Meituan’s total revenues decreased by 12.6% year-over-year to RMB16.8 billion from RMB19.2 billion in Q1 2019. The operating loss for Q1 2020 expanded on a year-over-year basis from RMB1.3 billion to RMB1.7 billion, while operating margin decreased from negative 6.8% to negative 10.2%.
Adjusted EBITDA and adjusted net loss were positive RMB41.3 million and negative RMB216.3 million, respectively. Meituan’s operating cash flow turned to negative RMB5.0 billion for Q1 2020 from positive RMB3.1 billion for the fourth quarter of 2019.
Meituan had cash and cash equivalents of RMB14.1 billion and short-term investments of RMB42.4 billion as of March 31, 2020, compared to the balances of RMB13.4 billion and RMB49.4 billion, respectively, as of December 31, 2019.
Meituan Food Delivery
For Q1 2020, GTV of Meituan’s food delivery business decreased by 5.4% year-over-year to RMB71.5 billion. The daily average number of food delivery transactions decreased by 18.2% year-over-year to 15.1 million.
The average value per order of Meituan’s food delivery business increased by 14.4% year-over-year. The monetization rate of Meituan’s food delivery business decreased to 13.3% from 14.2% in Q1 2019.
As a result, revenue decreased by 11.4% year-over-year to RMB9.5 billion for Q1 2020. Meituan’s food delivery business experienced an operating loss of RMB70.9 million for Q1 2020, compared to operating profit of RMB482.8 million for the fourth quarter of 2019 while operating margin turned to negative 0.7% from positive 3.1%.
However, Meituan’s operating loss from the food delivery business narrowed on a year-over-year basis while operating margin improved by 0.7 percentage points year-over-year.
Affected by the COVID-19 pandemic, Meituan’s food delivery business was facing significant challenges on both the supply side and demand side for Q1 2020. Especially, from January 20, 2020 until February 20, 2020, local governments issued strict control measures, which led to a shortage of service supplies and a dramatic drop in order volume for Meituan’s food delivery business.
Shortly after February 20, 2020, when the orderly resumption of work took place across the country, an increasing number of restaurants started to resume their operations while demand from consumers also gradually recovered.
However, as some of the consumer demand continued to be negatively impacted by hygiene concerns and quarantine measures, the ongoing closure of universities, and work-from-home policies that applied to many of Meituan’s high-frequency consumers, the order volume still had not fully recovered to its normal levels by the end of March 2020.
As a result, the order volume of Meituan’s food delivery business experienced negative year-over-year growth, with the daily average number of food delivery transactions decreasing by 18.2% year-over-year to 15.1 million.
In spite of the short-term negative impacts, Meituan strongly believes that the COVID-19 pandemic will play a positive role in the industry’s long-term development.
On the consumer side, the pandemic has further accelerated the cultivation of consumption behavior, helping to further educate some of Meituan’s targeted potential consumers in a positive way. Meituan’s platform’s diversified supply and consistently good experience sufficiently meet the demand of most people.
Notably, Meituan has seen increasing consumer preference for high ticket size categories during the pandemic due to the increasing adoption of food delivery for formal meals, further diversification of high-quality supplies on Meituan’s platform and growing preference for branded restaurants.
These positive factors in combination have driven the strong growth of the average value per order for Q1 2020, increasing by 14.4% year-over-year.
On the merchant side, the overall catering industry was severely disrupted in the first quarter of 2020.
During this period, Meituan worked closely with restaurant merchants, promptly updated Meituan’s products and operations to assist with their digitization process, and helped them mitigate the negative impact and recover.
In addition, Meituan offered a series of rebates, subsidies, free traffic support to merchants, in order to relieve some of their operational burdens. Meituan also further explored the optimization potential for the meal preparation and packaging process.
At the same time, Meituan’s continuous marketplace product innovation enabled existing merchants to have more marketing capability and improved operational efficiency. More notably, the pandemic has further accelerated the digitization process, especially for many branded restaurants with high-quality supply, which have traditionally focused on in-store dining instead of delivery services.
In the first quarter of 2020, a large number of premium restaurants, highly-rated restaurants, chain restaurants, Black Pearl restaurants, and five-star hotel restaurants, which did not have or had very limited food delivery services, initiated food delivery operations as their primary vehicle for business operations due to the pandemic.
Participation by these restaurants increased high-quality supply on Meituan’s platform in the long term, while Meituan reinforced Meituan’s importance to small- and medium-sized independent restaurants as food delivery almost became their sole source of income during the pandemic.
On the delivery front, although delivery capacity was not the bottleneck for Meituan’s food delivery business during the pandemic, delivery cost per order increased both on a quarter-over-quarter basis and a year-over-year basis as a result of the increased incentives paid to delivery riders working during Chinese New Year and pandemic situations, additional costs associated with anti-epidemic measures, and the decline in order density.
However, the pandemic has accelerated the adoption of new delivery models and stimulated technological innovation. Meituan pioneered the launch of contactless delivery services, which received widespread acceptance and recognition from consumers, merchants, and local governments.
In addition to helping to mitigate the hygiene risks for both consumers and delivery riders, the contactless delivery model improves delivery efficiency and creates more opportunities for the exploration of diversified delivery models and new technology for autonomous delivery.
