Meituan - A finger in every pie
With a mission to help people eat better and live better, Meituan is an e-commerce company that offers digital goods and services across entertainment, dining, delivery, and travel, to name a few. The company listed on the Hong Kong Stock Exchange in 2018 and currently has a market cap of over HKD600 billion. It operates through two segments: Core Local Commerce and New Initiatives.
Operating landscape and strategy
Meituan generates revenue through delivery services (~30%), commission (~28%), online marketing services (~14%) and other services and sales (~28%).
The company has become the go-to option for food delivery services for most Chinese residents. In China the online food delivery market size reached $74.2 billion in 2023 and is projected to reach $184.1 billion by 2032 (at a CAGR of 10.6%). Meituan remains China's biggest delivery platform, holding 69% market share of the CNY1 trillion market, according to data from researcher ChinaIRN. Meituan's broad reach, efficient logistics, and strategic partnerships has propped it up to fiercely defend its market share status thus far.
While food delivery is the crown jewel, Instashopping is the group's on-demand delivery that has become quite the sensation, allowing consumers to order cosmetics, flowers, medicine, and everything in between. This offering further expands and solidifies Meituan's reach almost anywhere along the consumer value chain.
The company holds a large market share in food delivery, competing against Uber, DoorDash, Delivery Hero etc. In the meantime, grocery shopping in China has revolutionised in the wake of Covid-19 lockdowns, consumers can now have groceries delivered to their doorstep within 30 minutes. E-commerce giants, Alibaba and JD.com, already had long-standing grocery exposure on their online shopping platform, with Meituan claiming a slice of the pie in 2019. Meituan's group-buying model allows residents in rural areas to pool together grocery purchases at bulk discounted prices. The company enjoys an extensive network of merchants, wider product offering, and streamlined delivery process, thus giving it the upper hand against rivals.
Meituan is probably not the first company that comes to mind when thinking about online travel bookings, however, it has impressively nestled itself alongside other key hospitality players. Starting off small with many hurdles along the way, the company first signed deals with small-town hotels - typically a neglected segment of the market. By 2017, the company managed to onboard high-end hotels like Marriott International and InterContinental, growing and claiming dominance against rivals like Trip.com.
The Chinese economy has struggled to shake off its late exit from the global Covid-19 lockdowns. Its economic recovery has been slow and uneven, compounded by a property crisis, demographic issues, and a tech regulatory crackdown that started before the pandemic. Near-term, we believe that the Chinese economy will remain under pressure but that a lot of negative sentiment around China is already priced into the market. The roll-out of a wave of policy measures from Chinese regulatory bodies should shore up economic recovery and boost market confidence medium term, and Meituan is well-positioned to benefit from refreshed consumer demand.
Financial Performance
The company released first-quarter results for the period ended 31 March 2024:
Outlook
With an evolving macro environment and competitive landscape, Meituan proactively responded to the changes in business operations during 2023. The company maintains that the domestic consumption market has immense potential, and it is well-positioned to seize growth opportunities. In 2024, Meituan is focused on enriching the product and service matrix that caters to a broader consumer and merchant base. Additionally, with the continuous emergence of new consumption trends and digital transformation of the local service industry, there is significant room in online penetration.
Investment Case Summary
Risks
Consensus considerations
Valuation
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