Meituan's Net Profit Surges by 367% in 3Q 2020 – Yet New Initiatives are Expanding Losses

Consumer Staples Author: Yue Liu Editor: Luke Sheehan Dec 02, 2020 04:12 PM (GMT+8)

After the release of the financial report, the stock price fell 7.05% to HKD 290.

MEITUAN

On November 30, Meituan released its third-quarter financial report. In 3Q 2020, Meituan achieved a CNY 35.4 billion revenue, a year-on-year increase of 28.8%; net profit was CNY 6.7 billion, a year-on-year increase of 374%, including CNY 5.8 billion of investment gains from Li Auto. Excluding the impact of investment income, Meituan's net profit dropped to CNY 500 million from CNY 1.3 billion in the same period last year. 

Food delivery, in-store and hotel & travel and new initiatives account for 58.5%, 18.3% and 23.2% of total revenue, respectively. Commissions are still the revenue engine as commission and online marketing revenue accounted for 65% and 16%. The number of transaction users and active merchants were 480 million and 6.5 million, respectively, representing a year-on-year increase of 9.4% and 9.5%. 

Food delivery business continues to grow faster than Ele.me

Revenue generated from the food delivery business was CNY 20.7 billion, a year-on-year increase of 32.8%, surpassing the 29.3% of its rival Ele.me. The gap between these two players has further widened in revenue, with Ele.me seeing CNY 8.8 billion revenue. Also, the GMV increased by 36% to CNY 152.2 billion, returning to the ex-pandemic level.

Meituan completed a total of 3.2 billion orders in the third quarter, with a unit price of CNY 47.38, while the number was below CNY 46 in 2019. Due to the accelerated online catering service brought by the epidemic, the unit price reached CNY 52.02 in 1Q and fell to CNY 48.83 in 2Q but still higher than the ex-pandemic level. On average, each order can bring CNY 6.44 revenue. 

According to Trustdata, in 3Q 2020, the gap in user size between Meituan and Ele.me has been gradually enlarged to 12.61 million, compared to 8 million at the beginning of 2020. However, Ele.me's tens of billions of subsidy strategies began in July and started to bear fruit. In October 2020, the MAU of Meituan's food delivery app was overtaken by the Ele.me for the first time. On the main battlefield of Meituan, the ambition of Ele.me backed by Alibaba cannot be underestimated.

In-store and hotel & travel business gradually breaks away from the Black Swan

The business reversed the negative growth in the first two quarters, with CNY 6.48 billion revenue, a year-on-year increase of 4.8%. Operating profit increased by 47.4% from CNY 1.9 billion in 2Q 2020 to CNY 2.8 billion in 3Q 2020. "The growth was mainly driven by more marketing investment by merchants in the fields of healthcare, pet care and housekeeping services," said Chen Shaohui, the CFO of Meituan.

New initiatives' losses are still expanding

In the third quarter, new initiatives, including kuailv, shangou, ride-hailing and maicai generated CNY 8.2 billion revenue, a growth rate of 43.5%, but a loss of CNY 2 billion, the highest number in the past three quarters.

The new business area with the most focused attention is 'maicai' (fresh vegetables) as this sector is attracting the big giants, including Tencent, Alibaba, Didi and Pinduoduo. The significance of this war for Meituan is that it is an essential source of traffic and income for Meituan in the future. On the other hand, if Pinduoduo or Didi captures this market, then Meituan's market cap will be discounted.

Meituan faces mighty enemies in each field – Alibaba in the food delivery industry, Pinduoduo and Didi in the maicai market, and Ctrip in the hotel & travel sector.