Meituan Dianping Ord Cl B

Thank you for standing by and welcome to the May Twan first quarter 2023 earnings conference call. All participants will be in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets.

Thank you, operator. Good evening and good morning, everyone. Welcome to our first quarter 2023 earnings call. Joining us today, I'm Mr. Hsing Wang, Chairman and CEO, and Mr. Xiao Hui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our first quarter 2023 results and then conduct a Q&A session. Before we start, we would like to remind you that our plantation contains forward-looking statements, which include a number of risks and uncertainties, and may differ from the actual results in the future. This plantation also contains an audit of the IFI's financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFI. For a detailed discussion of use factors and non-IFIS measures, please refer to the disclosure documents in the IR section of our website. Now, I will turn the call over to Mr. Xin Wang. Please go ahead, Xin.

Thank you, Carly. Good evening, everyone. Since the beginning of 2023, China has experienced gradual consumption recovery. We are glad to see that the recovery of local services has been outpacing many other sectors, particularly . At the retail technology platform that deeply rooted in the on-demand retail and local services, MedVan has captured consumers' diverse demand for goods and services during the consumption recovery, with the various businesses posting healthy growth For the first quarter of 2023, our total revenues reached 26.7% year-over-year, remaining $58.6 billion. Adjusted EBITDA is remaining $6.3 billion. Adjusted net profit is remaining $5.5 billion. Essentially, home demand delivery has become increasingly popular among consumers. covering not only restaurant food, but also broader retail categories. We have continued to expand our categories and selections to deliver almost everything to the consumer's doorstep. Moreover, we have explored and developed diversified operating solutions and marketing tools that allow millions of merchants in local services to see the post-pandemic recovery of facilities. increase their revenue, and improve their operating efficiency. We are firmly committed to creating more value for all the participants in our ecosystem. And we will continue to fulfill our mission to help people eat better, live better. Now let me walk you through each business in more detail. The food delivery business has continued to recover since the beginning of this year. During the first quarter, we committed to helping new merchants start their businesses and empowering all merchants to improve online operations. We incentivized all the growth by better understanding the diverse consumer demand, dynamically iterating our operational strategies, and providing consumers with better products and services. We believe that food delivery is not simply moving in-store dining supply online and providing for food and services, but there is restructuring of restaurant and product supplies to match and create consumer demand. In the first quarter, the number of active merchants and transaction users for our platform continues to grow steadily for our food delivery business. On the supply side, we further expanded our high-quality merchant base to enlarge high-quality supply on our platform. During the quarter, the number of newly-comported city key account merchants increased year over year. We supported chain restaurants in their new store openings and existing store upgrades. Meanwhile, at the end of March, we piloted a brand-new promotional event called Shen Qiangshou for merchants in Shenzhen and later expanded to Beijing in May. Shen Qiangshou is a promotional event that integrates live streaming, show phone videos, and other formats to sell discounted high quality products. In April, we also upgraded our monthly marketing campaign, Shen Quanjian. In these events, merchants could offer discounted deals through flash sales, live streaming, or short-form video to promote low-price, high-quality dishes. These events helped merchants market their mega-hit products and enhance their growth potential in combination with our existing shelf-based model. On the demand side, as the food delivery industry experienced a rapid recovery, we strictly adjusted our marketing strategy and user incentive schemes to allow the regional recovery pace and holiday demands. This resulted in notable order volume growth in travel scenarios and need to hire AOV orders in the first quarter. Moreover, we continued to explore traffic growth and stimulate non-existent demand, incentivize consumers to stockpile attractive coupons in our live streaming events. Meitan Instant Shopping maintained its high growth momentum during the first quarter. We reinforced the consumer mind-share of Meitan, being able to deliver almost everything to their boss staff. Driven by growth in both use case and transaction frequency, Meizan Instant Shopping order volume increased by about 35% year-over-year in the first quarter. Leveraging the various marketing events, we further expanded the quality and diversity of the supply on our platform. Annual active merchants on Meizan Instant Shopping increased by over 30% year-over-year, with known groups and specialty stores, liquor, beverage, and flowers, maintaining high growth. We also further expanded the coverage of Meituan's Instamart, Meituan Shandianchang, and all the mix from Meituan Instamart continued to grow. We are delighted to see the consumption categories and scenarios continue to rise. During our Chinese New Year Shopping Festival, Nianhuojie, More and more consumers chose on-demand delivery for purchasing holiday gifts for friends and