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Meituan’s Q1 Revenues Down 13% – Yet Investors Still Won Over
COVID-19 and China
A delivery stuff. Image credit: jianshu.com

► Affected by the epidemic, the in-store and hotel & travel business segment experienced the biggest shock.

► As work resumes and the economy picks up, Meituan is set to turn losses into profits again.

Meituan-Dianping (03690:HKEX) handed over a transcript that exceeded market expectations on May 25. According to the first-quarter report, total revenue was CNY 16.7 billion, a year-on-year decrease of 12.6% and a net loss of CNY 1.5 billion. Annual transacting users increased by 8.9%, and the number of active merchants rose 5%. 

As the Hong Kong Stock Exchange closed, the stock price soared 10%, and the total market value exceeded USD 100 billion.

Affected by the epidemic, unsurprisingly, all businesses experienced a shock. For the food delivery business, the number of transactions dropped significantly, but the average amount of orders placed by users increased largely, hedging the negative impact. 

CFO Chen Shaohui claimed that the scale of the food and beverage delivery business recovered very quickly in March. The order volume at the peak of the epidemic was less than 30%, and by the end of March it had returned to 75%. It is expected that, with the gradual lifting of restrictions in June, the food delivery business will be back to normal in the second quarter.

However, the food delivery business is not very profitable, as significant declines in orders cannot cover costs. Even if it is expected to recover in the future, subject to commissions that will be close to the ceiling and the saturation of merchants and delivery staff, the profit space will still be very small.

As one of the most profitable businesses around, with a normal gross margin of 89%, the impact on in-store and hotel & travel is definitely the biggest, as guests need to be onsite to consume the services and products. Because most hotels and tourist attractions were closed amid the pandemic, revenue fell by 31%.

Meituan's new initiatives and others, with bike-sharing/car-hailing and B2B food distribution services, are experiencing tragicomic times. For the former, as people have been quarantined, the business pivot has dragged down overall performance. Fortunately, many people who are isolated at home start to use the Meituanmaicai app to buy food online, making the new retail business grow by 5%. 

Although Meituan has once again been able to convert losses into profits, the impact of the epidemic will eventually recede as the economy recovers. At the same time, the crisis also exposed some problems. There is a certain risk of the diversion of the high flow of takeout to hotel and tourism, with its extremely high profit margins. In the future, the company needs to focus on the exploration of new high-margin business segments.

Editor: Luke Sheehan

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