Meituan lost more than 23.5 billion yuan in 2021. What are the reasons for it to turn from profit to loss? -

In the post-epidemic era, Meituan (3690.HK) revenue has increased steadily. On March 25, Meituan released its fourth quarter and full-year results for 2021. In 2021, the company's revenue was 179.128 billion yuan (RMB, the same below), a year-on-year increase of 56%; the company's loss during the year was 23.536 billion yuan, and the profit in the same period last year was 4.708 billion yuan; the company's adjusted net loss was 15.572 billion yuan, and the profit in the same period last year was 3.121 billion yuan. billion.

Food delivery is an important revenue business of Meituan, with an operating profit of 6.175 billion yuan in 2021; however, the policy requirements of “reasonably reducing merchant service fees” and the corporate responsibility to improve the protection of riders’ rights and interests, It also increases Meituan’s operating costs. The hotel, hotel and travel business is a major source of operating profits for Meituan. In 2021, the operating profit of this business was 14.2 billion yuan.

However, the operating profits of the above two major businesses cannot offset the losses caused by the expansion of Meituan’s new business. Meituan’s new business, which is mainly based on community group buying, private travel, instant grocery shopping and other businesses, will be in 2021. Annual operating loss was 38.4 billion yuan. At the same time, Meituan has also continued to increase the company's R&D investment, with R&D expenditures reaching 16.7 billion yuan in 2021.

2021 is an extraordinary year for Meituan. The company’s performance has turned from profit to loss. At the same time, Meituan’s antitrust penalties have also been settled, and it was fined 3.442 billion yuan. Affected by policies and the general environment, Meituan's stock price fell overall in 2021, peaking at HK$460 per share that year, and then fell below HK$300 per share twice in July and November of that year. It closed at HK$225.4 per share on December 31, 2021. As of the close on March 25, Meituan closed at HK$135 per share, a decrease of 8.16.

“In 2021, despite the impact of the epidemic, we will still overcome difficulties and strive to provide hundreds of millions of consumers with safe and convenient life services, help merchants use digital means to expand online operations, and help more entrepreneurs with Employed people can achieve stable income," Meituan CEO Wang Xing said, "Meituan will unswervingly fulfill its platform responsibilities, unswervingly increase investment in technology, and unswervingly continue to expand its business, focusing on the 'retail technology' strategy. Deeply explore the Chinese market and create more value for merchants, users, riders and other ecological partners. ”

Catering delivery operating profit was 6.175 billion yuan, improving rider rights and interests

In the face of the recurrence of the epidemic, Under pressure, Meituan's food delivery business has continued to grow, with the number of annual transaction users and per capita transaction frequency hitting record highs in 2021. The peak of single-day orders exceeded 50 million orders in August 2021, and hit a new high again in December of that year. The number of transactions throughout the year reached 14.4 billion, a year-on-year increase of 41.6%.

In 2021, Meituan’s catering takeout business will see significant growth in categories such as midnight snacks, milk tea, salads and light meals. The growth in supply has effectively driven an increase in orders from medium and high-frequency users. Therefore, the number of annual transaction users for food delivery increased by 13% year-on-year, and the average transaction frequency of annual transaction users increased by 25% year-on-year.

In 2021, Meituan’s catering takeout business transaction volume was 702.1 billion yuan, a year-on-year increase of 43.6; revenue was 96.3 billion yuan, a year-on-year increase of 45.3. Operating profit increased from 2.833 billion yuan in 2020 to 6.175 billion yuan in 2021, while the operating profit margin increased from 4.3 to 6.4.

However, the 2021 Government Work Report proposed to “guide platform companies to reasonably reduce merchant service fees.” Subsequently, the National Development and Reform Commission and other departments also issued the "Implementation Plan for Accelerating the Cultivation of New Consumption" and proposed to guide online platforms such as food delivery to reasonably optimize the fees, commissions and other fees for small and medium-sized enterprise merchants and individuals operating on the platform, and use technology to empower operators within the platform. Reduce costs and increase efficiency.

In 2021, platforms such as Meituan Waimai will actively optimize platform charging models and implement pilot "rate transparency." At the same time, protecting the rights and interests of riders is also a major responsibility of Meituan. In July of that year, Meituan established a delivery rider service department.

In 2021, Meituan held 136 rider talks.

The financial report shows that the vast majority of Meituan’s total revenue comes from rider delivery costs. In 2021, there will be approximately 5.27 million riders earning income on the Meituan platform. The delivery cost of Meituan’s takeaway riders was 68.183 billion, a year-on-year increase of 38.3%, accounting for 71% of Meituan’s total takeout revenue.

In addition, the breakdown of the financial report shows that in 2021, Meituan’s catering delivery service revenue collected from merchants and users was 54.204 billion yuan, while the annual rider delivery cost was 68.183 billion yuan. The above data shows that Meituan spent nearly 14 billion yuan on direct subsidies to riders throughout the year.

In-store hotel and tourism operating profit was 14.2 billion yuan, and new business operating loss was 38.4 billion yuan.

