Meituan's stock price signals a strong upward trend, surging over 20% in two weeks! Investment banks

Recently, Meituan’s stock performance has attracted widespread market attention. Since the release of its Q2 financial report on August 28, 2024, the stock price has risen by more than 20%, with a single-day increase of over 4% on September 12.

In Meituan’s financial report, the company demonstrated outstanding performance in revenue growth, profitability improvement, and user activity, which not only exceeded market expectations but also laid a solid foundation for the company’s future development. At the same time, positive evaluations from international rating agencies, optimistic forecasts from investment banks, and the company’s disclosed share buyback plan have all provided strong support for Meituan’s stock price increase.

As a leading local lifestyle service platform, Meituan continues to show strong growth potential and operational capabilities in fierce market competition.

Financial report highlights: strong momentum for performance growth

Core business growth and user activity enhancement

Meituan’s Q2 financial report in 2024 showed strong performance growth, with core local commerce revenue increasing by 18.5% year-on-year to 60.7 billion yuan. This growth is attributed to the continuous optimization of platform supply and innovation in the online shelf model, as well as meeting the quality-to-price ratio needs of different user groups, thereby enhancing user stickiness and increasing transaction frequency. The average annual transaction frequency of annual transaction users has increased for 15 consecutive quarters, showing a solid and active user base.

In terms of service integration, Meituan further connected multiple consumption scenarios such as dining, leisure, and entertainment through its “Shen Membership” service, attracting the participation of 5 million merchants and providing users with a richer selection. The expansion of group purchase business, especially the double-year-on-year growth in transaction amounts and order volumes of leisure and entertainment products, highlights Meituan’s success in meeting users’ diverse needs.

The in-store, hotel, and travel business also performed exceptionally well in the second quarter. The recovery of the tourism market and the release of consumers’ offline consumption demand led to a significant increase in revenue for this business segment. Order volume increased by more than 60% year-on-year, and the number of annual transaction users and active merchants both reached new highs. The “Must-Eat List” released by Dianping in 2024 further enhanced Meituan’s brand influence in the in-store, hotel, and travel sector, attracting more attention from users and merchants.

Digital transformation and new business development

Meituan’s flash purchase business has expanded quality supply through cooperation with multiple retail brand entities, meeting consumers’ immediate needs in various scenarios such as holidays, travel, and camping, and promoting steady growth in the number of annual transaction users and average transaction frequency.

Especially the innovative model of alcohol retail, “Wai Ma Send Wine,” achieved significant transaction growth in this quarter.

On the supply side, Meituan has improved the operational efficiency and scale benefits of merchants through digital solutions and supply chain optimization. Meituan’s “Brand Satellite Store” model for takeout provides merchants with services such as commission rebates, traffic support, and operational guidance, helping merchants improve their online operations. Meituan’s Lightning Warehouse’s full-link service support has helped merchants optimize online operations, pricing strategies, traffic support, and fulfillment services.

Meituan Pharmacy’s “HEALTH” business growth model aims to help pharmaceutical companies enhance brand influence and service efficiency. Its online medical insurance drug purchase service has been launched in several cities, covering dozens of chain pharmacy brands. The in-store, hotel, and travel business has also achieved steady growth, with order volume increasing by more than 60% year-on-year, and the number of annual transaction users and active merchants both reaching new highs.

Meituan CFO Chen Shaohui emphasized that the company will continue to focus on the “retail + technology” strategy to promote the digital upgrade of the retail industry and create value for the industry chain. These strategic measures have not only improved Meituan’s profitability but also laid a solid foundation for the company’s long-term growth.

Overall, Meituan’s Q2 financial report in 2024 demonstrated strong growth in its core and new business areas, as well as the ability to improve operational efficiency through digitalization and supply chain optimization. These achievements have not only provided a solid foundation for the company’s stock price increase but also laid a good momentum for Meituan’s future development. As the company continues to implement its strategic plans and seize market opportunities, Meituan is expected to maintain its leading position in the local lifestyle service sector.

Positive signals from investment institutions

Meituan’s strong performance has not only been recognized by the market but has also attracted the attention of many investment institutions.

Fitch Ratings upgraded Meituan’s long-term issuer rating to “BBB” and maintained a positive outlook.

Fitch stated that Meituan’s market position is solid, and its business is diversified, especially in the expansion of core local commerce and emerging business areas, enhancing the company’s ability to withstand market risks. The rating upgrade not only helps Meituan reduce financing costs but also significantly enhances the market’s confidence in its future growth potential.

Fitch’s key rating assumptions include:

• A compound annual revenue growth rate of around 10% from 2023 to 2026;
• An EBITDA margin of 6%-8% from 2023 to 2026;
• Capital intensity of around 3% due to expenditures related to servers, R&D equipment, and shared bike maintenance from 2023 to 2026;
• No dividends;
• A share buyback of $1 billion within two years.

At the same time, several international investment banks have also released optimistic forecasts for Meituan.