families. Categories such as liquid, beverage, fruits, seafood, dairy products, and small appliances were quite popular among consumers. Ahead of Valentine's Day and Women's Day, demand for categories such as flowers, beauty and personal care products, electronics, and home appliances, etc. In addition, we strengthened the consumer mindset for consulting doctors and buying medicines on May 10. During the Chinese New Year, we offered incentives and traffic support for pharmacies that stay open for business, while providing free online consultation service for people in certain regions. We also promoted our online consultation services for seasonal epidemic diseases, driving high growth in order volume and consumer base in a medicine category this quarter. As demand restored, offline consumption and travel activities have gradually recovered since the beginning of the year. with particularly robust growth during the Chinese New Year. Merchants' willingness to hold online promotions recovered very rapidly, so as consumers demand to find local stores and discount. We proactively captured the offline consumption demand recovery, collaborating with the local governments and merchants to stimulate demand for local services and satisfy consumers' diverse needs. In the first quarter, GTV of the in-store hotel and travel business increased by more than 52% year-over-year, with year-over-year GTV growth in March exceeding 100%. Merchants' willingness to open new stores has gradually picked up, and the number of annual active merchants reached a new high. For the in-store business, both GDP and revenue growth accelerated month by month. We captured the consumption demand for group gatherings and family meals during the Chinese New Year holiday, and launched pre-set in-store menus, packaged meals, and more. We helped millions of merchants across services categories, including catering, karaoke, castles, and packed ads, open for Chinese New Year. As we continue to expand our merchant supply, we also enriched our marketing and content format, created our product operating strategy, and optimized the service capability of our business development team. We improved our merchant service quality, and we have synergies across different business lines, and provided merchants with more promotional channels. For example, leveraging holiday promotion, we launched a comprehensive platform live streaming program to incentivize participants' participation from many high quality merchants. to provide consumers with discounted high-quality products. To cope with the evolving consumption trends, we supported small and medium-sized merchants with a feature characteristic that mixed creative ideas with traditional culture, such as flower arrangements, tea houses, magic clubs, to operate online and standardize their services. On the consumer side, we continue to strengthen our content capability and integrate show-home video content. Through pilot programs such as special views that are on-go, we provided the merchants with new marketing tools to promote mega-hit products through flash sales, while offering the consumer higher quality services at deeper discounts. and strengthen the consumption of consumer mindshare for finding the best use on Medline. In future, leveraging our competitive advantage in organizational capability, consumer mindshare, and merchant service, we will further iterate our operations and diversify our products and service offerings for both merchants and consumers, and ultimately guide online penetration of the in-store industry. Demand for travel recovered strongly during the first quarter. Very significant growth in both hotel room nights and GTB. During Chinese New Year holiday, year-over-year room night growth versus 2022 and 2021 both exceeded 40%. As the weather become warmer during the Chinese New Year, Local accommodations and short-distance travel scenarios continue to recover and peak for several consecutive weekends. We closely followed consumption trends, enriched our product mix, and leveraged holiday promotions to enhance brand awareness. We seized the post-pandemic industry recovery opportunity and adopted various new marketing tactics including an optimized subsidy strategy and increase in live streaming frequency. In the HyStar Hotel branch, we expanded the supply, optimized our pricing mechanism, improved the merchant information available on our platform, explored in-depth collaboration with HyStar-trained hotels. We also optimized our package-to-use products, and enhanced distribution channels. In addition, we further diversified our HotelPlusX product offerings and onboarded high-star hotel restaurants on our food delivery platforms. As a result, room-line contributions from high-star hotels reached 19% in the first quarter, to a record high. In addition, we launched the outbound hotel and travel sales event and worked with Hong Kong authorities to distribute travel consumption coupons to mainland visitors. On the Low Star front, we continue to optimize our room renovation program and further develop our CRM tools and marketing solutions. These tools have helped the merchant enhance their pricing mechanism to better match market demands. allowing them to capture the industry recovery opportunity and satisfy diverse consumer needs. On the alternative meditation site, we continued to focus on user experience, operating efficiency, and growth in supply. Our strong performance in the first quarter demonstrated our ability to capture the industry recovery and meet the diverse accommodation needs of consumers. We are continuing to optimize our operating efficiency. Now, moving on to our new initiatives. We continue to improve operation efficiency. We continue to optimize our pricing and problem