expected that the average daily order volume in the first quarter will be 42.32 million, a year-on-year increase of 13.3%, and the performance of takeout orders in the first quarter has improved month by month.

In January and February, due to the increase in "returning home" personnel compared to last year, the overall demand for takeout was affected. After "returning to the city", the performance improved, and it continued to accelerate in March (the base in March 2022 was higher).

It is expected that the average unit income will increase year-on-year, mainly due to the high-end orders brought by the "return home" during the Spring Festival. Due to sufficient supply of riders in the first quarter, it is expected that the average delivery cost per order will decrease month-on-month, and the average profit per order will increase to 1.08 yuan/order. With the continuous improvement of catering service consumption in 2023, the growth rate is expected to return to the high growth before the epidemic (with a growth rate of more than 20% in takeout orders).

In terms of flash purchase, it is expected that the daily order volume will reach 5 million, a year-on-year increase of 29%. The trend of flash purchase order volume in January-March is similar to that of takeout. In January, the growth rate slowed down due to the impact of returning home, and it returned to the growth rate in the second and third quarters of 2022 in March.

The growth rate of revenue is higher than that of order volume, mainly due to the increase in average order value (AOV) and the increase in advertising realization. The loss rate has improved month-on-month, mainly due to the sufficient supply of riders in the spring. It is optimistic about the competitiveness of MEITUAN-W flash purchase in the trillion-dollar instant retail market, and it is expected that the target of 10 million daily orders in 2025 will be achieved with certainty. Accelerating Recovery by In-Store Services

MEITUAN-W is expected to generate a revenue of 9.51 billion yuan from in-store hotel and travel services this season, a year-on-year increase of 23.0%, which is 0.95% higher than the consensus estimate. The growth rate of hotel and travel services is higher than that of in-store services. The expected operating profit is 3.12 billion yuan, and the operating profit margin (OPM) is maintained at around 42%, mainly because MEITUAN-W has not yet started large-scale subsidy investment this season. The positive impact of revenue growth on operating leverage and the negative impact of some subsidy investment will offset each other.

Looking ahead to the second quarter, it is expected that the market will continue to rebound and MEITUAN-W will be more proactive in responding to competition, which may put pressure on OPM.

The consumption performance of the "Qingming" and "May Day" holidays in the catering and tourism industry was impressive, and combined with the low base of the second quarter of last year, it is expected that MEITUAN-W's in-store business will grow rapidly in the second quarter. It is estimated that the revenue from in-store hotel and travel services in the second quarter will increase by 74.7% year-on-year (with a two-year compound growth rate of 20%, which is the same as the first quarter).

Zheshang Securities believes that the current strategy of "market share first" by MEITUAN-W is very correct because:

1. For standard product group buying coupons, price is an important factor affecting consumer decisions. Subsidizing to narrow the price gap and avoid being occupied by competitors with "low price" mentality is a strategic choice. Of course, the negative impact is that it is difficult for the long-term profit margin to return to the level of over 40% in the past, but the competition will increase the penetration rate of in-store business in the long run.

2. Effective subsidies can promote revenue growth, especially during the industry recovery period;

3. The fluctuation of short-term subsidies on profit margin is inevitable, and the long-term profit margin will eventually return to a steady state. The key is long-term competitiveness and market share.

Reviewing the performance of various companies during the intensified competition of e-commerce, OTA, online ticketing and other trading platforms, resolute investment in the short term is beneficial to the long-term market share.

Zheshang Securities also predicts that MEITUAN-W's in-store hotel and travel transaction volume will increase significantly this year, and the expected revenue growth rate will reach 48.4% year-on-year, but the profit margin may have a downward space of 10%.