Meituan's first quarter report was impressive, but the stock price fell by 8%. What are the reasons behind it?

Meituan's first quarter report was impressive, but the stock price fell by 8%. What are the reasons behind it?

Meituan delivered an impressive financial report in the first quarter of 2022. Revenue increased by 25% year-on-year, adjusted net loss narrowed by 7.8%, and core local business and new business and other segments achieved steady growth. However, the market did not buy into the future performance of Meituan, and the stock price fell by 8% after the financial report was released. Why?

We analyze from the following aspects:

1. Falling profit margins cause concern

Meituan pointed out in its financial report that the operating profit margin (OPM) of the hotel, hotel and travel business in the second quarter is expected to drop from 40-45% in the past quarter to about 30%. This is because in order to seize market share, Meituan actively lowered its gross profit margin, increased consumer subsidies and merchant rebates, and invested more resources in new forms such as live broadcasts and short videos.

Although this move is conducive to the expansion of Meituan's scale and user stickiness, it also makes investors worry that Meituan's profitability will be affected, especially in the face of challenges from competitors such as Douyin. Investors may wonder whether Meituan will be able to maintain its competitive advantage and profit margins in its hotel, hotel and travel business, or whether it will be mired in a price war.

2. Poor economic recovery expectations

Another factor affecting the stock price of Meituan is that foreign investors are more cautious or even pessimistic about China's economic recovery.

Although Meituan has rich application scenarios, a stable user base, good contract fulfillment capabilities, innovative business models and technological driving forces in the field of local life services, it is still difficult to completely escape the influence of the Chinese economy.
If China's economic growth slows down or fluctuates, Meituan's consumer demand, merchant cooperation, and supply chain management may all be affected.

3. The growth rate of takeaway orders slowed down

Although Meituan stated in its financial report that its food delivery and flash shopping business will accelerate growth in the second quarter and return to a high-growth trend, the growth rate of food delivery orders in the first quarter was only 12.9%, a slowdown compared to the same period last year.

This may make investors worry whether Meituan Waimai is close to saturation or has hit a bottleneck.

There are two reasons for the slowdown in the growth rate of takeaway orders in the first quarter: first, riders, merchants, and consumers returned home early to celebrate the New Year during the Spring Festival, resulting in weaker orders in January and February; second, the reduction of takeaway subsidies during the epidemic caused price sensitivity The order volume of small customers weakened.

These two factors are temporary and do not affect the long-term development trend of the food delivery business.

4. Douyin fear

The last factor affecting the stock price of Meituan is the fear of Douyin.

As a content platform with massive traffic and grass-growing capabilities, Douyin has entered the field of local life services in recent years and has fiercely competed with Meituan.

Douyin mainly attracts consumers through low prices and video online celebrity recommendations, diverting some users and merchants in areas such as food delivery and comprehensive shopping.

Douyin has different impacts on Meituan’s in-store, hotel, and travel business, with in-store dining having a greater impact, followed by comprehensive impact, and in-store travel having the least impact.

This is because the wine travel business needs to consider more factors, such as price, rating, evaluation, etc., and Meituan has advantages in small and medium-sized brands;

items with high unit price in comprehensive also need more consideration; Items with lower levels, less pressure on impulsive consumption, and less risk of standard product misfits are more likely to be affected by Douyin.

Meituan’s competitive strategy against Douyin is to actively reduce gross profit margins, increase consumer subsidies and merchant rebates, and introduce new forms such as live broadcasts and short videos to attract traffic and users.

Although this strategy is conducive to maintaining market share and user minds, it also needs to pay the price of declining profit margins and increased competition.

Summarize:

Meituan performed well in its first quarter report, but its stock price plummeted by 8%. There are multiple reasons behind it.

The main reason is that the market is overly worried about the decline in profit margins and competitive pressure; secondly, foreign capital has poor expectations for China's economic recovery; thirdly, geopolitical factors bring uncertainty; finally, the slowdown in the growth rate of takeaway orders and the Douyin fear affects emotions.

In the long run, Meituan still has a strong competitive advantage and growth potential. It has rich application scenarios, a stable user base, efficient performance capabilities, innovative business models and technological driving forces in the field of local life services.

I believe that Meituan will continue to use technology to connect people and goods and services, and through new supply, meet new demand, and help the development of the real economy.