Morgan Stanley

In its latest research report, it pointed out that Meituan’s adjusted profit for the second quarter far exceeded market expectations, especially in the performance of food delivery and new businesses, which was significantly better than expected.

Morgan Stanley specifically mentioned that although the market is cautious about Meituan’s delivery business in the second half of the year, the bank believes that Meituan’s delivery business will maintain stable growth and expects an operating profit of 30 billion yuan for the full year of 2024. Therefore, Morgan Stanley raised Meituan’s target price from 120 Hong Kong dollars to 125 Hong Kong dollars, an increase of 4%, and upgraded the rating from “in line with the market” to “overweight.”

In addition, Morgan Stanley also raised its revenue forecast for Meituan in 2024-2025 by 2%-3%, and the adjusted profit forecast was also raised by 6%-8%.

Goldman Sachs

Goldman Sachs also has a positive attitude towards Meituan’s performance. Its report shows that Meituan’s profit in the second quarter far exceeded expectations, and the competitive landscape of the in-store business continues to improve.

Goldman Sachs believes that the gradual narrowing of losses in new businesses, coupled with the continuous growth in the number of takeout orders and unit economic benefits, will make Meituan’s performance in the core local commerce area more robust.

Based on this, Goldman Sachs raised Meituan’s target price from 148 Hong Kong dollars to 157 Hong Kong dollars, maintained a “buy” rating, and increased the adjusted EBIT growth forecast for the core local commerce in fiscal year 2024 from the previous 14% to 27%.

Goldman Sachs also expects Meituan’s in-store, hotel, and travel businesses to continue to grow, with a full-year adjusted EBIT growth rate of 17%-19%, while the previous expectation was only 10%.

Jefferies

Jefferies pointed out that Meituan achieved an order year-on-year increase of over 60% in the second quarter, and both the number of annual users and active merchants reached historical highs, indicating strong local service demand. Although consumer preferences have changed, Jefferies believes that Meituan’s group purchase services accurately meet users’ needs for cost-effective products, which will further promote the growth of transaction volume.

Based on the optimistic expectation of future performance, Jefferies raised Meituan’s target price from 142 Hong Kong dollars to 150 Hong Kong dollars and raised its revenue forecast for 2024 and 2025 to 334.5 billion yuan and 398.2 billion yuan, respectively, while raising the adjusted profit forecast to 40.6 billion yuan and 55.4 billion yuan, with increases of 16% and 18%, respectively.

These optimistic expectations and target price increases from investment institutions not only reflect the market’s strong confidence in Meituan’s future growth potential but also prove the company’s continuous improvement in operations and profitability.

Especially with the stable growth of food delivery services, the improvement of the competitive landscape in in-store businesses, and the gradual narrowing of losses in new businesses, investment banks generally believe that Meituan has continuous growth momentum. With the upgrade of ratings from multiple institutions, investors’ confidence in Meituan has significantly increased, which also provides strong support for the continued rise in its stock price.

Share buyback plan

A large-scale share buyback plan is also an important signal of increased investor confidence.

Since the announcement of the share buyback plan at the end of 2023, Meituan has frequently carried out buyback actions in 2024, demonstrating the company’s confidence in future development and its determination to reward shareholders.

In January and June 2024, Meituan carried out large-scale buyback actions, and the volume and frequency of buybacks attracted attention in the Hong Kong stock market. In just 11 consecutive trading days in June, Meituan repurchased more than 45 million shares, spending billions of Hong Kong dollars.

The amount of the buyback is also one of the highlights of this action.

After initially announcing a $1 billion buyback plan, Meituan increased its buyback quota by another $2 billion in June 2024. By the middle of the year, Meituan had repurchased nearly 8 billion Hong Kong dollars’ worth of shares, which not only ranks at the top of the Hong Kong stock market buyback list but also sends a strong market signal to investors: the company believes that the current stock price is undervalued and hopes to improve earnings per share through buybacks.

It is worth noting that Meituan has also flexibly adjusted the purpose of the repurchased shares, initially using the repurchased shares for inventory, and then changing to cancellation. This strategic adjustment reflects Meituan’s balance between optimizing capital structure, boosting stock prices, and enhancing shareholder returns.

Meituan’s share buyback helps to enhance shareholder returns, reduce the number of shares circulating in the market, and increase earnings per share. It also demonstrates confidence in the future business prospects through this method. The buyback action not only stabilizes the stock price in the short term but also provides a considerable return prospect for long-term investors. With ample financial resources, Meituan has enough funds to continue implementing buyback actions, which has become one of its important means to cope with market fluctuations and competitive pressures.

The environment is gradually recovering.

As the impact of the pandemic gradually diminishes, the local lifestyle service industry has experienced a strong recovery, driving significant growth in Meituan’s business.

In the second quarter of 2024, Meituan’s core local commerce business revenue reached 60.7 billion yuan, a year-on-year increase of 18.5%. Especially in businesses such as in-store, hotel, and travel, the order volume increased by more than 60% year-on-year, and the number of annual transaction users grew by nearly 35%. Driven by the traditional consumption peak season, consumer demand for takeout and in-store consumption has quickly rebounded, with a substantial increase in order volume and transaction amount. This indicates that Meituan has successfully seized the opportunity of market recovery and promoted the steady development of its core business.

