Meituan, the Chinese food delivery giant, has successfully surpassed sales expectations by implementing a low-price strategy, even as economic headwinds affect its competitors. Investors are now questioning the sustainability of its significant share price increases as macroeconomic conditions worsen. The company reported a 21% increase in sales and achieved a record gross margin for the latest quarter, despite sluggish consumer spending. Its stock, listed in Hong Kong, has surged 63% this year, outpacing all global food delivery rivals and leading the Hang Seng China Enterprises Index in 2024.
A key factor in Meituan’s success is its budget-friendly, group-based ordering platform, Pin Hao Fan. This service has significantly bolstered the company’s performance, yet concerns remain about its ability to withstand a broader consumer downturn.
“It’s a tricky situation,” noted Kai Wang, an analyst at Morningstar Inc. “On one hand, robust revenue growth stands out compared to competitors; on the other, macroeconomic challenges continue to loom.”
Currently, Meituan benefits from diminished competition, as Alibaba is prioritizing its core e-commerce business over its Ele.me food delivery service, and ByteDance’s Douyin is focusing on profitability rather than market expansion.
The Pin Hao Fan platform is not only winning over customers but also enticing restaurants eager to promote their lower-priced offerings. Consequently, Meituan reported record highs in both transacting users and active merchants in the second quarter.
The company is also making strides outside mainland China with its KeeTa delivery app in Hong Kong. Additionally, it has reduced driver recruitment costs amid high youth unemployment and cut expenses by closing underperforming warehouses and lowering user subsidies. A new $1 billion stock buyback has further bolstered investor confidence.
“The company’s low-price approach aims to capture more market share and address the trend of consumption downgrades in China,” stated Daniel So, a trading strategist at Goldhorse Capital Management (HK) Ltd. However, he cautioned that if overall consumption remains weak, these new initiatives may not drive significant growth.
Challenges are emerging, as China’s faltering economy begins to affect even resilient companies like PDD Holdings Inc. Catering stocks have declined due to lackluster performance, and restaurant sales growth has slowed to its lowest rate since the pandemic, according to data from China’s National Bureau of Statistics.
With many restaurants struggling and consumer confidence waning, Barclays PLC analyst Jiong Shao predicts a deceleration in Meituan’s revenue growth. Shao, the sole analyst among 62 tracked by Bloomberg recommending a sell on the stock, forecasts a slowdown in sales growth to 16% in 2025, down from 21% this year.
Valuations may also pose a challenge, as Meituan shares are currently trading at a forward price-to-earnings ratio of 16 times—still higher than peers like PDD and Alibaba, which trade below 10 times expected earnings.
As investor sentiment shifts, Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management, notes that positioning in Meituan’s stock is becoming crowded. He points out growing concerns regarding its “macro-sensitive nature” and whether the current growth rate can be maintained in a deflationary environment.