management capability while maintaining high quality standards. we provided consumers with a wider, more diverse selection of price-for-value products through our nationwide next-day logistics and self-pickup network that covers cities, counties, and vast rural areas. At the end of March, the accumulated number of transaction users had reached 450 million, with consumer habits further cultivated. In addition, we actively promoted the circulation of agricultural products and helped the farmer increase their income. During the first quarter, agricultural products accounted for more than 40% of the total sales for MediSelect. We established partnerships with many local governments and suppliers in the product space of origin. and expanded our efforts in the direct procurement of high-quality agricultural products. The centralized procurement of fresh fruits and vegetables accounted for more than 20% of total sales, with some categories even exceeding 50%. Our initiatives have helped us bring high-quality products directly from farms to consumers' dining tables. Our engagement in rural areas also allow us to offer more employment opportunities locally, with the number of pickup stations in lower-tier city markets now exceeding 1.3 million. Another business, Meituan Maicai, Meituan Grocery, recorded over 50% year-over-year GDP growth in the first quarter and continued to lead the growth of the industry. During the quarter, we continued to focus on controlling costs and improving efficiency and achieved a notable year-over-year enhancement in operational efficiency. Thanks to our digitized system, co-trained logistics, and all-demand delivery capability, we accelerated our product circulation efficiency and elevated the consumer experience which were purchased yesterday and shipped today. In addition, the increase in SKU offerings and improved delivery experience also strengthened our optimal mindshare. AOV and order frequency also increased compared to the same quarter last year. We continue to deepen our partnership with government authorities and farmers in the product space of origin, offering more seasonal locally-sourced and selected products . This effectively diversified our platform supply and helped farmers increase their income. We also established impact collaboration with brands and launched a joint branding program in selected categories to match our differentiated and customized marketing campaigns, helping brands increase sales. As the macroeconomy recovers further through the rest of 2023, we will continue to incentivize consumption recovery and increase demand by optimizing our products, content offerings, and fulfillment network. We will continue to enrich our marketing tools to better meet merchants' diverse needs and increase their revenue and profits. We will actively support merchants in expanding their service coverage, facilitating new store openings, and enabling the vast number of small and medium-sized merchants to benefit from online operations, especially as a company that integrates retail and technology. We firmly believe that technology will bring new advancements and growth opportunities to retail in the long run. We will increase our investment in technology and communications and actively explore the implementation of cutting-edge solutions. Whether this will be AI, autonomous delivery, or something else, we seek to capture the tech-enabled industry growth In the meantime, we remain committed to our mission to help people eat better, get better. With that, I will turn the call over to Shaohui for an update on financial results. Hello, everyone. I will now go through our first quarter financial results. During this quarter, total revenue increased by 26.7% year-over-year to RMB 58.6 billion, boosted by strong local consumption recovery post-reopening and our effective marketing measures. Cost of revenue ratio decreased on both year-over-year and quarter-over-quarter basis to 66.2%, primarily due to the improved gross margin of our food delivery, make-one-instant shopping, and goods retail business. Selling and marketing expenses ratio R&D expenses ratio and the G&A expenses ratio all remain flat sequentially, but decreased on a year-over-year basis to 17.8%, 8.6%, and 3.4%, respectively, primarily benefiting from improved operating leverage. Driven by our focus on high-quality growth and improving operating efficiency, Total segment operating profit and operating margin increased remarkably to RMB 4.4 billion and 7.5% respectively, compared to operating loss on the operating margin of RMB 3.7 billion and a negative 8.1% for the same period of 2022. On a consolidated basis, Our adjusted EBITDA and adjusted net profit were RMB $6.3 billion and $5.5 million for this quarter, turning from loss to profit on a year-to-year basis and further increasing on a sequential basis. Turning to our cash position, As of March 31, 2023, we continue to maintain a strong net cash position, with our cash and cash equivalent in short-term treasury investments totaling RMB 111.4 billion. Cash from operating activities in the first quarter improved significantly to RMB 8.1 billion, compared to cash outflow of RMB 11.3 billion in the same period of 2022. Now let's look at our segment results, starting with Core Local Common. Our Core Local Common segment revenue increased by 25.5% year-over-year to RMB 42.9 billion. Operating profit increased by 100.7% on year-over-year basis to RMB 9.4 billion. Operating margin for the segment increased by over 8 percentage points year-over-year to 22%. Demand delivery achieved 14.9% year-over-year order volume growth this quarter. For food delivery, the overall performance of order volume growth in the first two months of the year was negatively impacted by the