Meituan’s triple dilemma： huge losses in new business, high anti-monopoly sword, and social security problems for riders to be solved.

Radar Financial Products | edited by Li Yihui | Deep Sea

Meituan, whose market value plummeted during the year, announced its performance report for the second quarter of 2021 on August 30. According to the financial report, in the second quarter, Meituan’s revenue was 43.76 billion yuan and its net loss was 3.36 billion yuan, which was the third consecutive quarterly performance loss of Meituan. Throughout the first half of the year, Meituan’s revenue was 80.78 billion yuan, with a net loss of 8.203 billion yuan, compared with a profit of 631 million yuan in the same period last year.

Behind the "Waterloo" performance, Meituan is striving to maintain the dominance of local life, including responding to the penetration of platforms such as Tik Tok into local life. In the new business field, Meituan and its competitors are equally fierce. Community e-commerce, flash shopping, grocery shopping and other parts contributed a loss of 17.28 billion yuan to Meituan in the first half of the year.

In addition to the visible "burning money" war in business, Meituan also faces two other challenges. One is the anti-monopoly investigation disclosed in the financial report. As of the announcement date, the relevant investigation is still going on, and the company may be required to change its business practices or be fined heavily. Secondly, the policy "boots" of 4.7 million laborers sent by Meituan to participate in social insurance has fallen, and it is not known whether Meituan can catch it.

The loss of new business in the first half of the year was 17.3 billion yuan.

In a single quarter, the revenue growth rate of Meituan in the second quarter slowed down compared with the first quarter.

The financial report shows that in the second quarter of 2021, the revenue of Meituan was 43.759 billion yuan, a year-on-year increase of 77%. In comparison, the revenue of Meituan in the first quarter was 37.016 billion yuan, a year-on-year increase of 120.9%.

According to the business classification, Meituan’s food and beverage take-out, going to stores, hotels and traveling are its main businesses, and they also make money for the company. The new business and others include sharing cycling, shopping, taking a taxi, flash shopping and community group buying business based on the optimization of the US delegation.

Meituan said, "The community e-commerce business Meituan Optimization is still the most important investment area of the company this quarter." However, this part of the business is also the bulk of the loss of the US Mission.

In the second quarter, Meituan’s new business and other sectors realized revenue of 12 billion yuan and operating loss of 9.2 billion yuan, an increase from the loss of 8 billion yuan in Q1. From January to June, the revenue from new business and other businesses was 21.9 billion yuan, with a loss of 17.3 billion yuan, which exceeded the whole year of 2020.

According to the financial report, the community group buying business has further expanded its geographical coverage, deepened its penetration into low-tier cities, and established cold chain logistics nationwide to ensure product quality and fresh product distribution.

At present, after a period of irrational competition and supervision and guidance, the "third group" represented by Xingsheng Youxuan, Shihui Group and Tongcheng Life began to shrink its front line. Giants like JD.COM also changed their attitude towards group buying, but Meituan did not give up the pace of expansion, and Wang Xing regarded it as a "once-in-a-decade opportunity".

At the analyst meeting, when answering the analyst’s question that "the growth rate of orders preferred by Meituan has slowed down", Wang Xing said that Meituan is very confident in the prospect of community e-commerce (community group buying). Despite the recent regulatory opinions and seasonal factors, Meituan has experienced some operational fluctuations, but the company will optimize its pricing strategy and build long-term capabilities.

What supports the new business "burning money" is the take-away and high-profit wine travel business that has produced economies of scale.

In the second quarter, Meituan’s food and beverage take-away income was 23.125 billion yuan, a year-on-year increase of 59%; The operating profit generated increased by 95.2% year-on-year to 2.447 billion yuan. The income from shops, hotels and tourism was 8.6 billion yuan, up 89.3% year-on-year; It generated an operating profit of 3.664 billion yuan.

With regard to the commission that has attracted much attention, the All-China Federation of Industry and Commerce suggested that the take-away platform reduce the commission at the two sessions. Meituan immediately launched a new commission model in May, which refined the commission into technical service fees and performance service fees, and adopted step-by-step charges.

According to the financial report, in the second quarter of this year, the commission income of Meituan’s catering take-out was 20.36 billion yuan, and the number of completed orders was 3.54 billion, with an average commission income of 575 yuan per order.

In the second quarter of 2020, the commission income of Meituan’s catering take-out was 12.72 billion yuan, and the number of completed orders was 2.23 billion, with an average commission income of 571 yuan per order, which means that the commission amount in the second quarter of this year was higher than that in the same period of last year, and the reform did not reduce the commission income of Meituan.

