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Meituan food delivery company in Beijing, China, Tuesday, August 22, 2023. The expected sales surge for Meituan, which has outperformed its peers, could be a catalyst as services spending proves to be a rare bright spot. Investors’ pessimism is deepening.Source: Bloomberg
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According to LSEG data, Meituan’s share price plunged nearly 85% from its all-time high of HK$460 (approximately $58.91) on February 18, 2021 to HK$70.55 on January 9.
The company still dominates China’s food delivery industry, accounting for nearly 70% of the market share on the mainland, according to 2022 data from research firm ChinaIRN.
But competition is heating up, especially from Ele.me, another prominent Chinese food delivery company owned by Alibaba.
“Based on my experience, Ele.me is more aggressive. [than Meituan] have more approaches to give [discount] It’s a coupon,” Feifei Shen, a director at Blueshirt Group and a food delivery customer in China, told CNBC.
“We usually feel that orders on Ele.me can be purchased at a lower price,” says Shen. “I only think about Meituan when I don’t have a coupon.”
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Meituan stock price trend
In the quarter ended Sept. 30, Alibaba’s local services division, which includes food delivery, saw revenue rise 16%, driven by strong growth in both Ele.me and its mobility business Amap, the tech giant said.
On December 19, Chinese media reported that Douyin, a short video app owned by ByteDance, is in talks with Alibaba to acquire food delivery business Ele.me. It was reported that the company was doing so, causing a decline in Meituan stock.
Hong Kong-based Blue Lotus Institute said the drop in Meituan shares was due to reports suggesting ByteDance might acquire Elemy.
Ele.me and Douyin partnered in August 2022 to enable food delivery company merchants to reach users on short video apps.
ByteDance told CNBC last February that it was testing a type of food delivery service in China through Douyin, and is reportedly in talks with Alibaba to acquire Ele.me. I denied something.
Despite Meituan reporting strong financial results last quarter, Meituan shares also fell after the company warned of a slowdown in its food delivery business in the fourth quarter of 2023.
Several factors, such as the macro environment and warmer weather, are impacting delivery volumes, CFO Xiao Hui Chen said during the company’s third-quarter earnings conference.
“In terms of the financial outlook, we believe food delivery’s fourth-quarter year-over-year revenue growth will be slightly lower than its third-quarter growth rate,” he said.
Following the call, Meituan’s Hong Kong-listed shares fell 12%, the lowest since March 2020, according to LSEG data.
Despite macro uncertainties, analysts remain optimistic about Meituan’s prospects. The stock has an average buy rating and a price target of HK$149.34, according to FactSet data.
Fitch Ratings revised Meituan’s outlook to positive from stable on December 18.
Fitch said in its report: “Meituan’s strong cash flow generation for the fiscal year ending September 2023 exceeded Fitch’s expectations as profitability improved due to lower losses from new business units and strong market positions in core segments. can be maintained,” he said.
“However, uncertainty remains regarding the impact of competition from Douyin on profitability, which could lead to fluctuations in operating cash flows over the next six to 12 months,” Fitch said.
However, experts were bearish on ByteDance’s chances of acquiring Elemi.
“Entering domestic food delivery is a difficult challenge with little return for ByteDance,” Blue Lotus Research Institute said in a December 19 report, rating Meituan a “buy” with a price target of HK$118. ” was repeated.
“Food delivery is a highly operations-focused business that requires a lot of operational efficiency and (very) leadership attention,” tech research firm Momentum Works said in December. “Buying and operating a large-scale food delivery platform may not be the best solution for Douyin.”
The complex food delivery terrain makes it difficult for other players to mount a formidable challenge to Meituan, which is why analysts continue to support the market leader.
“The fact that Ele.me lags so far behind Meituan in market share probably means that if you are not at the core of the group, your managers have the same level of commitment to food delivery success compared to Meituan. “It’s life and death,” said Jerry Chao of Momentum Works, a technology research firm.
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