home returning effect of Chinese New Year. During the first two months of 2022, consumer demand for food delivery and merchants' willingness to operate during the holiday season was quite high due to the state food policy as a result of pandemic control. In contrast, this year many people, including delivery riders, returned to their hometowns earlier following December's reopening. In addition, many merchants were not open for business during the holiday season this year. However, we have seen rapid recovery in order volume starting in early February, which further accelerated to over 20% on a year-over-year basis in March. With regards to food delivery revenue, Year-over-year growth far outpaced order volume growth due to high-end supply recover faster than low-end supply during the quarter. In addition, dealers were more willing to pay for premium, large ticket size, and long-distance orders during the Chinese New Year. The favorable order mix drove the year-over-year increase in commission and delivery service revenues. Occurring profit and operating margin for our food delivery business both increased Meaningfully, on a year-over-year basis, primarily thanks to the business scale recovery, several of the orders made changes and abundant courier supplies. Tending to make financial changes, order volume growth in January was also affected by the home returning effect. However, as work resumed after the Chinese New Year, Consumer demand also recovered, with order volume increasing rapidly, starting in early February and returning to its high growth trajectory in March. Daily average order volume for Meituan has been shocking, accounting for around 11.1% of our total on-demand delivery orders during the first quarter. Average order value continues to increase year-over-year because of heightened consumption demand for COVID and flu-related medicines, as well as increasing demand for high-tech-sized non-essential products such as 3C electronics. Business unit economics improved significantly year-over-year. Thanks to an increased order volume contribution from higher margin of goods, such as flowers, improved economic scale, efficiency, and higher AOV, the improved EUE also driven by a rapid growth of online marketing revenue, primarily contributed by the expansion of online marketing merchant space and merchant increased output. Let's now turn to our in-store hotel and travel business. which achieved strong revenue growth on both year-over-year and quarter-over-quarter basis. On the one hand, the benefits from strong demand recovery for local service consumption and travel, the strong GTV growth for in-stock travel and hotels, those will mask year-over-year and quarter-over-quarter growth in our transaction revenue this quarter. The revenue growth rate for hotel and travel was particularly significant, anything from a faster rebound in the scale of room night and an increase in ABR. On the other hand, we see also the willingness of merchants to hold online promotion is gradually recovering. However, revenue growth was slower than GDP growth, which was mainly caused by the following factors. First, we strategically lower the threshold of our subscription-based services for selective service categories in lower tier cities to encourage more merchants to own our platform. Second, the regular renting or hotel booking has boosted GTV's growth by contributing to a smaller portion of ad revenue. Third, merchants' willingness to spend on advertising needs more time to recover. Offering profit margin for our extra hotel and travel business increased on both a year-over-year and on a quarter-over-quarter basis, thanks to the increased operating leverage due to business scale recovery. This was partially offset at a higher revenue contribution from lower margin hotel booking and travel business, and increases in our traffic acquisition expenses and margin rebate. Let's now turn to our main initiative segment. During the quarter, revenue in this segment increased by 30.1% year-over-year to RMB $15.7 billion, mainly due to the development of our goods retail business. The segment operating loss further narrowed down to RMB $5 billion from $6.4 billion in the fourth quarter of last year. From a client select, the continued operating efficiency improvement led to the decrease in operating loss and operating loss margin on a sequential basis. Most effectively, fulfillment costs reduced thanks to more smart warehousing efforts and refined operations. Group leader efficiency improved attributable to better stock management. Fact 10, expenses as a percentage of GDP also went down. From a time glossary, operating laws continue to narrow on a sequential basis. thanks to better obtaining efficiency. Meanwhile, we also continue to improve obtaining efficiency and cut losses for other new initiatives. In summary, we are pleased to see that our core local commerce segment recovers fast and delivers strong growth riding on the recovery of local consumption. Both our adjusted EBITDA and adjusted net income achieved a remarkable growth, and both operating cash flow and free cash flow increased significantly. We expect this recovery of China's economy to drive strong growth in our core business in the next few quarters. Our business matrix covers a wide range of categories and price bands, helping us meet different consumer needs across different stages of consumption recovery. The frequency of our users has increased over the past years and still has huge potential to grow. Overall, we will remain confident in the enormous growth potential for our core local comms segment. Meanwhile, we will continue to narrow the operating loss of our new initiative and improve operating efficiency. With that, we are now open for Q&A.

