Click to read the original text for details On June 2, Meituan released its Q1 2022 earnings report. The financial data showed that Meituan's Q1 2022 revenue was 46.27 billion yuan, a year-on-year increase of 25%; adjusted net loss was 3.586 billion yuan, compared with an adjusted net loss of 3.936 billion yuan in the previous quarter, with losses further expanding. As of March 31, 2022, Meituan had 692.9 million transaction users, compared with 569 million in the previous year, a year-on-year increase of 21.7%; the number of active merchants was 9 million, compared with 7.1 million in the previous year, a year-on-year increase of 26.6%. After experiencing multiple negative factors in 2021, including a 3.443 billion yuan fine, rising rider costs, and policy changes in community group buying, Meituan began "layoffs" in Q1 2022 in an attempt to increase efficiency and reduce costs, but the effect of the layoffs was not directly reflected in the financial data. More importantly, while Meituan is contracting overall, its enemies are launching more fierce attacks. 01 Continued losses, food delivery revenue growth under pressure Although the financial data is not too bad, what troubles Meituan is that it is still losing money, and compared with the previous quarter, the loss is expanding. The main segment causing Meituan's Q1 loss is new businesses. In Q1, new businesses and other revenue was 14.49 billion yuan, a year-on-year increase of 47%, and a quarter-on-quarter decrease of 1.4%; operating loss was 9.02 billion yuan, a year-on-year increase of 2%, and a quarter-on-quarter decrease of 11.6%. As Meituan's main revenue pillars, food delivery, hotel and in-store, and travel businesses performed steadily, all achieving profitability, but revenue growth continued to slow. The financial report shows that in Q1, Meituan's food delivery revenue was 24.16 billion yuan, a year-on-year increase of 17.4%, and a quarter-on-quarter decrease of 7.3%; net profit was 1.58 billion yuan, a year-on-year increase of 41.3%, and a quarter-on-quarter decrease of 9.9%. But the growth space for Meituan's core food delivery business is further compressed. The main source of revenue for Meituan's food delivery business is delivery services. Last year, Meituan's rider delivery costs accounted for as high as 71% of total food delivery revenue. Next are commission income and online marketing services. In February this year, multiple ministries jointly issued a document requiring food delivery platforms to lower service fee standards for catering merchants and reduce operating costs. This means that commissions charged to merchants will only decrease in the future, not increase. The living conditions of food delivery riders have received high social attention. Measures such as providing subsidies during holidays and improving rider treatment have undoubtedly increased delivery costs. ▲Image: Meituan's official Weibo In the short term, Meituan's food delivery business is under pressure. The epidemic is a double-edged sword for Meituan's food delivery business. Affected by the epidemic, most people stayed put during the Spring Festival, and starting in March, under the epidemic prevention and control measures in first-tier cities like Shanghai, market demand for food delivery increased, driving Meituan's growth. The financial report shows that high-spending quality consumers saw significant growth in average order value and consumption frequency during the quarter. In Q1, Meituan's revenue increased 25% year-on-year. But overall, in Q1, affected by the epidemic, logistics stalled and the consumer market was relatively weak. This can be seen from the decline in the number of food delivery transactions, Meituan's revenue pillar. In Q1, Meituan's "food delivery transaction volume" was 33.61 billion, a quarter-on-quarter decrease of 14%. In Q1, Meituan's in-store, hotel, and travel revenue was 7.6 billion yuan, a year-on-year increase of 15.8%, and a quarter-on-quarter decrease of 12.6%; net profit was 3.47 billion yuan, a year-on-year increase of 26.4%, and a quarter-on-quarter decrease of 10.9%. However, Wang Xing is not optimistic about Meituan's in-store and hotel/travel business revenue in Q2. He revealed at the earnings call that in March, Meituan's marketing service revenue declined, and hotel/travel bookings were even less optimistic, with a year-on-year decline of single-digit percentage points in Q1. The more severe negative impact of the epidemic in April and May may be reflected in Q2. 