Meituan: The battle has just ended, is it time to stir up the "second curve" again?

On March 21, after the Hong Kong stock market closed, $MEITUAN(03690.HK) released its financial report for the fourth quarter of 2024. The various indicators were generally in line with expectations, representing a good performance. Specifically:

1. This quarter, Meituan no longer disclosed its last non-financial operational indicator—the instant delivery order volume, which prevents us from judging the trend of business changes by comparing the growth rates of order volume and related revenue. From the financial information, the year-on-year growth rate of delivery revenue this quarter was 19.5%, slightly slowing down by 1.4 percentage points compared to the previous quarter.

According to the management's previous guidance, the year-on-year growth rate of instant delivery order volume in Q4 should be slightly lower than that in Q3, which is slightly below 14.5%. The growth rate of delivery revenue has slightly decreased quarter-on-quarter, suggesting that the growth rate of instant delivery order volume is likely to have slightly declined; additionally, the growth rate of delivery revenue still significantly outpaces that of order volume, and the average delivery revenue per order has also increased year-on-year.

2. The year-on-year growth rates of commission and advertising revenue were 23.9% and 17.7% respectively, both slowing down by less than 1 percentage point compared to the previous quarter, indicating stability and likely suggesting that the underlying GTV growth rates for in-store and hotel travel are roughly comparable to the previous quarter, with a slight slowdown.

Another noteworthy point is that the situation where the growth rate of commission income exceeds that of advertising revenue, which reappeared last quarter, continued this quarter, with the growth rate difference remaining largely unchanged. Last quarter, we believed this might indicate: ① the competition between Meituan and Douyin for merchants' advertising spending has become more pronounced again; ② due to macro factors, merchants have reduced their advertising budgets focused on promotion, reallocating more resources to commission expenditures that are strongly related to transactions.

3. Centered around Meituan Youxuan and Xiaoxiang Supermarket, along with various innovative businesses such as bicycles and overseas operations, this quarter's revenue was 22.9 billion, a year-on-year increase of 23.5%. Although the company is expanding its overseas business, the overall revenue and growth rate of innovative businesses have both decreased quarter-on-quarter. The company explains that this is due to the off-season in Q4. However, Dolphin Research believes that it cannot be ruled out that after focusing investments overseas, other innovative businesses may be more inclined to contract to ensure that overall losses do not expand too much.

Correspondingly, the losses of innovative businesses this quarter nearly doubled quarter-on-quarter to 2.18 billion, indeed due to the significant expansion of investments in overseas operations. However, management had already guided this, and the consensus loss expectation from Bloomberg was as high as 2.26 billion. The actual loss is controllable and did not shock the market.

4. On the profitability front, Meituan's overall operating profit this quarter was 6.7 billion, which at first glance appears to be nearly 1.4 billion lower than the consensus expectation from Bloomberg (equivalent to 17%), seemingly a clear miss. But this is mainly because this quarter recognized approximately 1.67 billion in foreign exchange losses from overseas assets recorded in the financial statements. Excluding this one-time impact, the net profit under Non-GAAP standards is 9.8 billion, which is generally in line with consensus expectations.

From a departmental perspective, the core local business segment's operating profit is 12.9 billion, with a profit margin of 19.7%. Although both profit amount and profit margin slightly declined during the off-season, it still exceeded Bloomberg's sell-side expectations by about 1.2 billion. The profit performance of the core business is good.

The main reason is the expanded losses in innovative businesses, which increased by 1.2 billion quarter-on-quarter, and the unallocated losses at the group level also expanded to 4.03 billion due to the aforementioned exchange losses, leading to a significant narrowing of the group's overall operating profit under GAAP standards.

From the perspective of costs and expenses, Meituan's gross profit for this quarter reached 33.4 billion, with a gross profit margin of 37.8%, a quarter-on-quarter decrease of 1.5 percentage points. Compared to Q4 2023, the decline of 1.4 percentage points from Q3 is consistent, indicating a normal seasonal variation.

Marketing expenses increased only slightly by 3% compared to the same period last year, and R&D expenses also saw nearly 0% growth year-on-year. Only management expenses grew by about 9%, which the announcement explained was mainly due to increased business tax resulting from the expansion of the business scale.

The year-on-year growth rate of the three expenses is at most in single digits, indicating that despite the expansion of overseas business, there hasn't been much spending by the end of Q4. Meituan is still in a cost control and efficiency improvement phase, releasing profits. This also indirectly suggests that the competitive environment faced by Meituan in Q4 is relatively relaxed and stable.

