Source: No. 1 Finance, Author: Chongshan
No. 1 said: The stock price has collapsed, can it still be eaten?
The restaurant laughed and Meituan cried. The reason is that Meituan-W (03690.HK) was "precision hit".
This is to start with the notice issued by the National Development and Reform Commission on February 18 "Several Policies for Promoting the Recovery and Development of Difficult Industries in the Service Sector". The document pointed out that the guidance of Internet platform companies such as takeout to further reduce the service fee standards of catering merchants means that the commission fees of "takeaway Internet companies" will further decline.
The largest representative of "takeaway Internet companies" is Meituan. According to the data of Prospective Research Institute, Meituan accounted for 67.3% of the total takeaway market in Q1 2021, which is 2.5 times that of the second Ele.me. According to Meituan’s Q3 2021 financial report, the revenue of takeaway business accounted for 54.24% of the total revenue, while the commission fee was 69% of the takeaway revenue.
On February 18, Meituan’s share price plunged, plunging 14.86% that day, and the market value evaporated 200 billion.
This is not the first time Meituan has been subject to policy supervision. On October 8, 2021, Meituan was fined 3.442 billion yuan by the State Administration of Municipal Supervision for implementing "two choices" measures for catering merchants over the past few years.
After the fine, the market fell to Meituan’s hanging heart, and all shouted that it was empty. Meituan’s share price has risen for two consecutive trading days since then, and hit a new high since July 26. Meituan’s 2021 Q3 financial report performance further stabilized the market’s heart, and its takeaway business revenue increased by 28% year-on-year to 26.50 billion yuan.
According to the 2021 Hurun China 500, Meituan ranks third among the top three domestic internet companies by market capitalization as the "biggest winner of the past year", while Alibaba and Tencent have plummeted in "value", fallen in the rankings, and were placed in the top two of the "biggest losers of the past year".
Meituan faces a dilemma
Meituan might have been stable without the "super bearish" on February 18. But Meituan’s long-standing "dilemma" has planted the seeds of its bearish situation.
One "difficult" situation is the thin profit margin of Meituan takeaway. In Q3 2021, the profit per order was only 0.2 yuan, and in the same period in 2020, it was 0.24 yuan.
In order to increase the profit of takeout, Meituan has continuously increased the commission rate (the proportion of commission that Meituan draws per takeout order) over the years. According to Meituan’s annual financial reports, its average commission rate for takeout has increased from 1.1% in 2015 to 12% in 2020.
Increasing the commission rate will naturally lead to conflicts with catering merchants. Meituan has always occupied about 60% of the takeaway market, and merchants have no other choice. They have to swallow it and keep reducing costs.
The epidemic in 2020 has exacerbated this contradiction. Under the epidemic, the catering industry has been hit hard and has to rely on takeout. Meituan’s high commission rate has been pointed out by the "Guangdong Catering Industry to Meituan Takeaway Joint Negotiation Letter" that "greatly exceeds the critical point that the majority of catering merchants endure". Catering associations in Sichuan, Chongqing, Shandong, Yunnan and other places have also publicly "shouted" Meituan and other platforms in the past two years to reduce the commission rate.
This puts Meituan in another "difficult" situation, that is, the pressure from the catering industry to reduce commissions.
Meituan has also expressed its position to adjust the commission system, but the profit margin of Meituan’s takeaway business is thin, so the adjustment cannot fully meet the demands of the catering industry.
For example, in May 2021, Meituan launched a rate transparency pilot, splitting the original platform service fee into two parts: technical service fee and fulfillment service fee, and "refining" the commission. But the new model did not reduce the commission rate of Meituan takeaway. In Q3 2021, the commission rate was still 11.78%, which was not much different from the average commission rate of 12% in 2020.
Epidemic has been on and off for 3 years. According to the Prospective Research Institute, 1 million catering companies closed down last year, and the hotel catering industry ranked first in the top ten shrinking industries. At this time, the National Development and Reform Commission, as a regulatory department, took action and asked the takeaway platform to reduce the commission rate. Although it hit Meituan accurately, it was also very reasonable.
(Source: Prospective Research Institute)
Which business can support Meituan?
With supervision, Meituan must really reduce the commission rate in the future. This will lead to a thinner takeaway business, and Meituan must find a new solution, that is, Meituan must have another business on top, replacing the takeaway business as Meituan’s new revenue pillar.
In this regard, Meituan’s idea has always been to use the drainage effect of takeaway business to develop new business. In terms of traffic, according to Meituan’s Q3 earnings report in 2021, as of Q3, the number of annual active users reached 668 million.
Meituan’s new businesses include Meituan Preferred, Fast Donkey, Meituan Flash Sale, Meituan Market, Meituan Preferred, etc. According to Meituan’s financial report, these new businesses have been developing slowly.
Specifically, fast donkey and Meituan flash sale has not yet developed, according to late Latepost, as early as August 2021, fast donkey, flash sale business has begun to shrink, Meituan began to focus on fresh food e-commerce business Meituan market and community group buying business Meituan preferred.
Meituan market currently uses the front warehouse model, but according to iiMedia consulting data, as of September 2021, its MAU users are only 2.58 million, less than 1/13 of the front warehouse model of Dingdong Maicai 34.71 million, and there is no influence in the market.
Meituan Preferred has become a new hope for Meituan’s new business. According to the statistics of the Financial Union, Meituan Preferred and Duoduo Shopping are located in the first echelon of the domestic community group buying platform industry, with a market share of about 30%. However, this is obtained by constantly burning money.
