In the third quarter of 2024, Meituan, as a leading company in the local lifestyle services market, handed over a good report card. Financial reports show that Meituan has not only achieved steady revenue growth, but has also set record highs in various aspects such as the number of annual trading users, number of active merchants per year, and average annual consumption frequency.

This has benefited to a considerable extent from the recovery of the general environment — in the third quarter of 2024, China's total retail sales of social consumer goods (total social zero) reached about 35.36 trillion yuan, an increase of 3.3% over the previous year, exceeding market expectations. In October alone, the total value of social zero was 4.54 trillion yuan, an increase of 4.8% over the previous year. This growth rate was 1.6 percentage points higher than the previous month. A number of major banks have pointed out that the signs of recovery in the consumer market are becoming more and more obvious.

The beta of the times is improving, and so is Meituan's individual Alpha.

After the release of the 2023 fiscal year report, Wang Xing said, “In 2024, we will make strategic adjustments and improve our business model. The goal is to drastically reduce operating losses” in response to Meituan's preferred business.

In the third quarter of this year, Meituan maintained the stability of its core business base by implementing various measures for ecological win-win, cost reduction and efficiency, and promoted significant loss reduction in new businesses.

I. New thinking in the era of stocks

In the current inventory era, the pace of industry growth has clearly slowed, and low leverage and long-term operations have become the new normal. If companies continue to follow the expansion strategies of the incremental era and relentlessly pursue market share, they may find themselves in trouble. In the age of inventory, the key to enterprise success lies in strengthening the effect of scale and maximizing cost efficiency. Many value investors believe that in this transformation process, companies with great investment value will be created.

Many years ago, the Internet industry's user penetration rate and user usage time had almost reached the ceiling, marking that the industry had entered the era of stock traffic. Faced with this transformation, major Internet companies continue to explore ways to reduce costs and increase efficiency. Since Meituan is closely related to the retail industry, its basic user market trend is highly consistent with the growth trend of urban residents, so although the inflection point of its business growth will arrive a little later, it will eventually be inevitable.

At the Catering Industry Conference in September 2024, local commercial CEO Wang Puzhong confessed, “Meituan's growth has been minimal. The urban population will not rise after reaching 0.8 billion, and there are no new users.”

In the age of stock, Meituan needs a new mindset.

It is particularly worth mentioning that compared to other Internet giants, Meituan is at the middle and lower levels in the net profit rankings of many leading Internet companies because it is closer to industries such as retail. Because of this, for Meituan, the urgency of reducing costs and increasing efficiency is particularly prominent. Just like the two sides of a coin, this determines that the marginal profit benefits of cost reduction and efficiency will be extremely significant for Meituan's profit. Even a small improvement can lead to significant positive changes.

On the other hand, the local lifestyle service business is a hard bone to grasp. It's a compliance-driven multilateral business, where each party consists of numerous, complex, and messy points. For example, the main component of local life is small to medium businesses, which requires Meituan to establish a huge business development (BD) team and agency team to go deep into the frontline to connect with all kinds of catering owners. Food and beverage takeout businesses must not only gather users, merchants, and delivery resources at the same time, but also establish efficient connections between these resources. In addition to integrating merchants and users, the on-site wine tourism business also needs to provide high-precision information services to save consumers trial and error costs. Regardless of the segment, a large number of technical teams, operation and maintenance teams, and customer service teams are required. These businesses have the characteristics of heavy “assets”, low gross profit, and slow output, so the effects of scale and cost reduction and efficiency will be very obvious for Meituan.

Therefore, in the inventory era, Meituan's new growth point will fall on marginal changes brought about by innovation and improved collaborative efficiency.

2. Strategic adjustments amplify synergy effects, and new businesses continue to reduce losses

If cost reduction and efficiency were limited to a specific business level, it would be worth nothing, and could even weaken Meituan's development foundation. To this end, starting from a strategic perspective, Meituan implemented major adjustments that have never been seen before: in April of this year, the Meituan platform, the Home business group, and the basic R&D platform were merged and restructured to form the “core local business” sector. This strategic initiative aims to deepen collaboration among business segments and comprehensively improve overall operational efficiency.

After the organizational structure was optimized, synergy effects quickly became apparent, and resource reuse and scale effects were amplified. Through marketing integration and resource sharing, Meituan can more accurately provide users with personalized recommendations and customized discount plans, significantly improving marketing accuracy and efficiency. At the same time, offline traffic accumulated by in-store and home-delivery businesses was mutually diverted to the online platform, effectively improving the exposure rate and conversion efficiency of the two sectors. This integrated strategy not only optimizes organizational operations, but also enables Meituan to respond flexibly to changes in market demand and promote integrated innovation practices.

Among them, the “God Member” system became a model for integrated innovation. In July, “God Member” fully covered various business areas such as instant delivery, in-store catering, wine travel, etc., and expanded from takeout business to the entire local lifestyle service. The upgraded “God Member” packages and sells offers and benefits, which not only enhances users' consumer experience and loyalty, but also enables cross-marketing of businesses, bringing more traffic exposure and marketing support to merchants.

