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Profit greatly exceeded expectations, why did MEITUAN-W plummet?

Last Thursday, in the performance released by MEITUAN-W, although the profit release exceeded expectations, Dolphin Analyst believes that the stock price trend of MEITUAN-W in the mid-to-short term after the performance is bearish.

First, a simple but effective rule: revenue beat is the true beat, and profit beat mostly only has significant meaning at the inflection point of key periods (such as when SEA first turned losses into profits).

From the financial reports of the pan-retail internet companies this quarter, JD, Alibaba, Vipshop, BEKE-W, and others all exceeded profit expectations, but their stock prices fell after the results were announced. Only PDD, which beat revenue, rose after the performance. It can be seen that the market has become numb to the story of Chinese concept companies reducing costs and increasing efficiency to release profits since the second half of 2022.

However, in addition to the smokescreen of exceeding profit expectations, the real problems revealed in this financial report include:

  1. Although the overall recovery of Q1's in-store business is strong, the growth rate of local life marketing revenue, which is most affected by competition, is only slightly over 10%, and the growth rate of commission-based income is as much as 21 percentage points higher. Compared with the gap of 18.5 percentage points in the previous quarter, the gap has further widened. Even though the industry is recovering as a whole, the impact of Douyin's competition is still growing.

  2. At the same time, MEITUAN-W also guided that the investment and subsidies for in-store business in Q2 will increase significantly, and OPM will drop from 48% this quarter to 30%, which also reflects the erosion of MEITUAN-W's long-term profit space by competition.

  3. In the face of Douyin's competition, the counterattack strategy given by MEITUAN-W on the surface is only subsidies and the same emphasis on video. The former belongs to a price war that hurts both sides, and the latter seems to admit the huge advantage of video streaming. MEITUAN-W competes with Douyin, which has the strongest global video distribution capability, with its own shortcoming of only tens of millions of DAUs, which seems to be an ineffective counterattack.

In short, MEITUAN-W seems to be able to only passively defend against Douyin's competition, without any effective counterattack methods.

  1. MEITUAN-W's core and still solid takeaway business also seems to have hidden worries. First, in the high base of Q1, the growth rate of takeaway orders is only around 12%. Even under the low base of static management in some cities last year, the growth rate of orders in Q2 was only about 30%.

Although looking at this growth center, there is no problem in achieving Dolphin's expectation of more than 70 million daily takeaway orders in the future. However, for investors who see the daily takeaway orders reaching 80-90 million in the future, if the growth rate of takeaway orders in the whole year of 2023 is only slightly above 20% on the basis of the low base in 2022, there may be doubts about the growth momentum of takeaway orders in the following years.

Overall, it is not fair to criticize Chinese concept companies too much at the current valuation. However, it can be seen that MEITUAN-W's performance this quarter is not as super-expectation as it seems from the profit indicators, and there are indeed worrying points from the perspective of the long-term competitive landscape and growth potential. **

Not to mention the current market environment, which is already harsh for Chinese concept stocks.

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