2024 Q4 Meituan Financial Report Brief Review: No Shocks, Not Much Surprise

Quarterly operating profit 6.7 billion VS market expectation 8.1 billion, missing by 1.4 billion, which is more than 3 billion lower than my personal expectation.

What the hell?

To be honest, at first glance of Meituan's quarterly report, I was a bit shocked, but upon closer inspection, it turns out there was a quarterly "loss" of 4 billion in the undistributed items:

The undistributed items mainly include: share-based compensation expenses; other financial investments with value changes recognized in current profit and loss; other income (losses), etc.

In Q4 2023, the "share-based compensation expenses" were 1.857 billion, which decreased to 1.772 billion in this year's Q4, so the issue definitely isn't here.

According to the original financial report, the reason is:

Mainly due to fluctuations in unrealized exchange gains/(losses) arising from internal transactions, as well as a decrease in tax incentives and fair value changes and income from financial investments.

Tax incentives were about 600 million less than last year's Q4, and other items were about 2 billion less, but these changes are not real losses; they are just quarterly variations in financial statistics, which is in accordance with international accounting standards.

If calculated according to non-international accounting standards, the quarterly net profit is 9.85 billion, which is basically in line with the market expectation of 9.9 billion.

It was a false alarm.

Having discussed the shock, let's talk about the pleasant surprises.

First, the conclusion: Currently, the quarterly financial report shows many small surprises, but overall they are not significant.

However, due to the market's low expectations, the market reaction on Monday may be neutral. The probability of a big rise or fall should be low.

Looking closely at the operating profits of each business segment, the core local business quarterly operating profit is 12.9 billion, which is 1.2 billion higher than the market expectation of 11.7 billion, with an operating profit margin of 19.7%. The quarter-on-quarter decline is mainly due to seasonal factors, with a year-on-year increase of 60.8%.

New business losses were 2.18 billion, slightly less than the market expectation of 2.26 billion, which can be considered in line with expectations, but the quarter-on-quarter loss rate expanded from 4.2% in the previous quarter to 9.5%. The reason is that the overseas expansion in the Middle East increased investment by several hundred million, coupled with a seasonal decrease in overall profitability from businesses like Xiaoxiang, bicycles, electric bicycles, power banks, and catering SaaS, along with pre-holiday investments in selected supply chains.

Quarterly operating cash flow was 16.8 billion, significantly exceeding market expectations and nearly 4 billion higher than my personal expectations, which may be the biggest surprise of this quarterly report.

Quarterly revenue was 88.5 billion, 700 million more than the market expectation of 87.8 billion, with a year-on-year growth rate of 20.1%, still the fastest growth among the large companies that have announced results in the Chinese concept stocks

The core local business segment reached 65.6 billion, 300 million higher than the market expectation of 65.3 billion, with a year-on-year growth rate of 18.9%. The new business segment generated 22.9 billion, 200 million higher than the market expectation of 22.7 billion, with a year-on-year growth rate of 23.5%.

In terms of costs and expenses, the gross profit for this quarter was 33.4 billion, with a gross margin of 37.8%, slightly exceeding expectations.

Research and development and administrative expenses were relatively restrained, both lower than market expectations. Marketing expenses were basically in line with market expectations, with a slight decrease compared to the previous quarter, reflecting seasonal fluctuations, which is considered standard and demonstrates a high level of financial discipline overall.

Annual revenue reached 337.6 billion, a year-on-year increase of 22%.

Meituan's revenue mainly consists of delivery, commissions, and advertising.

Delivery is a money-losing business because the money collected needs to be used to pay salaries and social insurance for the riders, and it requires subsidies just to break even. The fundamental reason is that consumers have become accustomed to free shipping, and the small amount of delivery fees collected from merchants cannot cover the riders' wages. In the foreseeable future, it will be very difficult to see profitability in this revenue stream.

Especially as various social insurance benefits gradually come into play, making it even less likely for the delivery segment to be profitable. Of course, this also raises the entry barriers for the broader instant retail market, inadvertently creating a high moat for Meituan.

Commission and marketing service revenues are both high-margin businesses. However, a significant portion of Meituan's commissions is used for daily operations, research and development, and marketing, with a large part also invested in subsidies for users and merchants. In the past, Meituan mainly needed to subsidize riders and consumers. Since the fourth quarter of 2024, the business environment for online retail platforms in China has undergone significant changes, with major platforms starting to subsidize merchants in turn. This means that both consumers and merchants are being subsidized, essentially combating deflation and alleviating national concerns. Objectively speaking, the primary responsibility for this should fall on the government.

The part that can truly bring high profits is actually the marketing service revenue. This money is voluntarily spent by merchants and has a very high gross margin, often reaching around 85%. Globally, this is similar; excluding other related businesses, the EBITA profit margin can reach around 70% Therefore, the performance, scale, and growth rate of this part of the revenue are actually very, very important.

