Meituan: Cutting Its Way To Profit Growth

Core Business Strategy - Meituan has transitioned from a focus on growth to prioritizing profitability, which has led to increased investor optimism [1][4] - The company is restructuring its core businesses, food delivery and in-store services, to unlock synergies and reduce costs [10][11] Financial Performance - Meituan reported a total operating profit of RMB 1,758,134 thousand for the three months ended December 31, 2023, compared to a loss of RMB 731,590 thousand in the same period of 2022 [7] - The core local commerce segment generated revenues of RMB 8,019,425 thousand, accounting for 14.5% of total revenues, while new initiatives reported a loss of RMB 4,832,692 thousand, representing 26.0% of revenues [7] New Business Ventures - The community grocery business, Meituan Select, has been a significant drag on profitability, contributing to the majority of new business losses [6][15] - Management has indicated steps to narrow losses at Meituan Select and streamline the new business portfolio [6][9] Capital Return Strategy - Meituan has a strong net cash position of approximately RMB 110 billion, which supports a $1 billion share buyback program initiated in Q1 2024 [12][14] - There is potential for an upsized buyback program once the current allocation is exhausted, driven by regulatory incentives for increased shareholder returns [14][15] Market Position and Competition - The competitive landscape in the Chinese grocery sector is intense, with better-capitalized players like PDD Holdings posing challenges [8] - A more prudent approach to expansion and profitability is expected to yield better pricing and reduced logistical burdens [9][15]