Meituan’s management has pointed out that the company is focusing on the “retail + technology” strategy to promote the digital upgrade of the retail industry and further enhance the platform’s service capabilities and innovation potential. This strategic direction is highly consistent with the overall digital trend of the industry, enabling Meituan to improve service quality while leveraging the external environment to accelerate business expansion.

At the same time, as the economy gradually recovers, the consumer industry shows an upward trend, driving the demand for local lifestyle services to grow. In the second quarter of 2024, Meituan’s takeout and instant retail businesses both maintained double-digit growth. The daily order volume of takeout reached 58.8 million orders, a year-on-year increase of 11.6%; while the growth of Meituan’s flash purchase business was even more significant, with a daily order volume increasing by 34.7% year-on-year, reaching 8.97 million orders. This trend shows that consumer demand for high-quality, localized services continues to rise, bringing new business opportunities and expansion space for Meituan.

Driven by supportive policies and market demand, Meituan’s business structure has been further optimized. For example, Meituan’s newly launched “Shen Membership” plan has covered 5 million merchants, significantly increasing user stickiness and transaction frequency. This has not only further expanded Meituan’s market share but also strengthened the company’s competitive advantage in the local lifestyle service field.

Overall, the recovery of the economic environment, the wave of digital development, and the growing consumer demand have together provided a favorable external environment for Meituan’s business growth. It is expected that in the future, Meituan will continue to lead the industry in business innovation and service optimization, and maintain a solid market position in the local lifestyle service field.

Can Meituan maintain the upward trend in the future?

When analyzing whether Meituan can continue to maintain the current growth momentum of its stock price, it is necessary to consider a variety of key factors comprehensively. Meituan, with its strong advantages and leading position in the local lifestyle service industry, has the potential for long-term growth. However, future performance will depend on its performance in business expansion, market competition, policy environment, and risk management capabilities.

Sustained growth momentum

Meituan continued to exceed market expectations in the second quarter of 2024, with a 18.5% increase in core local commerce business revenue, and businesses such as takeout and in-store, hotel, and travel showing strong growth. As the economy gradually recovers, consumer demand for local lifestyle services continues to increase, providing a stable source of income for Meituan. Meituan has successfully seized the opportunity of market recovery through its large user base and diversified business models.

It is worth noting that the “retail + technology” strategy has become the key to Meituan’s future growth. By improving operational efficiency through smart supply chain and data analysis, new businesses such as Meituan’s flash purchase have seen a year-on-year increase in daily order volume of 34.7%, showing the huge potential of instant retail. These emerging businesses are expected to continue to drive Meituan’s performance growth in the future.

Advantages in market competition

Despite the increasing competition in the industry, especially in the fields of takeout and in-store services, where platforms such as Douyin have increased their layout, Meituan has successfully built strong user stickiness and merchant loyalty through extensive business cooperation and innovative services. Its mature supply chain and multi-level user service system have allowed Meituan to maintain a leading position in the competition.

Technological innovation and policy support

Technological innovation is an important driving force for Meituan’s future development. By optimizing operations and cost management through smart supply chain and digital tools, Meituan has further improved its operations and cost management. In addition, the favorable policy environment has also provided a stable external condition for Meituan, supporting the development of the platform economy and promoting further innovation and expansion of the business.

Potential risk factors

Although Meituan’s prospects are optimistic, it cannot be ignored that it still faces some potential risks.

Firstly, the intensification of market competition may bring uncertainty. Platforms such as Douyin are also rapidly expanding in the fields of local lifestyle services and instant retail. Although Meituan has a first-mover advantage, the offensive of competitors may have a certain impact on Meituan’s market share. Meituan must continue to maintain its innovation capabilities and deepen the stickiness of users and merchants to cope with potential competitive pressures.

The expansion of new businesses, although providing growth opportunities, also brings pressure on costs. The rapid expansion of emerging businesses such as instant retail requires a large-scale capital investment, which may affect the company’s profitability in the short term. How to find a balance between the expansion of new businesses and cost control will be an important issue faced by Meituan’s management.

For investors, Meituan’s long-term growth potential is still worth looking forward to. The company’s stable performance in its core business, coupled with the continuous expansion of new businesses, has laid a solid foundation for future performance growth. Although there are potential risks from competition and policy, Meituan’s innovation capabilities and market leadership position provide strong protection.

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But in the long run, with its strong market base and continuous technological innovation, Meituan has the ability to continue to lead in the local lifestyle service field and create considerable value returns for shareholders.

The steady growth of core business, the expansion potential of emerging businesses, the support of the policy environment, and the strong position in market competition all provide a strong guarantee for Meituan to maintain a long-term stock price increase. Despite the potential risks of intensified competition and policy adjustments, Meituan still has strong resilience and adaptability. By continuing innovation and expansion, Meituan is expected to continue to lead the local lifestyle service industry in the future and bring higher returns to investors.