We will now begin the question and answer session. If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speaker phone, please pick up the handset to ask your question. We will pause momentarily to assemble the roster. Your first question today comes from Ronald Kung with Goldman Sachs. Please go ahead.

Thank you. Thank you, Xin Ge, Xiaohui, and Scarlett. So we recently noticed that Meituan's food delivery and in-store businesses launched some new marketing formats. These include live streaming, show phone videos, and some special deal sessions. Could you share the progress of these attempts and initiatives and future plans? Thank you.

Okay. Thank you. So the short answer is that we are just getting started. And the longer answer is we started to pilot a new marketing format for both delivery and install hotel and travel business since a few months ago. We launched live streaming, show phone videos, flash sales that direct user traffic to the products that the merchants want to promote, helping merchants create mega-kit products. Our existing shelf-based model provides merchants with regular marketing and transaction booths. Our new mega-hit product promotion, Apple Pizza, is an important supplement to satisfy merchants' comprehensive marketing needs. In March, we launched a promotional event for the food delivery business for the Shenzhen Council. and later extended it to Beijing in May. Going forward, we will introduce this event to more regions. ShenQianZhou is a promotion event that integrates a live streaming, show phone video, and other formats to sell discounted high quality products. On April 18th, we fully upgraded our monthly marketing campaign, ShenQuanJie, and used the live streaming to help high-quality merchant-created marketing products. And on April 18th, the event day, we witnessed 50% year-over-year growth in food delivery order volume and 75% year-over-year growth in daily active users and then over 30% week-over-week growth in the GTV or on top of T-Account merchants who participated in the events. All the growth from categories such as tea, coffee, former meals, were quite impressive. For May, the agents, merchants who participated in the events, once again, achieved notable growth, with the categories expanding to non-food. we will continue to provide merchants with larger traffic and more visually-appealing marketing tools through this magnetic product at all times. We will also better serve consumers' needs for both instant consumption and stockpiling. Consumers can stockpile coupons and bills in advance and then separately place orders in multiple times. This will encourage consumers to open our mainline app more frequently, even during non-meal time, and incentivize food delivery demand under non-incident scenarios. We have also noticed that when consumers validate coupons online, they tend to add more products to their checkout, thereby driving sales growth for other shell-based products and the overall output We will further focus on content creation and live streaming to stimulate consumer demand for both instant consumption and stock padding. We believe the mega-heat products and shelf-based product formats reinforce each other and have great synergies with 4D Degree. This will open up more long-term growth potential for 4D Degree. And also, we introduced the special deals for the Jatang Go session for in-store hotel and travel at the end of March, expanded across the country in April. We partnered with national and regional chain merchants and city-level high-quality merchants across various categories to provide consumers with high-quality supply. By directing more traffic to these dedicated products, we helped merchants further increase sales We also help strengthen consumer mindshare of finding the best dues on Meituan. On April the 27th, we started a Meituan Group by Meituan Changzhou live streaming campaign. In this campaign, we offered discounted coupon for in-store dining categories such as hot pot, tea, and parfait. We also worked with theme parks, hotels, travel agencies, and other in-store service merchants to provide the consumers with a wide range of high-quality selections. Our visually appealing recommendations have reduced barriers in consumers' decision-making process and provided them with diverse choices.