According to Meituan’s Q3 financial report in 2021, Meituan’s new business loss, which is mainly based on Meituan’s preference, reached 10.906 billion yuan, which is the highest single-quarter loss since Meituan entered the community group buying, an increase of 437.5% year-on-year; Moreover, in one year, Meituan has lost 36 billion yuan in this regard.
Not only is it losing money, but Meituan’s new business has always accounted for a small proportion of revenue. According to Meituan’s financial report, from Q3 2019 to Q3 2021, Meituan’s new business revenue accounted for only 7.24 percentage points in two years, reaching only 28.1%, unable to support the main beam alone. Meituan’s takeaway business has always accounted for more than 50% of revenue.
In fact, compared with the regulatory pressure on Meituan’s takeaway business, Meituan is under greater pressure.
Since 2020, Meituan and other large factories have participated in the "burning money" war of community group buying, and have been targeted by supervision. They have been criticized for "thinking about a few bundles of cabbage" and grabbing business with small merchants and hawkers. On December 22, 2020, the General Administration of Market Supervision put forward "nine no’s" for community group buying, mainly focusing on low-price dumping, big data killing, and commodity quality control.
On March 3, 2021, the General Administration of Market Supervision imposed administrative penalties on four community group buying enterprises, including Meituan Preferred. Two months later, on May 27, it separately fined Shihui Group 1.50 million yuan for low-price dumping and ordered it to suspend business for rectification. Since then, it has been reported that Shihui Group has laid off employees. According to a report in January by the Daily Economic News, Shihui Group is gradually shutting down grid warehouses and self-pickup stations across the country, or preparing to apply for bankruptcy liquidation.
Like the Ten Hui Group, on November 11, 2021, the official website of the Municipal Administration of Supervision also announced a separate punishment for Meituan Preferred, involving improper price behavior. On February 17, there was also news of Meituan Preferred’s layoffs.
Business model may be flawed
Meituan has long been known as the "king of losses" due to thin profits in the takeaway business.
In 2018, Meituan lost 115.50 billion, which caused a sensation in the catering industry at that time. In 2019, Meituan made a short-term profit, but not from the profits brought by takeout, but from investment income. In 2020, Meituan made a real profit, with a net profit of 4.71 billion yuan for the whole year, and the stock price reached a record high of 460 Hong Kong dollars in February 2021.
In 2021, Meituan began to lose money again in Q1. In the first three quarters of 2021, Meituan has accumulated losses of 18.197 billion yuan, an increase of 361.8% year-on-year, and once again became the "loss king".
In the current secondary market, the investment logic for listed Internet companies has changed. Previously, as long as the market size of Internet companies grew, even if they lost money, they were still recognized by the market. Today, the market also requires Internet companies to be profitable.
After the huge loss of community group buying business Meituan Preferred, Meituan has no new story. Recently, the story told to capital markets is only a strategic cooperation with Kuaishou. Kuaishou users can place orders through the Meituan Mini Program, which is still to expand Meituan’s takeaway business. At present, after the notice of the National Development and Reform Commission was issued, Kuaishou’s share price also fell by 4.86%.
From this perspective, Meituan’s share price is likely to decline in the future.
Meituan’s business model is actually flawed.
Looking at Meituan’s various businesses, whether it is takeaway, Meituan Preferred, Meituan Market, flash sale and other new businesses, although the service scenarios are different, they are all inseparable from Meituan delivery. Meituan delivery belongs to instant delivery in the same city.
Intra-city instant delivery, which provides logistics distribution between location A and location B within a city, is about maximizing efficiency. The market is huge, with a compound annual growth rate of 30.5% from 2020 to 2025, according to iResearch. However, companies in this industry are all losing money because instant delivery relies heavily on manpower, and labor costs continue to rise. SF Intra-city, an instant delivery company listed in 2021, will account for 96.6% of operating costs in 2020.
Meituan delivery is more efficient, but the labor cost is still high. According to Meituan’s public information, in 2020, riders’ expenses accounted for 83.1% of Meituan’s takeaway commission, compared with more than 90% before. For instant delivery companies such as Meituan, to some extent, they are working for riders.
Meituan has also tried every means to reduce the expenditure of riders. In May 2021, Wang Lin, deputy director of the Beijing Municipal Bureau of Human Resources and Social Security, bluntly stated that in order to reduce costs, the registered riders on the Meituan platform are not Meituan employees, but outsourced. This was later reported that Meituan riders were required to register as self-employed to avoid paying social security.
However, on July 26, 2021, seven departments including the General Administration of Market Supervision have clearly requested to protect the legitimate rights and interests of takeaway food delivery staff. Undoubtedly, Meituan’s rider spending will further increase.
To solve the flaw in Meituan’s business model, we can only rely on unmanned delivery.
As early as 2016, Meituan began to develop unmanned delivery technology. According to the research report of China International Capital Corporation, it is expected that by 2023, Meituan’s unmanned delivery cost will be controlled at about 2.9 yuan per order, while according to Meituan’s public information, in 2020, the rider delivery cost will be about 7.2 yuan per order.
(Meituan unmanned distribution development process, source: CICC)
At present, Meituan is increasing its research on unmanned delivery. In Q3 2021, Meituan’s R & D investment increased by about 60% to 4.70 billion yuan year-on-year. However, unmanned delivery faces not only technical problems, but also regulatory risks, such as the slow process of opening up the right of way in policy and the state’s supervision of data security.
All in all, Meituan takeaway is bearish, Meituan prefers huge losses and layoffs, Meituan’s share price has collapsed, and in the future, Wang Xing can still "eat"?
