W48 - Meituan Q3 Earnings

This year I developed the habit of reading financial reports; I've reached the third-quarter reports.

Our current battle-loss ratio with the competitor is 1:2. At Q3's scale and intensity, unless the opponent raises their user engagement, even a very deep cash reserve won't last.

There are two core variables to raising user engagement: order density and high-value orders. The decisive point now lies with the latter, which depends on non-price-sensitive users' mindset and brand perception. Getting users to form a habit of ordering food delivery within a single e-commerce app—regardless of whether that's a rational need—even if you artificially force that mindset, it takes years, not months.

A respectable opponent (note the wording) is unlikely to give up after one quarter and simply return the market they've taken. Based on the signals we see now, preparing for a protracted battle is the most probable scenario.

China's retail sales total 50 trillion yuan; e-commerce penetration peaked in 2023 and fell to 25% this year. Whether the decline can be halted depends on next year. New players remain very competitive, so incumbent e-commerce firms are anxious. Instant retail grew at a compound rate of around 30% in recent years, but the industry's consensus forecast is only to exceed 2 trillion yuan by 2030. Multiplied by retail's thin margins, that yields a profit pool on the order of tens of billions. How much is invested now versus how much will be earned later defines the boundary of a prolonged contest.

The market won't short-term price in slow variables like mindset, brand, and experience, but it also hasn't priced in a worse outcome. If you study the financials closely, three years of competition is easily affordable; three years is enough for a competitor to iterate on perception and for the market to recognize defensive moats.

A protracted struggle has a clear phase theory. Divide the whole war into three phases: the enemy's strategic offensive and our strategic defense; the enemy's strategic consolidation and our preparation to counterattack; our strategic counterattack and the enemy's strategic withdrawal. Attempting a counterattack during the defensive phase is reckless; attempting it during the defensive phase is cautious.

I recommend a short book, The Underlying Logic of Mao's Selected Works: A Framework for Seeing the Essence, about 20,000 characters—practical big-picture reasoning. If you have time, read the original 1938 essay On Protracted War. Why protracted war? How do you dispel defeatism and quick-victory thinking? Compared with that era's context, today's complexities, uncertainties, and misfortunes are paper tigers.

Beyond competition, attention should be paid to AI and to straightforward retailers like Sam's Club and Costco.

On the notion of being 'straightforward,' I quote Munger's assessment of Buffett: 'Warren prefers things simple to the point of being boring. He is not trying to prove his IQ; he's trying to avoid mistakes. He never schemes, doesn't rely on gimmicks, and doesn't idolize models. He has even said publicly that if an investment requires advanced math to understand, he won't touch it. You might think that's modesty—it's not; it's strategy, because the market rewards over the long term not the smartest people, but those best at avoiding dumb mistakes.'