Specifically,

during the Labor Day live streaming event. Sales of a single product from Mijie Dingzhen and Lucky Coffee Racing Cafe broke 1.5 million cups. In the future, we will continue to optimize special deals, and other marketing campaigns, extend the platform live streaming, the merchant live streaming, and KOL live streaming. We will also use the content to empower market-headed product promotions, improve our merchant and deal recommendation capabilities, to better satisfy consumer demands. Meanwhile, we will enhance synergies with our food delivery business by offering more coupons that can be used for both in-store consumption and food delivery. And this will become more convenient and user-friendly to our consumers. Thank you.

Thank you, Shingo.

The next question comes from Thomas Chong with Jesse. Please go ahead.

Hi, good evening. Thanks, management, for taking my questions. I have a question on the food delivery side. Can management please walk us through the recent performance of the business, including the order volume recovery and the growth? And how should we think about the order volume and the unique economics for the second quarter? Thank you.

Thank you, Thomas, for the question. We see strong growth on food delivery since March. The March order volume growth exceeds 20% year-over-year. And in April, we see the daily order volume growth continue to rise on a monthly basis. Thanks to the economy recovery and our continued support in merchants' online operations and new store openings, we actually saw 25% year-over-year growth in new store openings in April. Trend restaurants and high-quality merchants were quicker to react to the consumption recovery and rent out their supply. Small and medium-sized merchants also started to catch up in terms of new store openings. Therefore, supply recovery is strong across all price bands, To further incentivize demand, we offer subsidies in certain scenarios and time periods in selected cities. For example, we subsidize late-night snack orders and cross-city orders, especially in popular tourist cities during holidays. We further stimulate consumption through live streaming and other formats, which has brought up additional traffic and order volume growth. Since April, demand from lower tier cities, low frequency users, and low AOV orders continue to recover as well. Overall, we believe that food delivery will achieve high order volume growth on the year-to-year basis in the second quarter. And we also continue to believe that food delivery will benefit from the overall economy recovery, and we continue to believe 100 million transition orders target remain our new long-term goal. On the unit economic side, starting from second quarter, we have extended our marketing efforts. We increased user acceptance during some marketing events, such as Shen Xiang Shou and Shen Quan Jie, to incentivize consumption and help merchants sell active products. In addition, as I mentioned, demand for low-ALV orders continues to rise, so we are going to direct marketing resources to this area. Although capacity will increase compared to the same period last year, the order volume growth will bring economy of scale on the cost structure. From a seasonality perspective, usually second quarter has left back in economics thanks to favorable weather, and we expect the core resupply will continue to be favorable in Q2. All these factors, I just mentioned, will help offset the increase in subsidy. Overall, we will continue to invest to incentivize consumption demand while focusing on high-quality growth and operating efficiency. Thank you.

Thank you. The next question comes from Gary Yu with Morgan Stanley. Please go ahead.

Hi, thank you, management, for the opportunity. I have one question related to the in-store business. Could you please share some color on the latest recovery and growth trend for the in-store hotel and travel business? And a related question to that is, to confront competition, what measures has the management taken since the first quarter, and what are the results and performance so far? And based on the current strategy, how should we think about the growth and operating margin for the in-store segment in Q2? Thank you. Thank you, Gary, for your question.