Merchants have responded positively to this. Currently, in the on-site wine tourism business, more than 50% of merchants have signed up for the “God Membership” program, and the volume of participating merchants has increased significantly in traffic and transaction scale. The upgrading and expansion of “God Members” has become an important engine for Meituan's new growth.

In this context, core local businesses achieved good results in the third quarter: the sector achieved revenue of 69.4 billion yuan, an increase of 20.2% over the previous year. Among them, the platform's instant delivery order volume reached 7.1 billion, up 14.5% year on year; the number of in-store wine and travel business orders increased by more than 50% year on year, and the number of annual active merchants reached a new high; the average number of flash sales orders exceeded 10 million orders per day, and the number of users and transaction frequency both achieved double-digit growth.

It is also worth mentioning that on the day of Tanabata, flash purchase orders peaked at 16 million orders; while Meituan's “Eleventh” Golden Week consumption data showed a year-on-year increase of 41.2%, and the average daily consumption of visitors increased by 69.6% compared to last year's holiday.

This series of results fully demonstrates the power of Meituan's strategic adjustments and synergy effects.

Furthermore, in terms of new business, from the first quarter of 2023 to the third quarter of 2024, Meituan's operating losses in the new business sector narrowed significantly from quarter to quarter, and eventually reached a year-on-year decline of 79.9% in the third quarter of 2024. Operating losses narrowed from 5.112 billion yuan in the same period last year to 1.026 billion yuan.

From 2019 to 2023, Meituan invested heavily in capital and operation in its new business. Cumulatively, the total loss of new business over the past five years has exceeded 100 billion yuan, which is equivalent to an average loss of about 5 billion yuan per quarter. In the third quarter, losses from new businesses contributed 4 billion to Meituan's profit.

3. Spend money on the “ecological win-win” blade

While committed to reducing losses, Meituan still spent huge sums of money in the third quarter and spared no effort to build a win-win ecosystem for all parties.

In fact, as an ecological platform, Meituan's core competitiveness lies in how to efficiently link and empower riders, merchants, consumers, and the platform itself to ensure that everyone can benefit from it, so as to achieve lasting ecological prosperity.

Fortunately, Meituan is well aware of this, invests unstiningly in the healthy development of the ecological chain, and continues to provide all-round support and assistance to merchants and riders.

As far as merchants are concerned, Meituan supports the high-quality development of cooperative merchants across the country through the most direct concessions and digital empowerment.

Among them, Meituan provides financial support to merchants through the “One Billion Assistance Fund” program. This means that Meituan will invest huge sums of money in the form of subsidies and concessions to help merchants reduce operating costs on the platform and enhance their profitability. This not only helps merchants gain a foothold in the fierce market competition, but also stimulates their vitality and vitality.

In addition, in response to problems such as cumbersome and inefficient merchant marketing processes, Meituan is also implementing a “simplified merchant marketing” plan. By simplifying marketing processes and providing intelligent marketing tools, Meituan helps merchants carry out marketing activities more conveniently and efficiently, and enhance their brand awareness and market competitiveness. This measure not only reduced marketing costs for merchants, but also improved marketing effectiveness, and achieved a win-win situation between merchants and platforms.

Furthermore, Meituan has enhanced riders' work experience and benefits through a series of measures.

Meituan has launched the “Rider's Home” feature on the rider app. Through the rider's home, riders can more easily obtain work-related information and services, improving work efficiency while also enhancing work safety. Meanwhile, in order to improve the working environment for riders, Meituan has actively established partnerships with communities, properties, etc., to promote the establishment of more riders' exclusive rest areas and amenities, such as “rider stations.”

Meituan is also focusing on optimizing riders' work processes. At the same time, it has launched pilot fatigue management mechanisms in some cities to use intelligent algorithms to remind riders to rest at the right time, avoid overwork, and protect their physical and mental health.

In terms of income protection, Meituan continues to optimize the distribution unit price structure to ensure that riders' every effort is reasonably rewarded. In addition, Meituan has also introduced a number of reward mechanisms, such as additional subsidies during peak periods, rewards for excellent service, etc., to motivate riders to improve service quality while also increasing their revenue streams.

During the earnings call, Meituan also revealed in detail the riders' income ranges. In the third quarter of this year, the average monthly income of high-frequency riders nationwide was between 5,720 yuan and 10,865 yuan. Among them, the average monthly income range for riders in high-tier cities was 7,629 yuan to 10,865 yuan, and the average monthly income range for riders in low-tier cities was 5,720 yuan to 7,803 yuan. High-frequency riders are riders who take orders for 22 days or more in the current month and take orders for an average of 6 hours or more per day.

Also, according to the latest research results released by the “China New Employment Patterns Research Center”, the average daily delivery time for takeaway riders is 6.9 hours during peak season and 5.1 hours during off-season.

Riders and merchants are the foundation for Meituan's survival and development. Only by creating a harmonious and win-win ecosystem can the platform develop steadily over a long period of time. Meituan did just that.

Wang Xing said, “We will continue to meet the needs of users, help and support the management of merchants, care for and support the development of riders, and achieve a win-win situation with our ecological partners. We will also further actively carry out our responsibilities and mission to help everyone eat better and live a better life.”