I would say it's certainly not the same opportunity as in 2022, when most people underestimated the operational leverage available to them and how quickly they could ramp up earnings. However, given the impressive growth, the current price seems inexpensive. Nonetheless, Chinese stocks, including PDD, are highly volatile. The potential ban of Temu or imposition of import tariffs, along with PDD's lack of transparency, keeps many investors at bay. Their aversion to uncertainty or suspicions of fraud within PDD are significant concerns. I think exploiting the volatility could be a wise strategy if one can acquire PDD shares at a low price.
Thanks I enjoyed reading your posts and local perspective . “but currently, there are other great opportunities out there that appear more attractive, especially after Meituan’s recent price run up. “
Agree. Would you mind sharing yours to compare against reader’s .
Navigating Towards Profitability: The Strategic Shift of Duoduo Grocery and Meituan Select
Abstract: In the fiercely competitive community group buying market, Duoduo Grocery and Meituan Select, the key remaining players, are refocusing their strategies from aggressive expansion to achieving profitability. This article examines their financial adjustments, strategic shifts, and the implications for the future of community group buying.
Introduction: After years of battling for market dominance through expansion, Duoduo Grocery and Meituan Select are making significant changes in their business models to pursue profitability. With both companies suffering from substantial operational losses, the emphasis has shifted towards reducing these losses and optimizing operational efficiency.
Financial Realignments: In a bid to improve their financial health, Meituan Select aims to cut its losses to between 10-12 billion yuan, a notable improvement from the previous year. Similarly, Duoduo Grocery is targeting a reduction in labor costs from 4 billion to 2 billion yuan alongside other expense cutbacks. These measures have resulted in Meituan Select's operating loss rate dropping to 10-15%, and Duoduo Grocery's to below 10%, positioning the latter closer to achieving profitability.
Strategic Shifts in Operational Focus: Despite setting ambitious transaction targets in 2023, both companies fell short, prompting a recalibration of their strategies. Accepting reduced order volumes, which saw a 10%-20% dip during the 2024 Spring Festival across various regions, Duoduo and Meituan are now prioritizing gross margin over order volume. This shift signifies a departure from their previous focus on delivery speed, product variety, and consumer experience, as cost reduction becomes paramount.
Operational Efficiency and Cost-Cutting Measures: The platforms have undertaken several initiatives to reduce operational costs, including closing or merging regional warehouses and lowering commission rates for various stakeholders. Duoduo Grocery has shifted its inventory strategy towards high-margin products, while Meituan Select is focusing on larger package sizes and high-margin daily chemical and general merchandise products.
The Evolution of Community Group Buying: Initially, community group buying attracted interest for its potential to manage inventory efficiently, reduce spoilage, and lower logistics costs. However, as the sector evolves, dominated by Duoduo Grocery, Meituan Select, and Xingsheng Select, there is a clear pivot towards selling higher-margin products to achieve profitability. This shift, while necessary for financial health, may impact the platforms' competitive edge in product diversity and pricing.
Conclusion: The strategic realignment of Duoduo Grocery and Meituan Select towards profitability marks a significant turn in the community group buying sector. By focusing on operational efficiency and cost reduction, these platforms are preparing for a sustainable future. However, this focus on profitability may lead to changes in their market positioning and competitive dynamics, signaling a new phase in the evolution of community group buying.
Very insightful, came across this while trying to build my expectations of Meituan's Q1 earnings coming up. I suspect there are no surprises in the earnings themselves, but would in interesting to see if the full year guidance improves, given the success of Keeta in HK and expansion plans for Saudi. Any thoughts ?
When you look at the earnings, Meituan have performed well consistently, except for Meituan select. Recently, the narrative shifted from ByteDance completely killing them to a more rational perspective. It’s similar to the brief period when everyone thought OpenAI would completely kill Google.
I appreciate the development in Hong Kong; however, I’m unsure if it will significantly impact earnings since they still only operate in part of the city. Regarding the expansion in Saudi Arabia, the timing and extent of its contribution are still unclear, but it does look promising.
Thanks for the great summary of PDD earnings and business model. Given current price and mutliples, do you think it is fairly valued?
