Author/Lu Hanzhi

As a service platform with local business as its core, Meituan's business continues to be affected by the pandemic.

Meituan announced its third-quarter 2022 results on Nov 25. The company reported revenue of 62.6 billion yuan, up 28.2 percent year-on-year. Meituan said the growth was mainly driven by steady revenue growth in the core local commercial segment and revenue growth in the new business segment, especially in the commodity retail business. Operating profit for the quarter was RMB990 million, compared with a loss of RMB10.1 billion in the same period last year, and adjusted profit was RMB3.5 billion, compared with a loss of RMB5.5 billion in the same period last year.

The impact of the epidemic continues

In the second quarter of this year, Meituan readjustedthe business performance disclosure method, the original three business "food and beverage delivery, hotel travel, new business" into "core local business and new business" two parts.

After the adjustment, core local businesses include the existing food and beverage delivery and delivery, hotel and tourism divisions, as well as Meituan flash sales, homestay and transport ticketing. The new businesses include Meituan.com, Meituan.com, food and beverage supply chain (Kuaidonkey), ride-hailing, bike-sharing, e-bike sharing, power bank, restaurant management system and other new businesses.

The third quarter results showed that the core local business segment's quarterly revenue grew 24.6 percent year-on-year to 46.3 billion yuan. Operating profit increased from 4.2 billion yuan in the same period of 2021 to 9.3 billion yuan, a year-on-year growth of 124.6%. The revenue from delivery services was RMB20.1 billion, up 26% year on year, mainly due to the increase in the number of transactions and the reduction in the revenue deduction of food and beverage takeout and Meituan flash sale business driven by more effective transaction user incentive strategy. Commission income was $16 billion, up 29% year on year, mainly due to the increase in the number and unit price of food and beverage takeaways and Meituan flash sale business, as well as the increase in the transaction value of the store, hotel and travel business. Online marketing services revenue increased 18% year-over-year, primarily due to an increase in the number of merchants active in online marketing during the quarter, partially offset by a decrease in average revenue for merchants active in online marketing due to repeated COVID-19 service demand constraints.

In the third quarter, several business lines of Meituan's core business were affected by the epidemic. Meituan said in its earnings statement that the ongoing pandemic continues to pose challenges for its hotel and tourism business, particularly in September when some tourist cities were severely affected by the outbreak. In terms of performance, local accommodation demand is relatively resilient and continues to outperform the cross-city travel scene.

On the other hand, the pandemic has increased consumer demand for instant delivery. Total orders for food delivery and Meituan flash sales rose 16.2 percent year on year to 5.25 billion orders in the third quarter.

In terms of merchants and user growth, the number of transaction users increased by 2.9% year on year to 687 million in the third quarter, and the number of active merchant users increased by 11.3% year on year to 9.3 million. Still, that was down from 693 million in the first quarter and up from 684 million in the second quarter. The annual average transaction frequency of trading users increased by 15% year-on-year to 39.5 transactions.

Wang Xing, CEO of Meituan, said that the impact of the epidemic is continuing, and Meituan's business was greatly affected in the second quarter and continued to be affected in the third quarter. For example, the increase in high - and medium-risk areas affected core local businesses, with take-out orders falling in September compared with August. In addition, the COVID-19 epidemic recurred in many regions in October, and this trend continued in November, which may have a greater impact on local business in the fourth quarter than in the third quarter. In this regard, Meituan will continue to optimize and overcome the impact of the epidemic. Wang said Meituan remains confident about the long-term development of its business and believes that local consumption will eventually return to its normal growth track after the end of the epidemic.

Face the competition

In the third quarter, Meituan's revenue from its new business segment rose 39.7 percent year on year to 16.3 billion yuan, mainly driven by growth in its commodity retail business. The operating loss narrowed slightly from the previous quarter to 6.8 billion yuan, while the operating loss ratio improved to 41.6%, mainly due to the improved operating efficiency of the commodity retail business.

Meituan said that in the third quarter, the company will upgrade the preferred brand positioning of Meituan to "tomorrow's supermarket", in order to convey the concept of fast reach. In addition, in the third quarter, the transaction volume of convenience stores and supermarkets on Meituan's platform increased by 27.9% and 62%, respectively, and the order volume of mom-and-pop stores increased by 125%.

From the perspective of competition, the competition in the food delivery market is intensifying. On Aug 19, Tiktok and Ele. me announced a strategic partnership to provide new local lifestyle services through quality content, a variety of products and efficient logistics, which means Meituan will face competition from Tiktok and Ele. me. In addition, it was previously reported that JD would enter the food delivery market through Dada, but with the shrinkage of JD, there is no new competition in this business at present.

Alibaba's third-quarter results showed overall orders for local living services up 5 per cent year on year. Among them, the business operation of Ele. me continues to improve. Thanks to the innovative marketing and operation such as order free activity, "rest assured point · List", Ele. me's unit economic benefit has been positive for two consecutive quarters, and the average order amount has also increased year-on-year.

As for the competition, Wang Xing said on the earnings call that many of the platforms' local businesses are growing faster, and many of them use discounts to stimulate consumer demand, which in many cases they rely on for traffic. It's good for the industry that a lot of players are entering the food delivery market, which means the pie is going to get bigger. In the face of competition, Meituan will continue to optimize its services. At the same time, Meituan feels the resilience of its business in difficult times, and is confident that businesses will continue to choose Meituan.

As for Meituan's trial delivery business in Hong Kong, Wang Xing said that Meituan will continue to explore the Chinese mainland market, and will also expand into other markets. Currently, Meituan's trial market in Hong Kong is not large, and the service between the two places is different. The team also needs to adjust the existing business model to cope with the new market.

Regarding Tencent's announcement of Meituan shares, Wang said that Meituan will continue to cooperate with Tencent in both strategic and operational aspects to meet the needs of more consumers and merchants and provide them with more diversified services and products. Meituan welcomes new investors and is confident that it will generate long-term value to return to shareholders and create social value through its activities.