02 The money-burning "new businesses" continue to burn It is worth mentioning that Meituan's user growth scale is nearing its ceiling. To drive user growth, Meituan pins its hopes on exploring new businesses. One of the hottest tracks in 2020 was community group buying. Wang Xing once judged that this track was a high-quality opportunity that comes once every five or ten years. In less than four months, Meituan's community group buying product, Meituan Select, was launched. In 2021, Meituan upgraded its strategy from Food+Platform to Retail+Technology, further expanding its products and services to a broader retail field. Product retail has always been Meituan's main investment area. The financial report shows that new businesses and other revenue increased 47% year-on-year, mainly driven by the expansion of product retail business. In Q1, Meituan's new business loss reached 9.025 billion yuan, mainly from community group buying. Over the past two years, community group buying has burned through tens of billions in losses. It is understood that Meituan's community group buying business has two paths: one is the Meituan Maicai business, which focuses on the "front warehouse + instant delivery" model, targeting first-tier cities; the other is Meituan Select, which targets second- and third-tier cities with a "pre-sale + self-pickup" model. Under fierce competition in lower-tier markets, Meituan Select's losses are more pronounced. According to Meituan's 2020 financial report, Meituan's new business loss was 10.85 billion yuan, half of which came from Meituan Select; 2021 financial data shows that Meituan Select's loss increased to 38.4 billion yuan, with industry insiders revealing that Select's losses exceeded 25 billion yuan. Starting in 2021, the industry began to cool down. Multiple emerging group buying companies, including Chengxin Youxuan, Tongcheng Life, Shihuituan, and Shixianghui, closed down one after another, indirectly verifying that the community group buying business model is essentially a money-losing business. For emerging companies, it is inevitable that they cannot outspend giants, so their successive closures are reasonable. As the industry moves away from barbaric growth and enters a mature development stage, following the 80/20 rule, the community group buying track ultimately left giants like Meituan, Alibaba, JD.com, and Pinduoduo. Among them, Meituan Select is still considered an industry leader. According to reports from LatePost, Meituan Select's GMV last year was 120 billion yuan, ranking first; Pinduoduo's Duoduo Maicai reached 80 billion yuan, and Taocaicai completed 20 billion yuan. Although Meituan ranked first with 120 billion yuan in GMV, it still did not reach its expected target of 150 billion yuan. For internet giants like Meituan and Pinduoduo, the significance of laying out community group buying is to achieve user acquisition goals in lower-tier cities, quickly covering lower-tier cities and county markets at lower cost. After attracting users, they can be converted into users of services such as food delivery, hotel, and travel. ▲Image: Meituan's official Weibo When the community group buying industry cake has been divided up, it means the industry has reached the next development node. Controlling costs and refined operations have become the main strategies for giants in the next stage. Although Meituan gained a foothold in the early stage by burning money for growth, under the pressure of continuous losses, it chose strategic contraction, shutting down business in multiple regions. At the end of April, many consumers reported that Meituan Select suddenly shut down in some areas. According to relevant media reports, the scope of this closure was mainly in the northwest region, including Gansu, Qinghai, Ningxia, and Xinjiang provinces, with only the Shaanxi base retained. Meituan's abandonment of the northwest region is a cost-cutting measure. Industry insiders analyzed that the northwest region has relatively scarce materials and a sparse population, requiring extremely high logistics facility costs to develop, and is not an advantageous area for community group buying. Additionally, Meituan does not have advantages in building warehousing bases in the northwest. Earlier this year, Meituan Select was ordered to rectify because it illegally built cold storage and cold sheds at the Mapletree (Yinchuan) Logistics Park in Yinchuan, Ningxia, without secondary fire protection. Recently, Meituan Select announced the suspension of group buying services in the Beijing area, with Meituan Maicai replacing it as the fresh food entrance for Meituan's app in the Beijing market. Another implication of shutting down the northwest and Beijing businesses is that Meituan's user growth has stalled. The financial report shows that in Q1, Meituan's annual active users were 693 million, a year-on-year increase of 21.7%, but a quarter-on-quarter increase of only 2 million, with growth far lower than the same period last year. Although the "home effect" under the epidemic in Q1 significantly boosted Meituan Flash Purchase and Meituan Maicai data, it did not bring corresponding explosive growth. The financial report shows that both user numbers and transaction frequency for this business increased significantly, with Flash Purchase orders increasing about 70% year-on-year, and Maicai order volume increasing 120% year-on-year. In contrast, Meituan's "12-month transaction user count" increased only 0.28% in the quarter. 