"Meituan, Full-Scale Earnings Improvement Phase in the Second Half"

Growth Rate Slows in Q2 Due to City Lockdowns

[Asia Economy Reporter Minji Lee] Meituan is expected to begin a full-scale performance improvement in the second half of the year as the COVID-19 situation eases. However, sales growth is predicted to slow in the second quarter due to city lockdown impacts and weak consumption.

On the 5th, Meituan's stock price stood at $180.20. Despite a more than 40% decline over the past year due to regulatory concerns from the Chinese government on platform companies, investor sentiment toward Chinese tech stocks has improved, leading to a 9% rise in the stock price over the past month, showing a rebound trend.

First-quarter revenue was 46.3 billion yuan, up 25% year-on-year. The adjusted net loss was 3.6 billion yuan, narrowing compared to the -3.9 billion yuan recorded in the first and fourth quarters of last year, exceeding market expectations. By business segment, the food delivery division grew 17% year-on-year. Despite the COVID-19 spread in March, the increase was due to a rise in order unit price and a 16% increase in transaction volume during the same period. Efficiency improvements and cost reductions led to an operating margin improvement of 1.1 percentage points to 6.5%.

The online reservation segment posted revenue of 7.6 billion yuan, up 16% year-on-year, with an operating margin increasing by 3.8 percentage points to 45.6%. Revenue from innovation and other segments rose 47% to 14.5 billion yuan, supported by steady demand from large supermarkets and convenience stores. Strengthened cost control led to an operating margin increase of 19.3 percentage points, reaching -62.3%.

The rapid growth in Meituan's annual active users and partner numbers significantly slowed in the first quarter. The annual active users reached 690 million, a 22% increase year-on-year, but net additions dropped from 39.1 million in Q1 last year and 23 million in Q4 last year to just 2.4 million in Q1 this year. The number of partners was 9 million in Q1, with net additions decreasing from 400,000 in Q4 last year to 200,000 in Q1.

The company expects Shanghai food delivery orders, which fell 90% before the Omicron spread in April, to show a healthy recovery by June. The COVID-19 impact is expected to continue affecting second-quarter results. Meituan's Q2 revenue is forecasted to grow 16% year-on-year, showing a slower growth rate compared to Q1. However, net losses are expected to narrow due to cost reductions and efficiency improvements in innovation segments.

In the second half of the year, sales growth is expected to accelerate due to a decrease in new COVID-19 cases and the lifting of lockdowns in some cities. Growth is projected at 25% in Q3 and 30% in Q4. Temporary commission reductions were applied to regions heavily affected by COVID-19, and the shrinking of these affected areas is expected to contribute to commission rate recovery and net loss improvement. Net losses are expected to be -2.2 billion yuan in Q3 and -1.2 billion yuan in Q4.

Jang Jaeyoung, a researcher at NH Investment & Securities, said, “Since April, the Chinese government has clearly presented business operation standards regarding internet platform regulations through major meetings and emphasized management and supervision based on these standards. Internet platform regulation easing is expected, and valuation normalization along with full-scale performance improvement in the second half will lead to a stock price rebound.”

This content was produced with the assistance of AI translation services.