The Delivery Commission Lifeline is moving!Meituan slump is not over

2022-04-28 0 By

China Times (www.chinatimes.net.cn) Reporter Lu Xiao reports from Beijing that meituan’s share price plunge came suddenly on Friday afternoon.On Feb. 18, Meituan-W (3690.HK) opened at HK $217.4 before trading around HK $220 for long periods.But the calm was broken in the afternoon.Meituan shares plunged after 2.30pm, hitting an intraday 52-week low of HK $182.By the end of the day, meituan’s hk $188 price, down 14.86 percent.Meituan’s share price fell in response to the news. According to the official website of the National Development and Reform Commission on February 18, the National Development and Reform Commission and other departments issued a notice on Policies to Promote the Recovery of Difficult Industries in the service sector, which included guiding takeout and other Internet platform enterprises to further reduce the service fee standards of restaurant merchants.The lowering of the service fee standard is undoubtedly a major shock for Meituan, whose commission accounts for 60% of its revenue.The pessimism of the capital market may also come from who can become meituan’s next revenue pillar.As of Press time, Meituan did not respond.Share price dive compared to A shares “emotional”, Hong Kong stocks have always looked more calm.But this time, Hong Kong stocks were quick to react to Meituan’s future.Meituan insiders also told reporters that the news came too suddenly.According to the document issued by the National Development and Reform Commission and other departments, rescue and support measures for the catering industry include guiding takeout and other Internet platform companies to further reduce service fees for catering businesses and reduce operating costs of relevant catering companies.In addition, Internet platform enterprises should also be guided to offer preferential service fees to catering enterprises in county-level administrative areas where high-risk areas are located.These two “guides” influence Meituan so much because they are related to meituan’s “lifeblood”.Commissions have always accounted for more than half of Meituan’s revenue.Commissions from food and beverage takeout accounted for the lion’s share.According to meituan’s quarterly report for 2021, its commission income was about 29.56 billion yuan, accounting for 60 percent of its total revenue of 48.83 billion yuan in the period.Of the total, 23.22 billion yuan came from food and beverage delivery, accounting for nearly 80 percent of Meituan’s total commission income.Meituan’s average commission rate in the third quarter of last year was about 15 percent, based on a rough calculation of the 197,098 billion yuan of food and beverage takeout transactions announced by meituan.In fact, the impact of commissions on Meituan has already been seen in the first quarter of 2020, when the offline catering industry was hardest hit by the epidemic.Since February 2020, catering associations in Chongqing, Yunnan, Guangdong and other places have issued articles criticizing the high commission rate of food delivery platforms.Meituan’s shares hit a low of HK $70.1 in mid-March.The price had been stuck above HK $100 for months.The pandemic also interrupted Meituan’s year-on-year revenue growth of more than 40 percent in 2019.In the first quarter of 2020, Meituan’s revenue was 16.7 billion yuan, down 12.6 percent year on year.The net loss of 1.58 billion yuan means that Meituan, which was profitable only in 2019, turned into a loss.Meituan earned 8.56 billion yuan in commission revenue from food delivery during the period, or an average commission rate of about 12 percent based on a transaction value of 71.5 billion yuan, slightly lower than 12.6 percent in 2019.The reason why Meituan’s share price plunged so neatly in Hong Kong is that the capital market is concerned about which business of Meituan can take over as the next revenue pillar when the commission business income decreases.Meituan’s business consists of catering takeout, in-store hotel tourism (hereafter referred to as in-store tourism), new business and other three sectors.Food delivery is not meituan’s most profitable business.According to financial reports, the food delivery business made only 876 million yuan in operating profit in the third quarter of last year, up 14 percent year on year.But its operating margin edged down to 3.3% from 3.7%.Meituan said at the time that this was mainly due to incentives for transaction users and increased marketing activities.In addition to providing subsidies to users, food delivery platforms have also drawn much attention in terms of rider protection.It should be noted that Meituan chief Financial Officer Chen Shaohui said in the third-quarter earnings call that meituan’s food delivery business growth slowed by 4% in the third quarter of last year, and growth in the food delivery business may continue to slow in the next few quarters.Within Meituan, the business with the highest operating margins is the in-store business.In the third quarter of last year, Meituan’s in-store operating profit reached 3.784 billion yuan, up 35.8% year on year, while its operating profit margin rose slightly to 43.9% from 43%.But on the other hand, the store – to – store business is not big enough.Of Meituan’s three business segments, in-store business accounts for only about 18 percent of its total revenue.For comparison, food delivery accounts for 54% of Meituan’s total revenue.In addition, relative to the home food and beverage takeaway business, sporadic epidemic in various places has a greater impact on the store business.In terms of revenue scale, the second largest business within Meituan is the new business including meituan buying vegetables and Meituan flash buying.In the third quarter of last year, new business and other revenue of 13.7 billion yuan accounted for 28 percent of Meituan’s overall revenue.This was driven by growth in its retail business and ride-sharing services, Meituan said in its earnings statement.But the expansion of Meituan’s new business has come with high costs.In the third quarter of last year, Meituan lost 10.9 billion yuan in new business and other operations, 800 million yuan more than meituan’s overall operating loss in the same period.Meituan explained that this was mainly due to the continued business expansion of the retail business.Meituan chairman and CEO Wang Xing said on the Shanshu conference call that “the retail business will be our top priority and we will build our most fundamental capabilities.”Pan Helin, executive dean of digital Economy Research Institute at Zhongnan University of Economics and Law, believes that the introduction of the above-mentioned policies by the NDRC will have a greater impact on Meituan’s current performance.”As Meituan has just reached the break-even point, its platform operating costs will not decrease in the short term, but its revenue may decrease significantly due to lower merchant service fees,” he told China Times.He also believes that the diversified business layout of Meituan is not perfect at present, and the future will also rely on the merchant service fees in the takeaway business.