Dolphin Research's Viewpoint:

Based on the above comments, it can be seen that Meituan's performance this time is basically within market expectations. The sufficient communication between Meituan and institutions and investors suggests that the quarterly performance is unlikely to have a significant impact on recent stock price trends; the information from the company's conference call and small-scale communications after the results is more critical.

However, before obtaining information from small-scale communications, looking solely at this performance, the growth of the delivery and in-store businesses appears quite stable from a revenue perspective, showing only a normal slight slowdown. It still maintains a remarkable growth rate of around 20%. With expenditure growth at only single-digit percentages and the profit margin of the core local business remaining at a relatively high level (with a slight normal seasonal decline), it is still within the cycle of profit improvement and release.

Although innovative businesses have indeed expanded losses due to overseas investments, a quarterly loss of 2 billion is still within a controllable and acceptable range compared to the 5 billion range seen in 2023. At least there has not been a significant increase in losses beyond expectations, which would severely drag down the overall profit of the group.

In other words, Meituan's overall performance this quarter reflects good execution, with all indicators at least meeting expectations. (Of course, it can also be said that it lacks surprises.)

From a valuation perspective, before the results, Meituan's market capitalization corresponds to a non-GAAP net profit of about 17x PE valuation for 2025 (if calculated under GAAP standards, the valuation rises to about 19x). Corresponding to revenue and profit growth expectations of around 15% to 20% for 2025/2024, I believe the current valuation is at a neutral to slightly optimistic level There is no obvious tendency for valuation repair or pullback.

Regarding the outlook, Meituan's business model and its excellent execution provide a more certain competitive environment and leading position; its instant retail and in-store businesses have not yet fully matured, offering relatively better growth potential. These factors are unlikely to change in the medium term, which supports a continued positive outlook on Meituan's development from a mid-term perspective.

In the shorter term, recent marginal driving factors include: ① The competitive situation in food and non-food instant delivery initiated by JD (the impact of this should be relatively limited in the short term), along with the potential erosion of profits due to the social security issues faced by delivery riders (which may have a larger impact); ② In the context of Meituan's lackluster performance in business diversification over the past few years, the recent overseas business, while showing initial results and bringing incremental valuation, may increase the drag on the group's overall profitability as the scale of overseas operations grows.

It can be seen that the aforementioned short-term factors are generally negative. Whether it is JD's competition, the incremental costs brought by social security, or the expanded losses due to overseas operations (which are likely to continue to rise, but the extent to which they will reach remains to be observed). These issues are likely to limit Meituan's further upward space in the medium to short term until they are resolved. Compared to other Chinese concept peers who can more easily tell AI stories, Meituan lacks favorable catalysts that can bring upward elasticity.

The following is a detailed commentary on the financial report:

1. Delivery revenue growth is steady but slightly slow

Due to this quarter, Meituan's last non-financial, operational indicator—the instant delivery order volume will no longer be publicly disclosed this season, we lose the ability to preliminarily judge the changing trend of the monetization rate of the takeaway business by comparing the growth rates of order volume and related revenue, as well as the growth rate difference between home delivery and in-store businesses. More details can only be awaited in subsequent conference calls and small-scale communications.

From a public financial perspective, the year-on-year growth rate of delivery revenue this season is 19.5%, slightly slowing down by 1.4 percentage points compared to the previous season. According to the management's guidance after the last financial report, the year-on-year growth rate of instant delivery order volume in Q4 should be slightly lower than that in Q3, which is slightly below 14.5%. Therefore, the sequential growth rate of delivery revenue slightly decreased, in line with the guidance of a slight decline in order volume growth; however, the average delivery revenue per order should still show a year-on-year increase this season.

2. Commission and advertising revenue growth is also steady, with a persistent growth rate gap between the two

In the intertwined commission and advertising revenue from home delivery and in-store businesses, this season the year-on-year growth rates of commission and advertising revenue are 23.9% and 17.7% respectively, both showing a slowdown of less than 1 percentage point compared to the previous quarter, remaining steady, which likely suggests that the underlying GTV growth rates for in-store and hotel travel are roughly comparable to the previous season, slightly slowing down. Another noteworthy point is that the growth rate of commission income, which reappeared last quarter, remains greater than that of advertising revenue this season, and the difference in growth rates is largely unchanged. Last quarter, we believed this might indicate: ① the competition between Meituan and Douyin for merchant advertising spending has become evident again; ② due to macro factors, merchants have reduced their advertising budgets focused on promotion and shifted more resources to commission-related expenditures that are strongly correlated with transactions.