In the post-epidemic era, Meituan’s in-store, hotel and tourism businesses have achieved steady growth. In 2021, Meituan's in-store, hotel and tourism business revenue was 32.5 billion yuan, a year-on-year increase of 53.1%; operating profit increased from 8.181 billion yuan in 2020 to 14.193 billion yuan in 2021, while the operating profit margin increased from 38.5 to 43.3.

The financial report shows that Meituan’s in-store business transaction volume, transaction value and annual number of active merchants in 2021 all hit record highs. Meituan has strengthened its penetration into lower-tier cities across the country. Categories such as leisure and entertainment, fitness, elderly care services, medical care and pet services have strong growth momentum; while categories such as handicraft activities, recording studios, light and shadow interactive pavilions, and stress relief experience pavilions have become new consumer trends.

In terms of hotels and tourism, the number of domestic hotel room nights will increase by 34.5 in 2021. In addition, Meituan consolidates its competitive advantages in the low-star hotel sector, attracts offline users to online platforms, and helps more hotel merchants to operate digitally. In the field of high-star hotels, the proportion of room nights in high-star hotels in 2021 exceeded 16.5.

In 2021, Meituan will continue to expand its investment in new businesses, especially commodity retail. In 2021, Meituan’s new business and other business revenue was 50.3 billion yuan, a year-on-year increase of 84.4. Operating losses expanded from 10.9 billion yuan in 2020 to 38.4 billion yuan in 2021, and the operating loss rate expanded by 36.6 percentage points year-on-year.

Community group buying is the direction of Meituan’s new business exploration. In the second half of 2020, community group buying began a new round of industry competition. At that time, Internet companies such as Didi, Meituan, Pinduoduo, and JD.com successively increased investment. However, with policy regulations and market development, the community group buying industry has experienced ups and downs in 2021. Xinyou is facing a reduction in business, and Jingxi Pinpin is also reported to be downsizing and withdrawing from the city.

At present, Meituan Selection is relatively stable. The financial report shows that Meituan Preferred has achieved healthy growth thanks to clear policy guidance and a good market competition environment. The "next day pickup" three-level warehousing and distribution logistics network system has covered most communities and rural areas in 30 provinces across the country. In the future, strict compliance with regulatory regulations will be our top priority and we will continue to focus on balanced and high-quality growth.

The peak single-day order volume of Meituan’s flash sales in December 2021 exceeded 6.3 million. On the supply side, we have expanded product categories and established cooperation with more high-quality local stores. Categories such as flowers, supermarkets and convenience stores continue to maintain high growth momentum. At the beginning of this year, a 24-hour drug delivery service was launched. In 2021, the number of Meituan Grocery shopping users and transaction amounts will continue to increase.

High revenue and high investment, with R&D expenses reaching 16.7 billion yuan

High revenue and high expenditure are the characteristics of Meituan’s performance in 2021. The company’s revenue hit a record high, while operating profit Turning from profit to loss also lays the foundation for future sustainable development to a certain extent. The financial report shows that Meituan’s R&D expenditure increased from 10.9 billion yuan in 2020 to 16.7 billion yuan in 2021, a year-on-year increase of 53.1. This was mainly due to the increase in employee benefit expenses due to business expansion.

On the other hand, Meituan has also increased investment in the research and development of unmanned logistics. Meituan drones have been in regular trial operation in Shenzhen for nearly a year. So far, they have covered more than 8,000 residents and completed the 30,000 orders from real users. Meituan’s urban low-altitude logistics operation demonstration center has been launched in Shanghai and will gradually cover the “3 kilometers and 15 minutes” low-altitude smart logistics network in East China.

In addition, Meituan Automatic Delivery has launched a low-speed and instant delivery solution for outdoor scenes. As of December 2021, Meituan's automatic delivery vehicle service has expanded to 20 communities in Shunyi District, Beijing, delivering nearly 190,000 orders, with an autonomous driving mileage of more than 700,000 kilometers, and an average of more than 1,000 orders per day.

At the same time, the company's overall operating costs have also increased significantly. The cost of sales increased by 6.92 from 80.7 billion yuan in 2020 to 136.7 billion yuan in 2021, and the percentage of revenue increased by 6.0 percentage points from 70.3 to 76.3 year-on-year. The main reasons are the increase in costs related to catering takeout delivery, as well as the development and exploration of retail business and other new businesses.

In addition, the company's sales and marketing expenses increased by 9.48 from 20.9 billion yuan in 2020 to 40.7 billion yuan in 2021, and the percentage of revenue increased by 4.5 percentage points from 18.2 to 22.7 year-on-year. Mainly due to the increase in marketing, advertising and user incentive expenses as well as employee benefits expenses. In addition, additional employees were recruited to support the rapid growth of new business.

"The development of Meituan is closely related to China's economic environment and cannot be separated from the joint efforts of the majority of small and medium-sized businesses, riders and other related workers. We will continue to combine high quality and reliability As the company's goal, sustainable development strives to drive consumption and industry transformation and upgrading, so that all relevant parties can benefit from it. "Meituan CFO Chen Shaohui said: "Meituan will make long-term investments around the strategy of 'retail technology', through innovation and technology. Drive and help more entrepreneurs and employees share the dividends of the digital economy.”