Meituan's Stock Soars from Worst to First, Investors Anticipate More

Meituan's Prospects Looking Up Amid Easing Competition

Meituan, a leading technology stock in China, has shown remarkable growth this year and may continue its upward trajectory due to reduced competition and improved profitability. Analysts project the company's shares could rise another 17% over the coming year, fueled by expectations for record earnings. Strategic cost reductions are bolstering Meituan's margins, and its overseas expansion, especially its success in Hong Kong, has been promising. Domestically, key competitors like ByteDance Ltd. and Alibaba Group Holdings Ltd. seem to have pulled back from aggressive attempts to capture market share.

Previously, fears of rival encroachment led to Meituan being the worst performer on the Hang Seng Tech Index last year. However, "there is a valuation re-rating going on for Meituan as investor sentiment keeps improving," according to analyst Julia Pan. She highlighted that the competition between Meituan and ByteDance's Douyin has become more rational, evidenced by reduced spending in the competitive warfare this year. Meituan's shares have surged over 90% from their late-January low, and sell-side analysts have increased their price targets for the stock by 24% since March, more than any other Hang Seng Tech peer.

Analysts now forecast Meituan to achieve all-time high profits in the next year, especially following strong first-quarter results. Meituan's bottom line has benefited from restructuring efforts, including closing some loss-making segments and a revival in merchant advertising. The competitive landscape has also become less challenging. "Alibaba’s focus on regaining its e-commerce foothold within China has temporarily slowed its pursuit of increasing market share in food delivery through Ele.me, one of Meituan’s main competitors," stated Catherine Lim, an analyst with Bloomberg Intelligence. This "more subdued" competitive environment has contributed to Meituan's shares outperforming.

Facing slower growth in its home market and ongoing competition threats, Meituan is expanding internationally. Earlier this year, KeeTa, an international version of Meituan’s core service, quickly became the second-largest food-delivery app in Hong Kong. The next target is Saudi Arabia’s capital, Riyadh, marking its first venture beyond Greater China. The company is cautiously implementing this strategy, rolling it out in phases and targeting specific districts.

Catherine Lim noted, "Compared to Alibaba and other consumer-centric internet companies like PDD Holdings Inc., which face local competitors and regulatory hurdles in their overseas expansions, Meituan seems less exposed to such uncertainties due to its conservative steps taken so far." This strategic approach may well shield Meituan from some of the risks faced by its peers in the international market.

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