In summary, the total revenue of core local businesses this season is nearly 65.6 billion, a year-on-year increase of 18.9%, slightly down 1.4 percentage points from last season's growth rate, and 0.5 percentage points higher than Bloomberg's consensus expectation. Maintaining nearly 20% growth is quite good.

3. Overall revenue of innovative businesses continues to shrink, and losses are expanding as expected without causing alarm

Focusing on Meituan Youxuan and Xiaoxiang Supermarket, along with various innovative businesses such as bike-sharing and overseas operations, the revenue of innovative businesses this season is 22.9 billion, a year-on-year increase of 23.5%. Although the company is expanding its overseas business, the overall revenue and growth rate of innovative businesses have both declined compared to last quarter. According to the company's explanation, this is mainly due to some businesses being in the off-season in Q4. However, Dolphin Research believes it cannot be ruled out that the company has shifted its focus to overseas investments, which may have led to a contraction in other innovative businesses to ensure that the overall losses of innovative businesses do not expand too much.

As previously guided by management, the losses of innovative businesses this season nearly doubled to 2.18 billion, primarily due to increased investments in overseas and other businesses. However, since management had already provided guidance, the actual loss amount expected by Bloomberg's consensus is even higher at 2.26 billion. This did not cause a significant "shock" to the market regarding the expansion of losses, which remains controllable.

4. Excluding one-time factors, profits also meet expectations

In terms of profitability, Meituan's overall operating profit this season is 6.7 billion, which at first glance appears to be nearly 1.4 billion (equivalent to 17%) lower than Bloomberg's consensus expectation, seemingly a clear miss. However, this is mainly due to the recognition of approximately 1.67 billion in foreign exchange losses from overseas assets recorded in the financial statements this season. Excluding this one-time impact, the net profit under Non-GAAP standards is 9.8 billion, which is roughly in line with consensus expectations. Therefore, the profit performance also meets expectations.

By department, the core local business segment's operating profit was 12.9 billion, with a profit margin of 19.7%. Although both profit amount and profit margin slightly declined in the off-season, it was still about 1.2 billion more than Bloomberg's sell-side expectations. The profit performance of the core business is good.

The main issue is that the losses from the innovative business mentioned above expanded to 2.18 billion (an increase of 1.2 billion quarter-on-quarter), and the unallocated losses at the group level also significantly expanded to 4.03 billion due to exchange losses from the aforementioned overseas assets, which led to a noticeable narrowing of the group's overall operating profit under GAAP standards.

From the perspective of costs and expenses, Meituan's gross profit for this quarter reached 33.4 billion, with a gross profit margin of 37.8%, a decrease of 1.5 percentage points quarter-on-quarter. Compared to the decline of 1.4 percentage points from Q3 to Q4 in 2023, this is consistent, indicating that it is a normal seasonal variation.

In terms of expenses, marketing expenses only slightly increased by 3% compared to the same period last year, and R&D expenses saw nearly 0 growth year-on-year. Only management expenses increased by about 9% year-on-year, mainly due to increased business tax resulting from the expansion of business scale, as explained in the announcement.

The highest year-on-year growth rate of the three expenses was only in single digits, indicating that despite the expansion of overseas business, Meituan did not spend too much up to Q4. Overall, Meituan is still in a cost control and efficiency improvement phase, releasing profits. This also indirectly suggests that the competitive environment faced by Meituan in Q4 was relatively relaxed and stable.

Dolphin Research's past research on [Meituan]

Financial Report Commentary:

Minutes of November 29, 2024, Meituan: Can Growth Continue Strongly?

Commentary on November 29, 2024, Meituan: The "Heaviest" Chinese Concept Stock, Will It Ultimately Laugh Last?

Conference call on August 28, 2024, How Did Meituan Achieve Growth Against the Wind? August 28, 2024, Financial Report Review: Returning to "Little Sweetie", is Meituan the stabilizing force?

June 6, 2024 Conference Call: What has changed for Meituan after the restructuring?

June 6, 2024 Financial Report Review: Has Meituan truly regained its strength after the surge?

March 22, 2024 Conference Call: Meituan: New business controls losses, core business faces adjustments

March 22, 2024 Financial Report Review: With two of the three mountains gone, is Meituan about to turn around?

November 29, 2023, Conference Call: Meituan: Unyielding, will continue to invest.

November 29, 2023 Financial Report Review: Still struggling and unyielding, can Meituan afford it?

August 24, 2023 Conference Call: Meituan: The third quarter still sees high in-store activity, and delivery slows slightly