I would say it's certainly not the same opportunity as in 2022, when most people underestimated the operational leverage available to them and how quickly they could ramp up earnings. However, given the impressive growth, the current price seems inexpensive. Nonetheless, Chinese stocks, including PDD, are highly volatile. The potential ban of Temu or imposition of import tariffs, along with PDD's lack of transparency, keeps many investors at bay. Their aversion to uncertainty or suspicions of fraud within PDD are significant concerns. I think exploiting the volatility could be a wise strategy if one can acquire PDD shares at a low price.
Thanks I enjoyed reading your posts and local perspective . “but currently, there are other great opportunities out there that appear more attractive, especially after Meituan’s recent price run up. “
Agree. Would you mind sharing yours to compare against reader’s .
Sure will do. I am writing at the moment on some other ideas and will publish the write ups once I am done.
The is a very recent Latepost article https://mp.weixin.qq.com/s/dN_6I5I1GIlj1T7VpBIbiw on the CGB subject worth reading. As a bonus I add my personal summary here in case someone is interested.
Navigating Towards Profitability: The Strategic Shift of Duoduo Grocery and Meituan Select
Abstract: In the fiercely competitive community group buying market, Duoduo Grocery and Meituan Select, the key remaining players, are refocusing their strategies from aggressive expansion to achieving profitability. This article examines their financial adjustments, strategic shifts, and the implications for the future of community group buying.
Introduction: After years of battling for market dominance through expansion, Duoduo Grocery and Meituan Select are making significant changes in their business models to pursue profitability. With both companies suffering from substantial operational losses, the emphasis has shifted towards reducing these losses and optimizing operational efficiency.
Financial Realignments: In a bid to improve their financial health, Meituan Select aims to cut its losses to between 10-12 billion yuan, a notable improvement from the previous year. Similarly, Duoduo Grocery is targeting a reduction in labor costs from 4 billion to 2 billion yuan alongside other expense cutbacks. These measures have resulted in Meituan Select's operating loss rate dropping to 10-15%, and Duoduo Grocery's to below 10%, positioning the latter closer to achieving profitability.
Strategic Shifts in Operational Focus: Despite setting ambitious transaction targets in 2023, both companies fell short, prompting a recalibration of their strategies. Accepting reduced order volumes, which saw a 10%-20% dip during the 2024 Spring Festival across various regions, Duoduo and Meituan are now prioritizing gross margin over order volume. This shift signifies a departure from their previous focus on delivery speed, product variety, and consumer experience, as cost reduction becomes paramount.
Operational Efficiency and Cost-Cutting Measures: The platforms have undertaken several initiatives to reduce operational costs, including closing or merging regional warehouses and lowering commission rates for various stakeholders. Duoduo Grocery has shifted its inventory strategy towards high-margin products, while Meituan Select is focusing on larger package sizes and high-margin daily chemical and general merchandise products.
The Evolution of Community Group Buying: Initially, community group buying attracted interest for its potential to manage inventory efficiently, reduce spoilage, and lower logistics costs. However, as the sector evolves, dominated by Duoduo Grocery, Meituan Select, and Xingsheng Select, there is a clear pivot towards selling higher-margin products to achieve profitability. This shift, while necessary for financial health, may impact the platforms' competitive edge in product diversity and pricing.
Conclusion: The strategic realignment of Duoduo Grocery and Meituan Select towards profitability marks a significant turn in the community group buying sector. By focusing on operational efficiency and cost reduction, these platforms are preparing for a sustainable future. However, this focus on profitability may lead to changes in their market positioning and competitive dynamics, signaling a new phase in the evolution of community group buying.
Very insightful, came across this while trying to build my expectations of Meituan's Q1 earnings coming up. I suspect there are no surprises in the earnings themselves, but would in interesting to see if the full year guidance improves, given the success of Keeta in HK and expansion plans for Saudi. Any thoughts ?
When you look at the earnings, Meituan have performed well consistently, except for Meituan select. Recently, the narrative shifted from ByteDance completely killing them to a more rational perspective. It’s similar to the brief period when everyone thought OpenAI would completely kill Google.
Thanks makes sense.
I appreciate the development in Hong Kong; however, I’m unsure if it will significantly impact earnings since they still only operate in part of the city. Regarding the expansion in Saudi Arabia, the timing and extent of its contribution are still unclear, but it does look promising.
Absolutely loved it. Throughly enjoyed your write up. Thanks a lot.. appreciable.