The Motley Fool

Meituan Dianping’s Hidden Gem That Investors Should Know About

Meituan Dianping (SEHK: 3690) is a Chinese e-commerce platform for services in the country. The company’s offerings on its platform address customers’ daily needs for food, and extend further to broad lifestyle and travel services.

It’s famous for its black and yellow bikes, which can be seen in almost every city in China. In fact, it’s the most popular app that Chinese customers use to order their food on a daily basis.

Hence, investors will most likely associate Meituan with its food-related businesses and consider it to be the company’s crown jewel.

In reality, however, Meituan’s main profit driver is not its food business (at least not for now). So, what is the little-known profit driver for Meitaun? In-store, hotel & travel.

In-store, hotel & travel

This segment offers a wide range of services, including in-store dining, hotel and travel booking, beauty, wedding planning and a variety of other lifestyle services. In simple terms, customers can buy cinema tickets, book hotel accommodation and travel tickets, rate and review restaurants, make restaurant reservations, and more.

In other words, the company aims to be the Amazon of services, and is clearly moving in the right direction. And its numbers? Nothing short of remarkable!

Show me the money

Source: Meituan Dianping’s H1 2019 Financial Report

The above is a quick overview of the company’s latest financial performance. For convenience’s sake, I will focus on the financials for the period ended 30 June 2019.

To start with, this segment accounted for about 23% of Meituan’s revenue. Yet, its gross profit reached an amazing 66% of overall profits for the period. This is driven by its incredibly high margin of 88.6%, which is a result of the nature of its services offered through its asset-light business model.

Here, it means that the company has almost zero inventory, no physical production, storage or delivery, and minimal human cost. There are not many businesses in the world that operate at an 88.6% gross margin, which puts this business in the top quartile among all companies globally.

Conclusion

In all, Meituan is one of the more diverse e-commerce platforms in China offering investors access to a range of businesses. Yet, its most attractive business is not the biggest and most well-known food delivery business, but its in-store, hotel & travel business.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.