Local consumption in China continues to recover. Our instant hotel travel business also benefits from this strong demand and maintains robust growth on a year-to-year basis, especially during Qingming and Labor Day holidays. April GDP of instant hotel travel continues to grow rapidly on both year-to-year and month-to-month basis, reaching three times the scale of last April. During the recent Labor Day holidays, GTB of our NTDOT hotel and travel business also increased by over 200% compared to the same period in 2022. During the recent offline consumption recovery, we continue to take proactive measures to solidify our competitive advantages. For example, we optimize and enrich our product format and improve the service quality for both merchants and consumers. We customize our online marketing solutions based on 50 tiers and service categories. We lower the threshold of subscription-based services for certain service categories and lower tier cities, and simplify the merchant onboarding process. We encourage more merchants to onboard our platform and to use our online marketing services and help us improve online penetration in lower tier cities. In addition, we refined and stratified our operation based on merchant tiers, launched a new merchant incentive scheme, and leveraged offline BD teams to provide better services and to deepen our partnership with the key merchants. As we mentioned earlier, we launched promotions such as special deal and live streaming events in the second quarter. It's an opportunity for merchants to create and promote max-hit products. It satisfies consumer demand to stockpile coupons and incentivize consumption through recommendations. It further solidifies our leading position, and we will continue to enhance video content, improve our user review scheme, and optimize our LBS-based recommendations. We also actively explore new traffic acquisition channels. For example, we work with third-party platforms and broaden our distribution channels, such as WeChat and short-form media platforms. We expand our efforts in offline marketing and join trend in promotions. Looking ahead to the second quarter, we will continue to ride on the consumption recovery train, accelerate our operational and marketing strategies, and solidify our advantages. Especially, we will further expand the supply of high-quality, share-based products while strengthening our capability to promote max-hit products through special deals and live streaming. We will focus on expanding and maintaining our merchant base and allocate more resources to our merchant-centric program. we will stimulate consumer non-instant demand using more video content and more speed to cut deals and enhance consumer mindshare of finding the best deals on the internet. Starting from the second quarter, we will roll out these strategies for other regions to accelerate GTV growth. The increased emerging and consumer incentives will counter revenue. So revenue growth will be lower than GTV growth. And the more marketing advances will further impact our operating margin. We believe that these investments for the long-term growth of the business is necessary. These investments will not only help us improve in the product, topic, and content format, but also accelerate online penetration and further solidify our leading position in the local service industry. We remain confident in the long-term growth and the long-term operating margin of our in-store hotel and travel business. Thank you.

Thank you.

The next question comes from Yang Bei with CICC. Please go ahead.

Thank you, management, for taking my question. My question is about the hotel and the travel. Can you please share more details on the performance of the hotel and the travel business in Q1 and its recent recovery? I noticed some recent news that our hotel bookings increased notably during this year's Labor Day holiday versus 2019. How should we think about its growth in the second quarter, and what are the key targets and strategies for this business this year? Thank you, Baiyang, for your attention on hotel business. Since the beginning of this year, we have actively captured the industry recovery opportunity and implemented various measures in both merchant and consumer sides to drive the growth. We closely follow the recent recovery trend and continue to strengthen our product and service capability to meet the diverse needs from consumers. We launch promotional campaigns and live streaming events, leverage holidays and special things such as Chinese New Year, Valentina Day, and Spring Outing to incentivize, demand, and stimulate consumer booking. We further enhance the synergy between accommodation and other business through our Hotel Plus X program. We also strengthen our search and recommendation functions to help consumers We are happy to see that consumer mindshare and our brand awareness was further elevated. In the high-stack domain, we continue to expand, apply, and optimize the pricing strategy. We actually promoted joint marketing events and joint membership programs with major hotel brands. We provided comprehensive marketing solutions for high-stack hotel merchants and helped a few brands with satisfaction store operations. Our marketing solutions cover broad operating aspects, including branding, catering, membership programs, holiday promotions, and more. By March end, we have signed Hotel Plus X partnership agreements with over 140 hotel brands and onboarded more package deals on our platform. We also worked with travel agencies to launch featured package tours to capture marketing opportunities. In addition, we captured a growing outbound travel market and launched special campaigns to drive the growth in this domain. We also improved our operating capabilities in corporate travel. As a result, March hotel bookings from corporate clients increased by over 150% year-over-year. In April, year-over-year growth of Route 9 and GTV exceeded 130% and 270%, respectively. and zero-lingual Labor Day holiday, average daily room nights increased by close to 180% versus same period of 2022 and increased by more than 60% against the pre-pandemic level in 2019. Daily room nights also broke record high Looking forward to Q2 and the second half of 2023, growth will remain as our top priority. We expect the year-over-year growth of room nights in Q2 to further accelerate from the Q1 level. As the industry further recovers, we will continue to optimize our existing share-based model and also enhance our capability to create max-hit products through marketing campaigns and business acceleration. We will continue to penetrate high-quality consumers and further optimize our product and pricing mechanism. Additional, we will continue to diversify our hotel plus X product offering in the high-class domain, actively capture the growth potential in the corporate travel and out-of-travel areas, explore new opportunities in these areas, industry value chain and drive the digital transformation of the hotel and travel industry. Thank you. Thank you.