In-store, hotel & travel
Revenues from Meituan’s in-store, hotel & travel businesses decreased by 31.1% year-over-year to RMB3.1 billion in the first quarter of 2020.
Operating profit of Meituan’s in-store, hotel & travel businesses decreased by 57.3% year-over-year and by 70.8% quarter-over-quarter to RMB680.2 million in the first quarter of 2020, while operating margin decreased by 13.5 percentage points year-over-year and by 14.7 percentage points quarter-over-quarter to 22.0%.
During the pandemic, Meituan’s in-store business was more severely challenged in comparison to the food delivery segment, and its recovery was noticeably lagging behind that of the food delivery segment.
As the majority of the in-store service categories are classified as discretionary or entertainment-related services, which usually involve close contact with others and/or large crowds, both supply and demand remained low in the first quarter of 2020 due to consumers’ hygiene concerns and local governments’ restrictions.
As a result, commission revenue declined significantly by 50.6% year-over-year and by 62.6% quarter-over-quarter, respectively.
Moreover, in-store merchants’ marketing demand was significantly impacted by the pandemic, creating headwinds for cost-per-click online marketing product sales in particular, which contributed the majority of the in-store online marketing services revenue last quarter.
In comparison, subscription-based online marketing services revenue was much less affected and accounted for the majority of the total segment online marketing services revenue in the first quarter of 2020.
As a result, online marketing services revenue declined by 8.2% year-over-year and by 39.8% quarter-over-quarter, respectively. In order to help merchants recover, Meituan launched various supportive measures to directly help small- and medium-sized merchants solve short-term liquidity problems and restore their operations.
These measures included commission exemption, the extension on subscription-based service period, and access to business loans with favorable interest rates.
To stimulate consumption, Meituan utilized its online capabilities to establish safety programs, such as Safe QR Code, Safe-Dining and Safe-Play to guide merchants in streamlining, standardizing, and digitizing their safety measures.
Meituan began to work with local governments in March 2020 to launch the Safe-Consumption Festival and issued vouchers to consumers to use in local services, especially in restaurant dining, which sustained the most impact during the pandemic.
Meituan believes that consumer vouchers could not only stimulate one-off consumptions but also have strong leverage effects that stimulate the recovery of the overall consumption demand in relevant regions and industries.
As a platform that connects 448.6 million annual transacting users and 6.1 million local merchants, Meituan can effectively direct consumers to merchants and service categories, so Meituan’s platform is capable of distributing traffic, allocating subsidies, and stimulating consumption with accuracy and effectiveness.
Meituan’s hotel business also experienced an enormous impact from the pandemic, with the number of domestic room nights consumed on Meituan’s platform in the first quarter of 2020 decreasing by 45.5% year-over-year and by 61.0% quarter-over-quarter to 42.8 million.
As a result of government-issued travel bans, self-quarantine policies for travelers, and a general fear of virus infection, many consumers canceled their travel plans.
While local accommodation and business travel activities, especially in lower-tier cities, have started to gradually rebound at a faster pace along with the general recovery process, consumers were still taking conservative measures and postponing travel-related activities and expenditures even after the peak of the pandemic.
To further support industry recovery, Meituan leveraged Meituan’s platform capabilities and launched the Safe-Stay Program.
Under the Safe-Stay Program, Meituan established precautionary measures and increased service capabilities for Meituan’s partner hotels, such as the adoption of strict health precautions for all employees and consumers, close tracking of consumer information, free booking cancelations, and discounts for additional nights.
This program has achieved noteworthy progress, successfully engaging numerous hotels in hundreds of cities nationwide.
New initiatives and others
Revenues from the new initiatives and other segments increased by 4.9% year-over-year to RMB4.2 billion in the first quarter of 2020.
On a sequential basis, operating loss from the new initiatives and others segment expanded by 3.4% to RMB1.4 billion for Q1 2020 from RMB1.3 billion for the fourth quarter of 2019.
The operating margin decreased to negative 32.7% for Q1 2020 from negative 21.7% for the fourth quarter of 2019. Operating loss from the new initiatives and other segments narrowed on a year-over-year basis while operating margin improved by 32.3 percentage points.
The pandemic caused severe disruptions to most of Meituan’s new initiatives, including bike-sharing services, car-hailing services, and B2B food distribution services.
Particularly, Meituan’s grocery retail business continued to provide stable supply and efficient delivery of high-quality fresh produce and other daily necessities to Meituan’s consumers.
The pandemic has served as an opportunity for consumers to realize the value and convenience of purchasing many other items besides meals using Meituan’s on-demand delivery service, which has helped to better cultivate consumer habits with relatively low marketing costs.
Moreover, during the first quarter of 2020, under the marketplace model, Meituan launched a separate brand, known as Caidaquan, to enable traditional farm markets to digitize their operations and provide high-quality fresh produce to consumers with more efficiency.
During the first quarter of 2020, Meituan’s bike-sharing services temporarily suspended fee collection from consumers in Hubei Province using Meituan’s bikes and donated more than two million monthly riding passes to medical professionals.
To assist local governments with tracking the extent of virus transmission, Meituan’s car-hailing services helped local public transportation authorities to roll out the first real-name public transport system in China.
Meituan’s B2B food distribution service also helped many restaurants ensure the adequate supply of raw materials for operations during the pandemic. Meituan also opened green channels for medical institutions in 34 cities to ensure an adequate supply of food during the pandemic.