Dismantling meituan: the loss of meituan increased sharply due to community group buying, but Wang Xing said that “we still need to continue to invest”

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    Author: Sun Shi of Tencent Technology
    Editor | Tencent technology Shen Chong
    On the afternoon of March 26, Beijing time, meituan released its financial report for the fourth quarter and the whole year of 2020.
    In the month before the release of the financial report, the stock price of meituan experienced a severe shock, from a record high of HK $460 to around HK $270, with a correction rate of more than 40%. Therefore, the outside world is full of expectations for the latest financial report of meituan, hoping to recover the recent decline of the stock price.
    Several core data: meituan’s annual revenue exceeded 100 billion yuan for the first time, and the number of takeout transactions exceeded 10 billion. In the words of meituan CEO Wang Xing, meituan’s businesses continued to maintain steady growth.
    This is the third annual report issued after meituan’s listing. In addition to some data of 2017 published in the prospectus before meituan’s listing, it can be extended to four years to see the changes of meituan’s business. Therefore, Tencent technology takes this opportunity to dismantle meituan financial report.
    Revenue: take out is still strong, new business has overtaken the store and liquor travel
    In 2020, meituan will no longer announce the total transaction amount except the take away business, so we will focus on the revenue. Judging from the overall feeling, the growth momentum of meituan is close to the level before the epidemic, with a growth rate of 34.7% in the fourth quarter and 42.2% in the fourth quarter of 2019.
    From the revenue structure of the past two years, we can summarize the following points:
    First, takeout is still strong, maintaining a stable growth, accounting for 55% – 59%;
    Second, since the first quarter of last year, the new business has surpassed the arrival shop and liquor travel business, becoming the second largest business pillar of meituan;
    Third, the impact of the epidemic on the business of going to stores and liquor tourism is relatively large, and the proportion has declined from 23.4% to 18.4%.
    If we look at the revenue structure of meituan in four years, we can see that the rise of new business is very rapid, from 6% in 2017 to 23.8% in 2020.
    Takeout: the liquidity rate that can’t be broken through, but meituan doesn’t want to break through now
    Delivery business is the largest core business of meituan. From the above two trend charts of total transaction volume and revenue, meituan’s delivery business has got rid of the impact of the epidemic, and its growth is still strong.
    In the fourth quarter of 2020, the take out transaction amount increased by 39.4% year-on-year and 39.9% in the fourth quarter of 2019, almost no difference; in the fourth quarter of 2020, the take out revenue increased by 37% year-on-year and 42.8% in the fourth quarter of 2019. For such data, meituan said in its financial report that meituan’s advantages in consumer side, business side and distribution network remain strong, and will continue to generate huge network benefits in 2020, which will promote the steady growth of our takeout business.
    However, the biggest problem faced by meituan’s takeout is that the realization rate (revenue / total transaction volume) can’t get a breakthrough, and even has a downward trend, from 14.2% in the first quarter of 2019 to 13.6% in the fourth quarter of 2020.
    Meituan’s takeout cash mainly comes from commission income and online marketing service income (i.e. advertising income), of which the commission income far exceeds the advertising income.
    Let’s take a look at the comparison between commission rate and advertising rate
    As can be seen from the above figure, the Commission realization rate of meituan’s takeout shows a downward trend in recent two years, from 13.12% in the first quarter of 2019 to 12.19% in the fourth quarter of 2020. This means that meituan used to earn 13.12 yuan commission income for a 100 yuan take out, but now it can only earn 12.19 yuan.
    In addition, meituan’s financial report shows that the cost of meituan’s riders has been increasing in recent years, and the operating profit and operating profit margin of meituan’s takeout can not be further improved. In other words, meituan’s takeout business can not bring more contribution to meituan’s overall operating profit.
    However, according to the latest data, in 2020, the average number of meituan takeout daily transactions was 27.7 million, an increase of 16.0% over the same period last year. Based on this calculation, the number of meituan takeout transactions in 2020 exceeded 10.1 billion, breaking through the 10 billion mark for the first time, which means that meituan users will open meituan app at least 10 billion times a year for ordering takeout, bringing huge passenger flow to meituan, plus the high frequency of takeout Take away can be regarded as meituan’s flow pool.
    Therefore, the takeaway business should pay more attention to whether it can bring more active users to meituan and create opportunities for other businesses to realize and make profits. Judging from the growth of meituan’s trading users in the figure above, the takeout business has completed the task well. The number of trading users has exceeded 500 million for the first time, and the year-on-year growth rate has also exceeded the level of the fourth quarter of 2019.
    It is also mentioned in recent meituan conference calls that the liquidity rate can not be improved
    Conference call in the third quarter of 2020: analysts asked about “the growth of trading users”. Wang Xing, CEO of meituan, said that in the long run, our takeout business has the potential to grow to 300 million, and the trading frequency will continue to grow. In general, the longer users stay on our platform, the more frequent they will trade.
    Conference call in the first quarter of 2020: analysts asked the question of “how to change the cash flow rate of the catering takeout business”. Chen Shaohui, CFO of meituan, said that meituan’s long-term concept is to first enlarge the scale of the enterprise, and first only care about the efficiency and scale, not just the short-term cash flow rate. The liquidity rate of meituan’s takeout is much lower than that of some other competitors in the world.
    Therefore, we can see that the liquidity of meituan’s takeout can not be improved. Maybe meituan deliberately did it, or at least it can be said that meituan is not especially in the improvement of the liquidity of the unexpected sale business.