Increasing the commission leads to an increase in the company’s profit margin. Meituan revealed in the financial report that the operating profit of the food and beverage take-out division increased by 95.2% from RMB 1.3 billion in the second quarter of 2020 to RMB 2.4 billion in the same period of 2021, and the operating profit rate of this division increased by 2.0 percentage points from 8.6% year-on-year to 10.6%.

However, in the second quarter, the rider cost was 15.46 billion, which was little changed from the 15.38 billion in the first quarter. Obviously, the rider did not share the growth of the commission income of the US Mission.

This is somewhat embarrassing for Wang Xing, who advertises that "common prosperity" is rooted in the gene of Meituan.

It is worth noting that the food and beverage take-away business on which Meituan depends has ushered in new competitors. Recently, Tik Tok started the take-away business, and now has access to take-away brands that can deliver by themselves, such as KFC and Xicha. At the same time, Tik Tok also set up a team for take-away business, and in the internal test called "Heart Takeaway" business.

According to CBN, recently, a group of operators who were in charge of customers’ businesses in public comments switched to ByteDance to engage in commercialization-related businesses.

Ali has never given up the competition in the field of local life. On July 2, Alibaba announced a series of organizational upgrading decisions. Flying Pig and Gao De were merged into Ali’s local life, and Yu Yongfu became the CEO, which is considered to be a "hard" group for integrating resources.

In fact, the local life service market is a trillion-dollar track. According to the data released by iResearch, the current online penetration rate is only 12.7%. This huge cake is destined to be the long-term competition direction of Internet giants.

Or get a high ticket for antitrust investigation.

Compared with the performance, the market is more concerned about the progress of the anti-monopoly investigation of Meituan.

On April 26 this year, the General Administration of Market Supervision issued a notice, which will investigate the suspected monopolistic behavior of Meituan according to the report.

On the evening of August 30, the General Administration of Market Supervision said that under the administrative guidance of the General Administration of Market Supervision, eight shared consumer brand operating enterprises, namely Hello, Qingju, Meituan, Monster, Xiaodian, Jiaodian, Jiedian and Soudian, were actively rectified, and the price increase in the shared consumption sector was effectively curbed, and the price was gradually transparent and standardized.

Among them, more than 80,000 cabinets of Street Power were reduced in price, and thousands of cabinets of Small Power, Search Power, Monster and Meituan were reduced in price. At present, the average price of each brand is 2.2-3.3 yuan/hour, and cabinets with a price of 3 yuan or less per hour account for 69%-96%.

In the next step, the market supervision department will further strengthen the supervision in the field of shared consumption, requiring all enterprises to strictly review the internal compliance of price adjustment, and truthfully and timely publicize the pricing rules and standards.

In addition, the above-mentioned contents also mentioned that the General Administration of Market Supervision conducted an investigation into the failure of Meituan to declare its acquisition of mobike according to law. It is understood that in April, 2018, Meituan wholly acquired mobike at a price of 2.7 billion US dollars. After that, mobike’s founding team withdrew one after another, and mobike joined Meituan App and changed its name to Meituan Bicycle.

In the financial report, Meituan said that in April 2021, the State Administration of Markets launched relevant investigations on the Company in accordance with the Anti-Monopoly Law of the People’s Republic of China. As of the date of this report, the relevant investigation is still in progress, and the company actively cooperates with the investigation of the State Administration of Market Supervision.

According to the financial report, the company cannot predict the situation or results of relevant investigations at this stage, and may be required to change its business practices or be fined heavily.

Wang Xing expressed his views on a series of recent regulatory measures in anti-monopoly, data security and community e-commerce. He believes that these regulatory changes are meaningful for the sustained development and orderly growth of the Internet platform economy, and are also beneficial to promoting fair competition and development of the industry.

When some analysts asked about the impact of data security supervision on marketing advertising, Wang Xing said that the relevant supervision may have some impact on marketing advertising business, and the company is evaluating it.

If the punishment falls, how much will the US Mission be punished?

According to the anti-monopoly law, the fine amount is 1%-10% of the comprehensive turnover of the previous year, and the estimated fine range of Bank of Communications International Report is 4-12 billion yuan, accounting for 1-3% of the total transaction volume (GMV) of Meituan’s take-away business in 2018/19. Nomura said that if the fine is 4% of the previous year’s comprehensive turnover, Meituan may be fined 4.6 billion yuan.

