Meituan (HK: 3690) might be falling prey to the problem we've seen with so many new economy stocks just recently in other markets. As we know, covid events and lockdowns in China have been rather out of step with those in other geographies. But it's not going to be hugely surprising if we see the same patterns even if at different times.
The problem for Meituan - or for opinions of Meituan, those opinions being what determines the Meituan share price - is that certain companies benefitted hugely from lockdown and the associated move to online sales. This would include food delivery companies of course. But then when lockdown ends we have seen - for many but not all - a fall back to pre-lockdown trends in the adoption of line shopping and food delivery. This has afflicted Deliveroo in European markets for example - a boom during lockdown then that falls away upon reopening. The simplest chart to show this that we know of is from the Office for National Statistics in the UK. Online was eating physical retail (which is not exactly the same as food delivery but it's a guide still) at a reliable rate, perhaps 1% of total retail sales a year. Then came lockdown and this leapt by possibly 15% percentage points of the entire market. But when reopening came that then fell back again. We're back to, around and about, the trend line carried forward and as if lockdown had never happened.
Internet sales as percentage of total retail sales from Office for National Statistics
Meituan share price from Hong Kong Stock Exchange
Some to many were thinking that the lockdown boom in online was a permanent, structural, change. As it turned out that permanent, structural change was indeed happening but at the same old rate, perhaps 1% of the market per year. The lockdown boom was a cyclical change which reverted upon reopening. The real problem came for those companies which geared up their cost base to deal with this supposedly now permanently larger market and then found out that it wasn't actually there.
Which then becomes the worry about Meituan. Yes, great, China had a later series of lockdowns than some other places so this latest report covers some such periods. But is that rise to Q4 profit about that cyclical boom? Or is it a structural change? Further, is Meituan's cost base right sized for whichever of these it turns out to be?
China is a different economy, at a rather different stage of retail market development. So it is possible that any lockdown surge will be permanent just because there aren't those earlier habits to displace. It could also be true that this is, as in Europe and the US, a cyclical surge that will fade. Thus the nervousness over the Meituan share price - we simply don't know yet.
