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A food delivery courier for Meituan in Beijing, China, on Tuesday, Aug. 22, 2023. A surge in sales expected for Meituan may be a catalyst to its shares, which have outperformed peers as services spending turns out to be a rare bright spot amid deepening investor pessimism. Source: Bloomberg
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Since the beginning of 2023, Chinese food delivery leader Meituan has lost a staggering $82 billion in market capitalization, as fears over increasing competition and a warning from its management about a slowdown in its main food delivery business have spooked investors.
The tech giant’s market cap has tumbled nearly 60% to 441.06 billion Hong Kong dollars ($56.4 billion) from HK$1.08 trillion ($138.2 billion) at the beginning of 2023, according to LSEG data.
Meituan’s stock has plummeted nearly 85% from its all-time high of HK$460 (about $58.91) hit on Feb. 18, 2021 to HK$70.55 on Jan. 9, LSEG data showed.
The company still dominates China’s food delivery industry, with almost 70% of the market share in the mainland, according to 2022 data from research firm ChinaIRN.
But competition has been rising, especially from Alibaba-owned Ele.me, another prominent food delivery company in China.
“Based on my experience, Ele.me is more aggressive [than Meituan] and have more approaches to giving [discount] coupons,” Feifei Shen, director at The Blueshirt Group and a food delivery user in China told CNBC.
“Usually, I feel I can get cheaper prices for my orders on Ele.me,” said Shen. “Only when I don’t have a coupon, I will think about Meituan.”
Meituan’s share performance
For the quarter ended Sept. 30, Alibaba’s local services segment – which includes food delivery – saw revenue increase by 16%, driven by strong growth in both Ele.me and its mobility business Amap, the tech giant said.
Chinese media reported on Dec. 19 that ByteDance-owned short-video app Douyin was in talks with Alibaba to acquire its Ele.me food delivery business, causing Meituan shares to drop.
Hong Kong-based Blue Lotus Research Institute said the fall in Meituan shares was because of reports that suggested ByteDance could buy Ele.me.
Ele.me and Douyin joined hands in August 2022 to allow the food delivery firm’s merchants to reach users of the short-video app.
ByteDance, which told CNBC in February last year that it was testing a type of food delivery service in China via Douyin, reportedly denied it was in talks with Alibaba to acquire Ele.me.
Meituan shares were also hit after the company warned of a slowdown in its food delivery business in the fourth quarter of 2023, despite reporting positive results in the previous quarter.
Several factors including the macro environment and the warm weather were affecting delivery volumes, CFO Shao Hui Chen said during the company’s third-quarter earnings call.
“On financial outlook, we think Q4 revenue year-over-year growth for food delivery will be slightly lower than the Q3 growth rate,” he said.
Following that call, Meituan’s Hong Kong-listed shares plunged 12% to their lowest since March 2020, according to LSEG data.
Analysts hold ‘buy’ ratings
Despite macro uncertainties, analysts are still optimistic on Meituan’s outlook. On average, they have a “buy” rating with a price target of HK$149.34, according to FactSet data.
Fitch Ratings on Dec. 18 revised Meituan’s outlook to positive, from stable.
“Meituan’s strong cash flow generation in 9M23, which is beyond Fitch’s forecast, can be sustained, as its profitability has improved due to narrowing losses from the new initiatives segment and strong market positions in core segments,” said Fitch in a report.
“However, uncertainty remains over the impact on profitability from … competition from Douyin, which could result in operating cash flow volatility over the next 6-12 months,” Fitch said.
But experts were bearish on ByteDance’s possible acquisition of Ele.me.
“An entry into domestic food delivery is a daunting challenge that yields very little benefits for ByteDance,” said Blue Lotus Research Institute in a Dec. 19 report, reiterating its “buy” rating on Meituan with a price target of HK$118.
“Food delivery is a very heavily operations-focused business that requires a lot of operational efficiency and (crucially) leadership attention,” said tech research firm Momentum Works in December. “Buying and operating a large food delivery platform might not be the best solution for Douyin.”
The complex food delivery terrain makes it difficult for other players to pose a formidable challenge to Meituan, which is why analysts continue to favor the market leader.
“The fact that Ele.me falls much behind Meituan in market share is probably telling – when you are not the core of the group, your managers do not have the same level of commitment as compared to Meituan, for which success of food delivery is life and death,” tech research firm Momentum Works’ Jerry Chao said.
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