On August 29, Meituan performed well in the stock market, and its stock price rose all the way. As of the close of the day, Meituan's stock price rose by more than 12%, which increased the company's market value by HK$80.2 billion in a single day, and the total market value reached HK$719.8 billion. After the opening of the U.S. stock market, Meituan's ADR (American Depositary Receipt) also ushered in a sharp rise, with an increase of more than 5%.

Outstanding performance is the main driving force behind the surge in stock prices

On August 28, 2024, Meituan released its second-quarter performance report, and its performance exceeded market expectations and attracted widespread attention. According to the latest disclosed financial report data, Meituan achieved revenue of 82.3 billion yuan in the second quarter, a year-on-year increase of 21%, exceeding the market estimate of 80.4 billion yuan. Adjusted net profit reached 13.6 billion yuan, a year-on-year increase of 77.6%, also higher than the market estimate of 10.6 billion yuan.

The strong growth in performance is due to Meituan's record highs in both annual active users and merchants, as well as the remarkable achievement of 6.2 billion instant delivery orders. In addition, Meituan also announced a share repurchase plan to repurchase no more than $1 billion of Class B common stock in the open market, further enhancing market confidence.

At the operational level, Meituan's operating profit in the second quarter was 11.257 billion yuan, a year-on-year increase of 138.8%, and its operating profit margin increased to 13.7%, a significant increase from 6.9% in the same period last year. Core local business revenue was 60.682 billion yuan, a year-on-year increase of 18.5%, and its operating profit increased by 36.8% year-on-year to 15.233 billion yuan.

Instant delivery and commissions are Meituan's two core businesses, and their growth is mainly due to the increase in the number of transactions on the platform. In particular, the "Pinhaofan" business has a peak daily order volume of more than 8 million orders, and the number of instant delivery transactions for the entire quarter increased by 14.2% year-on-year to 6.167 billion. In terms of in-store hotel and travel business, benefiting from the arrival of the traditional consumption peak season, the order volume increased by more than 60% year-on-year, and the number of annual transaction users and annual active merchants both hit record highs. In the new business sector, Meituan's revenue in the second quarter reached 21.57 billion yuan, a year-on-year increase of 28.66%. In terms of losses, the losses of new businesses have been greatly reduced, with losses in the second quarter of 1.314 billion yuan, significantly lower than the same period last year and the first quarter of this year. This improvement is due to the company's active measures in improving product quality, strengthening supplier cooperation, improving operational efficiency, enhancing contract fulfillment capabilities, and optimizing marketing efficiency.

Meituan Stock Repurchase Plan

Meituan is vigorously repurchasing shares. On August 28, Meituan announced on the Hong Kong Stock Exchange that it would repurchase Class B common shares of the company from time to time in the open market for a total amount of no more than US$1 billion, and at the same time cancel the 115.84 million shares previously repurchased. This is the second repurchase plan after Meituan announced a US$1 billion and US$2 billion repurchase plan at the end of November 2023 and in June this year.

Meituan CEO Wang Xing said at the financial report performance meeting that Meituan's goal is to offset the dilution effect of employee equity incentives each year through stock repurchases. "This further reflects our confidence in business development and long-term stock value, and we will make timely adjustments according to the situation." Wang Xing said that Meituan's investment plan, cash flow, overseas cash reserves, debt repayment and other situations will be comprehensively considered to decide whether to expand the repurchase plan as needed, and maintain flexibility in future repurchase execution.

Meituan management said in a phone call after the financial report that the changing consumption trends have indeed brought different degrees of challenges to various industries, but consumers' demand for local business remains strong, and the potential for digital transformation of the local business industry is still huge, so they are confident in long-term growth.

Many institutions raised their target prices

After the latest financial report was released, many well-known investment banks and securities firms raised their target prices for Meituan.

Morgan Stanley pointed out in its research report that because Meituan's adjusted earnings in the second quarter exceeded expectations and management was optimistic about the company's prospects, especially the growth of new businesses and food delivery services, it raised Meituan's target price by 4% from HK$120 to HK$125, and upgraded its rating from "in line with the market" to "overweight". Morgan Stanley is also particularly optimistic about Meituan's potential relative to e-commerce stocks, raising its revenue and adjusted earnings forecasts for 2024-2025.

Goldman Sachs also raised Meituan's target price from HK$148 to HK$157 in its report and maintained a "buy" rating. Goldman Sachs believes that Meituan's earnings performance is better than expected, the competitive environment for store business has improved, and new business losses are also decreasing. Meituan's stock price is expected to respond positively to solid performance and prospects for recovery.

Jefferies maintained its "buy" rating on Meituan and raised its target price by 5.6% from HK$142 to HK$150. Jefferies believes that Meituan's order growth is strong, the number of users and active merchants has reached a new high, and local services have performed outstandingly. Jefferies raised its revenue and adjusted earnings forecasts for Meituan in 2024 and 2025.

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