Currently, although the growth rate of this part of the revenue is the lowest, there are already signs of stabilization. The growth rate is basically flat compared to the third quarter, and the absolute value is also close to historical records.

If we consider the following factors:

1. Since 2024, Meituan's in-store hotel and travel business has adjusted its strategy, basically canceling the fixed fees for merchant communication, which originally belonged to the advertising division;

2. The takeaway business has entered a mature stage. Flash purchase and Xiao Xiang, although potential high-growth advertising businesses, are still relatively small in scale;

3. The heavily invested sinking market has limited advertising spending capacity for merchants, the lag in new stores' advertising investment, and high-discount products like special group purchases and live broadcasts do not have high advertising spending capacity.

Then we can be satisfied with the growth rate of the advertising business.

More importantly, factor 1 mentioned above will basically disappear in 2025, or at least the negative impact will be significantly reduced. Factor 2 is trending positively, as the scale of flash purchase and Xiao Xiang is increasing day by day. Factor 3 is also similar; as merchants' operational capabilities mature, the demand for proactive advertising investment will become increasingly strong.

If we have higher long-term expectations for the growth of marketing services, then Meituan's investment and progress in AI technology will be decisive. It needs to significantly enhance the marketing capabilities and efficiency of small and medium-sized merchants at the technical level while improving the convenience for consumers to discover and obtain goods and services.

AI will disrupt e-commerce and local life, especially light asset businesses like in-store hotel and travel.

Therefore, discussing the existing industry competitive landscape, such as potential competitors in takeaway, new entrants, and changes in market share in the in-store hotel and travel sector, is actually not very meaningful.

The key to winning in the future is who can master more advanced AI productivity.

In the future, shopping and online consumption will largely become butler-style; people will become increasingly lazy. You will be too lazy to search, compare prices, browse detail pages, or watch product introduction videos.

You will simply say to your robotic butler, "Hi, ..., I want to drink beer."

Then your robotic butler will give you a unique option within 10 seconds and consult your opinion: "Master, I have selected a dozen Budweiser Pure Draft 500ml beers for you, priced at ..., ... and it will be delivered to you within 30 minutes. Is that okay?"

Your butler knows what brand you like, what specifications you have previously consumed, understands the fair market price of products, and will try to find a supplier with a discount while ensuring service and timeliness.

In most cases, you won't need multiple rounds of dialogue; this is built on trust. You don't have to worry about price, service, or time, just like when you shop in a supermarket. You wouldn't worry about these things because you have basically established trust in it. You know that large supermarkets are fair and have reasonable prices.

The same applies in the service retail field. Whether you need a massage, karaoke, or beauty treatments, an ideal robotic butler will understand your intentions in a brief sentence because you have established sufficient trust between you So tell me, how necessary are all the efforts today to search, compare, find, read reviews, and consult customer service? All of this should be completed by an AI-driven smart assistant within 10 seconds in the future. This assistant will be embedded in a smart device, which could be your phone, robot, car, watch, headphones... any smart device, and it could also be all of these, seamlessly connecting across different terminals.

Of course, this is a gradual process, but the future is here, and it is meaningless to be entangled in the past.

By the way, Meituan has stopped disclosing the number of instant delivery orders in its financial reports starting this quarter. They may not want to be scrutinized too closely, or there could be other reasons, such as the growth rate of takeaway orders dropping to single digits? Let's see if there is any information disclosure after the earnings call. If they no longer disclose it, then below is the forecast made during the performance preview for reference. Perhaps the data needs to be slightly adjusted; I will make adjustments in the long article commentary.

I just looked at the text version of the earnings call, and here are some data points I can share:

The number of annual active trading users in 2024 is 770 million, and the number of annual active merchants is 14.5 million.

The second-ranked takeaway platform in the Hong Kong market, HuHuSong, has exited, and Keeta is expected to achieve the first position in order volume and reach breakeven at the GTV level.

In the Middle East market, Keeta expanded to the capital Riyadh in the fourth quarter and has already rolled out to all major cities in Saudi Arabia in the first quarter.

The peak daily order volume for instant retail in 2024 reached 98 million, achieved on the day of the beginning of autumn.

By the end of 2024, unmanned delivery vehicles have completed 4.9 million orders, and drones have completed 1.45 million orders.

The annual order volume for in-store business increased by 65% year-on-year.

The proportion of Shenhu 会员 orders in the total order volume of core local businesses exceeded 40% in the fourth quarter.

Over 70% of in-store hotel and travel merchants have already supported Shenhu 会员。

Shenhu 会员 will soon be renamed to Meituan 会员。

That's all.

Author of this article: Zou Ma de Hanzi, Source: Zou Ma Finance, Original title: "2024 Q4 Meituan Financial Report Brief Commentary: No Shock, Not Much Surprise"

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