Meituan Q1 2022 Revenue Slightly Beats Estimate but Heavy Losses Continue

We retain our HKD 165 fair value estimate for Meituan after first-quarter 2022 revenue beat our estimate by 3%, but the valuation impact was offset by continued heavy losses. Recently, we have seen investors place greater importance on profitability rather than growth for loss-making e-commerce platforms, which the company continues to do. While it reported slightly better-than-expected revenue, we do not believe this changes any visibility in our investment thesis for Meituan, which we are skeptical that it can eventually see profitability in its heavy loss-making new initiatives business. New initiatives' recurring operating loss widened to CNY 9.0 billion this quarter compared with a loss of CNY 8.0 billion in first-quarter 2021 and CNY 10.2 billion loss in the previous quarter—with its community group buying, or CGB, business, Select, losing CNY 6.0 billion compared with CNY 6.6 billion last quarter. Management guided for the segment to lose CNY 8 billion next quarter with CNY 5 billion from Select, and expects growth to decelerate to a 36%-38% increase year over year. This could imply that the original total addressable market outlook may be revised as Meituan tries to seek profitability by curbing unprofitable expansion.