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Calmer waters arrive for Meituan after fending off Douyin

Written by KrASIA Connection Published on   4 mins read

The Chinese on-demand shopping platform has maintained its leading position despite the arrival of a new competitor in the form of ByteDance-owned Douyin.

Meituan employees can finally feel a sense of relief.

In 2022, they held their breath in the face of their biggest challenge in five years: the entry of Douyin, the Chinese equivalent of TikTok, into the local lifestyle sector. After holding the industry’s top spot for a long time, Meituan employees were pressured to reinvigorate their fighting spirit quickly in response. Douyin had achieved significant results by October, and they needed to move quickly to contend with a new competitor seemingly on par with their company.

Six months later, Meituan seems to have weathered the eye of the storm. In Q2 2023, Meituan achieved a revenue of RMB 67.96 billion (USD 9.33 billion), equalling a year-on-year increase of 33.4%. Its operating profit for the same quarter was RMB 4.71 billion (USD 650 million), marking a significant improvement from the same period last year when it recorded a net loss of RMB 500 million (USD 68.63 million).

Since Q4 last year, Meituan has been concerned by the prospect of merchants reallocating their advertising budgets to Douyin’s platform. Such concerns were not unfounded given the stature of Douyin but turned out only to be partially realized over these six months. Meituan’s commission and advertising revenues rebounded strongly despite the presence of newfound competitor Douyin, with both revenue streams growing by over 40% in Q2. This helped quell fears.

To further fend off competition, Meituan invested heavily in sales and marketing in Q2 this year. While other companies aggressively cut costs, the growth of Meituan’s sales and marketing expenses exceeded 60%, almost double the growth rate of revenue. This catapulted Meituan’s annual transacting user count and active merchant count for in-store dining and travel to historic highs in Q2 2023.

Meituan’s new business segments continued to reduce losses this quarter. While achieving a revenue of RMB 16.8 billion (USD 2.3 billion), which is 18.4% higher than the same quarter last year, it narrowed its operating losses by 23.5% year-on-year to RMB 5.2 billion (USD 710 million).

Meituan’s positive performance is likely to continue into the third quarter of this year. The high demand for summer travel and immediate retail orders due to extreme heat are significant factors.

In addition to exchange rates and geopolitics, intensifying competition was among the biggest concerns of Meituan investors. However, many kept faith, leading to a significant recovery in Meituan’s stock price, which has risen nearly 30% since the end of June.

Treading tumultuous waters

Meituan’s Q2 financial report has placed plenty of emphasis on its competition with Douyin, and the impact it has resultantly experienced.

Meituan’s advertising revenue took a hit from Douyin’s entry into the local lifestyle sector, but this impact was relatively short-lived. In Q4 2022, it reported a 4.8% dip in advertising revenue from its core local businesses, before rebounding with a 10.7% increase in the following quarter (Q1 2023). A similar trend was reflected in its commission-based revenue streams, which grew by 18.5% in Q4 2022 and 22% in Q1 2023.

However, the situation reversed this quarter with Meituan’s core advertising revenue reaching RMB 10.2 billion in Q2 at a growth rate of 40%.

Douyin’s traffic distribution model favors top-tier merchants, making it more difficult for lower and middle-tier merchants to achieve their desired results on Douyin. Some brands have reportedly shifted to Meituan as a result, since April.

Meituan has also made a strong comeback in terms of transactions completed. An internal source revealed that Meituan’s gross transaction value (GTV) exceeded RMB 150 billion (USD 20.59 billion) in Q2 2023, with a year-on-year growth rate of 120%. In comparison, the GTV of Douyin’s local lifestyle business segments in the same quarter was around RMB 66 billion (USD 9.06 billion), lower than the target of RMB 70 billion set by Zhu Shiyu, president of local life services at Douyin.

Over the past two quarters, group buying and live streaming orders have contributed significantly to Meituan’s bottom line. To attract merchants, Meituan currently offers free access to its platform’s live streaming functions. Participating merchants are not charged any spot fees or commissions. Moreover, Meituan occasionally invites celebrities and internet celebrities to conduct live streams and drive traffic for merchants.

However, the number of merchants that utilize Meituan’s live streaming functions still makes up only a small fraction of the platform’s total merchant volume, according to its 2022 annual report. Merchants have remarked that save for brands like KFC and HEYTEA, live streams run on Meituan’s platform tend to have very few viewers.

“Although there are no spot fees or commissions, live streaming requires investment, and investment must yield results. Meituan’s live streaming doesn’t have that momentum yet,” an unnamed merchant said.

​​KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Dong Jie for 36Kr.


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