    To shop and wine travel: different modes from Ctrip
    Starting from the first quarter of 2020, meituan will no longer announce the Gmv of its stores and liquor travel business, and the reason is unclear. However, in terms of revenue, this part of the business has indeed become the smallest part of meituan. As mentioned at the beginning of this article, affected by the epidemic situation in the past year, the market share of arrival shop and wine travel business has dropped to around 18.5%.

    Although the volume is small, but to shop, wine travel business is indeed meituan’s real cash cow. As can be seen from the above figure, the operating profit of the business is the highest among all business sectors. In the second and third quarters of the overall operating profit, the share of the total operating profit of meituan in Zhidian and jiulv also exceeded 80%.
    It should be noted that in the third quarter of 2020, meituan’s operating profit was 6.7 billion yuan, of which 5.8 billion yuan came from investment income. If this part of the income is taken out, the operating profit of arrival shop and liquor travel business will account for more than 100%.
    There are two main sources of revenue: Commission and advertising. From the business of the past year, the epidemic hit the wine tourism industry seriously. In the first quarter and the second quarter, meituan’s commission income always lagged behind the advertising business. However, with the gradual recovery of the epidemic, the commission income gradually exceeded the advertising income, but the advantage was not obvious.
    However, if the time is extended to 2017, the proportion of commission income of meituan’s shop and wine travel business has continued to decline in the past four years, while the advertising income has steadily increased, and the gap between the two sides is gradually narrowing. Even this year, the advertising income has exceeded the commission income (considering the special situation of this year’s epidemic), which indicates that the flow value of meituan is being recognized by advertisers.
    As explained in the previous part, the enhancement of meituan’s traffic value comes from the contribution of the catering takeout business. After all, tens of billions of takeout orders every year mean that at least tens of billions of apps are opened, which is undoubtedly an attractive cake for advertisers.
    But at the same time, we also need to see that the decline in commission income shows that meituan’s control over the supply chain of liquor travel business is quite different from that of Ctrip.
    According to Ctrip’s financial report in 2020, the main revenue model is to earn commissions based on commissions earned rather than transaction value. Therefore, it still needs time to test whether meituan can shake Ctrip’s position by virtue of its current income model in store and wine travel.
    One of the core operational data indicators of the arrival and wine travel business is the number of hotel room nights. As can be seen from the above figure, meituan hotel room nights are constantly creating new records. Wang Xing also said on the conference call that in the third quarter, if we calculate the hotel room nights, we have become the largest online platform in the global hotel reservation industry.
    Wang also said that in this quarter, we further consolidated our leading position in the field of low tier cities and low star hotels. But it may mean that the growth of meituan in low tier cities and low star hotels has almost reached the ceiling. The growth rate in the fourth quarter of last year was 8.8%, compared with 47.9% in the fourth quarter of last year, which can be described as a sharp drop.
    Therefore, the core of meituan’s hotel and liquor travel is to do two things: first, it is necessary to continue the great potential of hotel reservation business in low tier cities; second, it is necessary to increase the layout of four-star and five-star hotels.
    New business: can the ever expanding losses bring fresh blood to meituan?
    Before answering this question, we should first find out what new businesses meituan has? Let’s make an intuitive feeling from the financial report. From the financial report of the past eight quarters, meituan’s business mentioned in the column of new business is shown in the figure above. Although bike sharing is mentioned most frequently, it is obvious that meituan will pay more attention to miscellaneous retail, community group buying and vegetable buying businesses in 2020. Meituan even mentioned in the third quarter financial report that the retail business of food and miscellaneous goods is the highest priority business of the company.
    As can be seen from the above figure, after the epidemic, the new business has fully recovered its rapid growth. In the fourth quarter, the revenue exceeded 9 billion yuan for the first time, and the growth rate reached 51.9%, exceeding 44.8% in the fourth quarter of 2019.
    However, it is also the new business that brings great pressure to meituan’s share price at present. One of the important reasons is that the losses that have not been easy to come down have regained the upward momentum since 2020.
    As can be seen from the figure above, the operating loss of meituan’s new business has gone through two stages:
    In the first stage, from the second quarter of 2019 to 2020, the operating loss of meituan’s new business gradually narrowed and remained relatively stable, mainly due to the substantial reduction of service cost of bike sharing, as well as the reduction of sales cost of online car Hailing drivers and catering supply chain services;
    The second stage is from the third quarter of 2020. No matter year-on-year or month on month, the operating loss of meituan’s new business is gradually enlarged. In the fourth quarter, the operating loss has reached 6 billion yuan, and the operating loss rate has reached 64.9%. The main reason is the rapid expansion of retail business such as meituan optimization and meituan flash buying.
    For this part of the loss, Wang Xing said in this quarter’s conference call that half of the 6 billion operating loss came from meituan optimization. However, Wang Xing also stressed that meituan optimization is still in the early stage of its business and is rapidly expanding this business, which is bound to have a lot of early investment. The increase in operating losses is also the result of the rapid growth of its business. “We can expand the business to the whole country in such a short time. I am very satisfied with the rapid expansion of the company’s business in the fourth quarter.” Wang Xing said so.
    It is reported that according to the data disclosed in the conference call, the daily order peak of meituan youyou in December last year reached 27 million pieces.
    In addition, Wang Xing also explained the reasons for the expansion of losses from other aspects, such as seasonal changes. “We will launch new bicycles at the beginning of the year, and the operation efficiency and utilization rate of bicycles and electric vehicles are relatively low in winter. In the fourth quarter, the depreciation rate was also relatively higher, accounting for a larger part of capital expenditure. ”
    Overall, this part of the operating loss is still within the range of meituan. Wang Xing finally stressed: “we will further increase investment, which will, of course, reduce our profitability in the short term. But we are witnessing a great opportunity right now. “