03 Meituan's rivals launch fierce attacks On one hand, new businesses continue to drive up costs, and the profitability problem remains unsolved; on the other hand, Meituan is facing an "offensive and defensive battle" on its main battlefield. The food delivery track was once the territory of Meituan and Ele.me. As internet traffic dividends peak, various internet giants have begun to enter food delivery. In 2021, Meituan's Wang Xing first proposed the "Retail + Technology" strategy at an internal strategy meeting, directly threatening JD.com's core business area of retail. As a counterattack and also due to business development needs, JD.com began to further develop local life services at the beginning of this year. In March this year, JD.com internally split the original Retail V Business Group and established a same-city business department, focusing on home furnishing, housekeeping, local life, and other sectors. In addition to internal organizational restructuring, JD.com has returned after 8 years to try the food delivery business again. According to reports from LatePost, JD.com will soon pilot food delivery business in cities such as Zhengzhou, where food delivery merchants will be introduced to the JD Daojia app, with Dada responsible for delivery. Industry insiders analyzed that JD.com's move is similar to Didi's layout of community group buying to snipe at Meituan's ride-hailing service. ▲Image: Meituan's official Weibo In addition to JD.com, Douyin began upgrading its same-city interface in early 2021, introducing local life services and launching a "discount group buying" function, including food, hotel, and travel products. Initially, it attracted many merchants with a "0 commission" policy. Recently, Douyin clearly stated in the "2022 Life Services Software Service Fee Standard Description" that starting June 1, it will charge transaction commissions from local life merchants, with industry rates ranging from 2% to 8%. This means that Douyin's local life services have officially gotten on track. In contrast, according to Meituan's 2021 financial data, Meituan's food delivery platform commission rate is about 4.1%. Facing Douyin, which has 600 million daily active users, Meituan's defense is to lay out "Meituan Live Assistant," but from market awareness and voice, it is undoubtedly a dud. The latest news is that Douyin is further approaching Meituan's "heartland," food delivery. Douyin is recently trying a self-operated business similar to JD Super, with a project called "Dou Super Delivery to Door," piloting in cities such as Guangzhou, Shenzhen, and Hangzhou. As Meituan's strongest competitor, Alibaba is also increasing its attention to local life services, reflected in the fact that in Q3 last year, Alibaba began writing life services into its financial reports. Meituan, which has yet to find a profitable model for new businesses, is also being impacted by "rivals" in its core business. With core revenue slowing and new businesses continuing to lose money, Meituan continues to increase R&D investment. Meituan emphasized in its financial report that since the strategic upgrade in 2021, Meituan has been promoting "Retail + Technology," not only investing heavily in retail e-commerce but also continuously increasing R&D investment in key technology fields. The key field of scientific research refers to unmanned delivery vehicles, and the implementation of unmanned delivery vehicles has led to a significant increase in R&D expense growth. The financial report shows that in Q1, R&D expenses increased 40.3% from 3.48 billion yuan to 4.88 billion yuan, with the proportion of revenue rising from 9.4% to 10.5%. During the Shanghai epidemic in March, unmanned delivery vehicles developed by Meituan, Alibaba Cainiao, JD.com, and others successfully made their debut. Hundreds of unmanned vehicles shuttled through communities, streets, and mobile cabin hospitals, responsible for delivering basic living supplies, disinfecting quarantine areas, and transporting medical waste. However, the biggest weakness of unmanned delivery vehicles is their high cost. The cost of an unmanned vehicle ranges from as low as 200,000 yuan to nearly 500,000 yuan. In contrast, the labor cost of a delivery rider is as low as 10% of that. Although unmanned delivery vehicles are part of the technology+ business layout, for Meituan, which urgently needs to increase efficiency and reduce costs, they cannot "increase efficiency" in the short term. In terms of R&D costs and "efficiency" gains, Meituan may need to calculate a more astute account. More importantly, with food delivery revenue growth peaking, new businesses continuing to lose money, and R&D expenses nearly doubling, Meituan's cash flow is bound to be under pressure. At present, Meituan's business ecosystem has not yet been built, its profit model has not been verified, and it faces internal and external troubles, with enemies attacking fiercely. Wang Xing once proposed a hypothesis at an internal meeting at the beginning of 2022, saying, if Meituan had no revenue for the next three years, and the company still had to maintain operations, what would the cash flow situation be? At this moment, this question needs deeper consideration and planning. Source: Lingtai LT (ID: LingTai_LT) -END-