"The takeout war" has severely wounded Meituan, with its stock price continuing to languish?

$MEITUAN-W(03690.HK)$ Q2 results created "the most disappointing performance in history," severely impacted by the takeaway war, leading to a stock price drop of over 10%. Will the market remain stagnant or stage a comeback?

This week's "Performance Highlights" will explore this topic together!

Meituan's existing business is primarily divided into two main segments: core local business and new business.

The core local business serves as the foundation, including home delivery services (takeout and flash shopping) and in-store services (group buying and hotels); the new business represents growth, with Meituan Youxuan and Xiaoxiang Supermarket as examples.

Looking at Meituan's Q2 performance overall, revenue totaled 91.84 billion yuan, a year-on-year increase of 11.7%, which is acceptable for now. However, operating profit was a major disappointment, shrinking from previous profits in the billions to 226 million yuan, a year-on-year decline of 98%, signaling strong negative indicators.

By business segment, Meituan's core local business generated revenue of 65.35 billion yuan, with a significant slowdown in year-on-year growth to 8%; operating profit was 3.72 billion yuan, merely a fraction of Q1's figures, with the operating profit margin dropping from over 20% to 6%.

This is likely the consequence of "winning at all costs" in competition; in order to maintain order volume and market share, Meituan has genuinely sacrificed profit.

Undoubtedly, in order to cope with $JD.com(JD.US)$ and $BABA-W(09988.HK)$ The aggressive push, along with substantial subsidies, has undoubtedly stimulated an increase in instant retail order volume; however, the growth rate of delivery revenue is only 2.8%. The reason for this is the decline in the average order value for takeout, coupled with increased rider subsidies and rising marketing expenditures, resulting in a decrease in net profit from takeout operations.

Furthermore, in-store operations have also been affected, with increased subsidy efforts leading to higher revenue costs, resulting in a decline in commission and advertising revenues from in-store transactions.

Looking at the new business segment, it has performed relatively better compared to the core local operations.

For this quarter, revenue reached 26.49 billion yuan, with a year-on-year growth rate of 23%, surpassing market expectations, and the loss rate has narrowed compared to the previous two quarters.

Specifically, in Q2, the new business optimized its grocery retail strategy while accelerating the overseas expansion of the food delivery brand Keeta.

First, the company has accelerated the expansion of the Little Elephant Supermarket, currently establishing 1,000 front-end logistics centers in over 20 cities nationwide to respond promptly to consumer demands. In Q2, Little Elephant Supermarket's revenue increased by 4 billion yuan year-on-year, showing strong momentum.

In terms of international business, Keeta has achieved robust growth in both business volume and Gross Transaction Value (GTV), solidifying its leading position in Hong Kong and expanding into over 20 cities in Saudi Arabia, currently in a phase of rapid expansion.

However, Meituan's international business has not been smooth sailing.

When it entered the Brazilian market in May this year, it faced not only competition from the local brand iFood but also attacks from 99Food, a subsidiary of Didi. iFood commands an impressive 80% market share in Brazil's food delivery sector. Earlier, when Didi was expanding in Brazil, it was forced to withdraw hastily due to pressure from iFood. By the time Meituan's Keeta entered Brazil, Didi's 99Food had already invested 1.2 billion, paying upfront fees to over one hundred chain restaurants to restrict their collaboration with Keeta, and even engaged in social media antics, going so far as to sue Meituan, claiming that the Keeta trademark is yellow and closely resembles 99Food.

This series of actions has left Meituan besieged on all sides, with domestic competition intensifying and international expansion proving to be exceedingly difficult.

From an overall profitability perspective, the performance in Q2 is indeed very concerning.

In recent quarters, Meituan's gross margin has shown a downward trend, coupled with a significant rise in overall expense ratios due to the food delivery war. Notably, Q2 marketing expenses reached 22.5 billion yuan, an increase of 7.7 billion yuan compared to the same period last year, while research and development expenses and administrative expenses also grew by 17% and 10% year-on-year, respectively.

With a declining gross margin on one side and rising expense ratios on the other, how much profit can Meituan realistically achieve? The end result is that the overall operating profit was only 226 million yuan, significantly lower than market expectations.

Overall, Meituan has been adversely affected in its core business. Although new businesses are growing rapidly, they are still in a cash-burning phase and require cash flow support; the current situation is truly challenging.

From a technical perspective, Meituan is currently in a downward trend, with its daily candlestick chart operating below the MA200, the dividing line between bull and bear markets, for an extended period.

Following the poor performance results, the stock price plummeted by over 10%, directly breaching the 61.8% Fibonacci retracement level, resulting in a complete trend reversal. It is likely that the short-term resistance level above will be difficult to surpass.

Combining the information from the conference call, Meituan clearly stated that the competition in the food delivery battle will continue in the short term and will negatively impact the results for the upcoming financial quarter. Therefore, the stock price trend may still be affected by performance, leading to significant fluctuations, and the risk of bottom-fishing at this time is considerable.

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Risk Disclosure: This content does not constitute a research report and is for reference only. It should not be used as the basis for any investment decision. The information provided herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of the information are believed to be reliable, the accuracy or completeness of the content is not guaranteed. Additionally, no assurance is given as to the accuracy of any statements, views, or forecasts provided in this document.