Since the beginning of 2023, Meituan, the leading Chinese food delivery platform, has experienced a substantial drop of $82 billion in market capitalization. Investor apprehensions have grown due to increased competition and a warning from the company’s management regarding a potential slowdown in its core food delivery business.
The market capitalization of the tech giant has plummeted by almost 60%, dropping to 441.06 billion Hong Kong dollars ($56.4 billion) from its initial value of HK$1.08 trillion ($138.2 billion) at the start of 2023, as per data from LSEG.
Meituan’s shares have experienced a drastic decline, plunging by almost 85% from its peak of HK$460 (approximately $58.91) on February 18, 2021, to HK$70.55 as of January 9, according to data from LSEG.
The company still retains its dominance in China’s food delivery industry, securing an impressive market share of nearly 70% on the mainland, as indicated by 2022 data from the research firm ChinaIRN.
However, increased competition, notably from Ele.me, a prominent food delivery company in China owned by Alibaba, has been on the rise.
“Based on my experience, Ele.me is more aggressive [than Meituan] and have more approaches to giving [discount] coupons,” said Feifei Shen, director at The Blueshirt Group and a food delivery user in China.
“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.”
For the quarter ended on September 30, Alibaba reported a 16% increase in revenue for its local services segment, which includes food delivery. This growth was driven by strong performances from both Ele.me and its mobility business Amap, according to the tech giant.
On December 19, Chinese media reported that Douyin, the short-video app owned by ByteDance, was in talks with Alibaba regarding the acquisition of its Ele.me food delivery business. This development led to a drop in Meituan shares.
Hong Kong-based Blue Lotus Research Institute attributed the decline in Meituan shares to reports suggesting that ByteDance could acquire Ele.me.
In August 2022, Ele.me and Douyin collaborated to enable merchants associated with the food delivery firm to connect with users of the short-video app.
ByteDance, which announced in February last year that it was testing a food delivery service in China via Douyin, reportedly denied being in talks with Alibaba to acquire Ele.me.
Meituan’s stock faced additional pressure when the company cautioned about a potential deceleration in its food delivery business during the fourth quarter of 2023, despite having reported favorable results in the preceding quarter.
During the third-quarter earnings call, Meituan’s CFO, Shao Hui Chen, noted that various factors, including the macro environment and warm weather, were impacting delivery volumes.
“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.
Subsequent to that announcement, Meituan’s shares listed on the Hong Kong Stock Exchange plummeted by 12% to their lowest level since March 2020, as indicated by data from LSEG.
Analyst Optimism for Meituan’s Future:
Despite the macro uncertainties, analysts maintain optimism about Meituan’s outlook. On average, they have assigned a “buy” rating with a price target of HK$149.34, as per FactSet data.
On December 18, Fitch Ratings upgraded Meituan’s outlook from stable to positive.
“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.
However, experts expressed a bearish sentiment regarding the potential acquisition of Ele.me by ByteDance.
“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 challenging for other players to present 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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