"Big Banks" JP Morgan: Alibaba's promotion of the Gaode street ranking is an important step in the "super app" strategy, expected to impact Meituan's "cash cow" in-store business

JP Morgan published a report stating that Alibaba-W (09988.HK) announced its return to offline physical store operations, and its mobile mapping application Amap officially launched the "Amap Street Ranking" in-app feature yesterday. This ranking is based on the real travel data of approximately 1 billion Amap users and combines its advantage of covering over 7 million restaurants and 13 million local service destinations nationwide, displaying real-time popularity rankings of popular destinations including restaurants, hotels, and attractions. In addition, Amap also announced a subsidy program called "Support for Good Stores," distributing over 1 billion RMB in subsidies to encourage offline consumption, covering transportation and in-store spending.

The bank indicated that Alibaba's transformation of the local life market in China may not pose an immediate profit risk to the existing leader Meituan-W (03690.HK), but this move is favorable for Alibaba's stock price from a market sentiment perspective, while it is expected to create pressure on Meituan, mainly because Alibaba has strong execution capabilities in the food delivery and instant delivery sectors. In the coming quarters, the market will focus on changes in Meituan's core local business profit margins to assess the actual impact of Alibaba's new business.

The bank believes that Alibaba's move is wise, as Meituan's in-store business essentially directs traffic to offline merchants and facilitates transactions, similar to Yelp, TripAdvisor, OpenTable, Groupon, and Google Maps in the United States. For Alibaba, the entry barrier to the in-store business is relatively low because: 1) Amap has over 100 million daily active users, providing a large flow of traffic; 2) Amap has already covered a large number of merchants; 3) Merchant coverage can be rapidly increased through third-party service providers, similar to Douyin's approach in 2022.

JP Morgan stated that the launch of the Amap Street Ranking is an important step in Alibaba's "super app" strategy. Amap is expected to become the main entry point for Alibaba's offline local services, running parallel to Taobao's online traffic entry. This move can also create synergies with Ele.me and Alipay, enhancing user stickiness and monetization capabilities, and may open up more offline consumption scenarios. However, the success of this plan hinges on technological capabilities and the cultivation of user habits.

The bank believes this is another impact on Meituan's "cash cow" business. Meituan's in-store business operating profit is expected to reach 18 billion RMB in 2024, while the takeaway business is expected to be 32 billion RMB, with the in-store business accounting for 35% and 42% of the core local business/group adjusted operating profit, making it an important "cash cow." With Alibaba entering the competition, the bank sees downside risks to its forecasts for Meituan's in-store business operating profits of 26 billion and 32 billion RMB for 2026 and 2027.

JP Morgan maintains an "Overweight" rating on Alibaba's H shares with a target price of HKD 165, based on a forecasted price-to-earnings ratio of 12 times for 2027