This will seriously affect the future development of Meituan, whose new business is still in the investment period. According to incomplete statistics of public information, Radar Finance found that Meituan had lost two lawsuits about unfair competition.

In February this year, the judgment issued by the Intermediate People’s Court of Jinhua City, Zhejiang Province showed that the unfair competition behavior of Jinhua Branch (Meituan) of Beijing Sankuai Technology Co., Ltd. damaged the legitimate rights and interests of ladas Company (Hungry) and should bear civil liability. The court gave full support to the hungry petition asking the US Mission to compensate for the economic loss of 1 million yuan.

In April, Meituan was again judged by the Intermediate People’s Court of Huai ‘an City, Jiangsu Province to compensate for the economic loss of 352,000 yuan, because Meituan had obvious unfair competition.

In response to supervision, Wang Xing stressed that the company will continue to strengthen compliance operations, improve the management and control of internal businesses, thoroughly examine and actively rectify related issues, and reduce operational risks.

Business model faces the impact of employment security

The problem facing Wang Xing is not only anti-monopoly, but also the protection of riders’ rights and interests has attracted the attention of relevant departments.

According to media reports, in May this year, when the government inspection team members were stationed in the Meituan, they consulted the inside of the Meituan on the remuneration of riders. According to the insiders of the company, the Meituan had 4.7 million riders, and most of them were dispatched by labor.

In view of the continuous influx of young and middle-aged people into the take-away industry, but they are outside the social security system, have no labor relations with the platform, and face the status quo of "the strictest algorithm" assessment, the rights and interests of take-away workers are increasingly concerned by the society.

Since July this year, a number of competent departments have jointly issued a series of guidance documents, which put forward all-round requirements for protecting the legitimate rights and interests of take-away food delivery personnel.

Specifically, there are three points that may affect the US delegation: ensuring that the rider’s salary is higher than the local legal minimum wage; Providing social security for full-time riders and industrial injury insurance for part-time riders; We should pay attention to the physical and mental health of workers, optimize the platform algorithm, and must not formulate assessment indicators that harm the safety and health of workers.

In the social security part, the document points out that it is necessary to urge the platform and third-party cooperative units to participate in social insurance for take-away food delivery personnel who establish labor relations, and encourage other take-away food delivery personnel to participate in social insurance.

It is learned from some take-away riders that at present, the take-away agents of Meituan need to bear commercial insurance by themselves, and the commercial insurance paid by Meituan is deducted from their commission every month. The Beijing area is around 150 yuan every month, and some second-and third-tier cities are lower than this amount.

According to the regulatory guidelines, this part will be paid by Meituan. According to the daily level of 3 yuan in second-and third-tier cities, the annual expenditure of this Meituan is about 5.1 billion yuan.

Tiger Securities believes that among the above-mentioned 4.7 million riders, assuming that the proportion of riders who confirm labor relations is 20%-30%, the average income of riders who sell out is about 6,000 yuan, and the median of the minimum social security base in different cities is about 3,000 yuan. Based on the current social security policy, the enterprise payment ratio is 32%. It is estimated that Meituan will pay 2.3-3.4 billion yuan more in social security fees every year.

Citic Securities commented that it is impossible to accurately quantify the impact of the supervision on the platform, such as rider social security and rights protection. However, logically, it is judged that the regulatory authorities did not intend to overthrow and subvert the existing business model of take-away, nor did they explicitly restrict its commercialization liquidity. Instead, they shifted the focus of the platform from simple efficiency improvement to rational distribution of income, and put forward higher standards and requirements for the stability and humanization of the ecology behind the entire platform.

Analysts believe that once the take-away platform pays insurance for large-scale riders, it means that its operating costs will increase, which will also have an impact on the business model of Meituan.

In terms of improving the welfare of take-away riders, Wang Xing introduced that Meituan will cooperate with the supervision to provide comprehensive welfare plans for take-away riders, and will upgrade the order delivery system and adjust the order system according to policy guidance to introduce compulsory rest for take-away riders.

The latest market value of Meituan, which is facing multiple difficulties, has evaporated by more than one trillion Hong Kong dollars compared with the high point of the year.

For the future trend of the US Mission, several institutions lowered their target prices. For example, UBS lowered its price by 6% to HK$ 330, Morgan Stanley lowered its price by 17% to HK$ 300, and Credit Suisse lowered its price from HK$ 374 a few days ago to HK$ 308, a decrease of 18%.

Note: This article is original by Radar Finance (ID: leidacj). Unauthorized reproduction is prohibited.