The next question comes from Alex Yao with JP Morgan. Please go ahead.

Good evening, management team. Thank you for taking my question. It looks like the transaction users have picked out in late last year Now that you guys have continued to disclose annual transacting user anymore, it would be great to hear management view on how we plan to further grow users and improve user retention. Thank you.

Thank you, Alex. I'm glad you raised a question on our user growth. In 2022, both demand and supply of the local service industry were negatively impacted by the pandemic. In response, we strategically reduced our user acquisition budget. Some of our existing users did not make transactions on our platform during last year because of the pandemic control measures and the weak consumption demand. Due to those reasons, the HEV growth, annual consistent user growth, was negatively impacted. But when the pandemic was over, we saw strong rebound in consumer demand for local service, so we have already increased our user incentives to further stimulate consumption recovery. In fact, EAU daily active users on both our Mate 1 and BMP apps reached new highs in February for the first time, and they broke the record for a second time in late April before the Labor Day holiday. Also, our country-level MTU, Monthly Translating Users, achieved positive year-over-year growth by far with improving user engagement and user fitness. We also expect a healthy growth in APU this year as the local service market in China further recovers. In addition, local service market holds great long-term potential, especially in lower tier cities, which will further plug the growth of our user base in the immediate long-term in the vast lower-tier markets. We have good opportunities to deepen user penetration as we continue to enrich supply and benefit from consumption upgrades. Going forward, transition frequency will be a more important growth driver. We are encouraged to see that annual transition frequency per ATU has increased sequentially for the past 11 consecutive quarters. This is mainly due to our continuous improvement in platform supply, cross-selling capability, and brand awareness. In the past few years, we have established a unique consumer mindshare and delivering everything to consumers' store staff and have become the go-to platform for consumers to find stores and value for money, products, and services. Now, our goal is to further enhance the synergy and cross-sell opportunity among various businesses to really build Meitang's brand as a brand for everything now. We will further strengthen the consumer mindshare in not only speed and convenience, but also value for money. This will help improve user experience and frequency. Our cohort data show that users who stay with us longer have higher transition frequency. And the longer they stay with us, the further increased their frequency becomes. will also create a small category on our platform when they stay longer with us. For example, for users we acquired in 2015, annual frequency increased from six times in the first year to 60 times in the eighth year, 10 times growth. The average consumption category also increased from one to two in the first year, to more than four categories in the eighth year. And we noticed that new users increased transaction frequency at a faster speed than earlier cohort users. Generally speaking, we are very confident in our ability to continue to increase our transaction user scale and the transaction frequency and users' total lifetime value in the immediate long term. Thank you.

The next question. Good evening, management.

I'm Yangqing Pu from SILIC. Could you please share some more information on the latest technology changes, such as AI, like what's our progress to it or what impact it will bring to the whole industry? Does Meituan have any plans to participate in the AI area and how it's going to affect our business model. For example, will you consider to integrate any AI-generated content if there's any good model available? Thank you.

Thank you. I think that by now, there should be no doubt that AI is real and coming. In the past seven decades, since the first of the term artificial intelligence, There have been several waves of highs and lows, but this time it's different. It appears a larger language model has finally cracked the problem of mastering human languages, which is arguably the essence of human intelligence. And now literally every week, or almost every day, there comes some exciting news about AI. So here at MayCharm, we are very excited about AI. We believe AI is going to change almost everything. It's definitely bigger than iPhone or internet, and that's saying a lot. There are so many ways we can use AI, or more specifically, a generative AI, GAI. And AIGC is just one of them. AIGC is going to change how people produce and generate content, and it will have an impact on our business. In my opinion, what's even more important or more exciting is the new interaction paradigm, conversational AI. These days, people are using smartphones or iPads. Multi-touch is not the most natural way to interact with other people. So it's only natural for people to want to order food or book hotels or activities by just talking. I think that's the most natural way. The demand has always been there. The challenge in the past is in the supply of the right technology. Now, with the larger damage model, it seems we are finally getting there. And also, AI is going to have a huge impact on robotics. In the past four years, we have both in-house development and outside investment in robotics. And now it seems robots are going to get much smarter. Actually, they may even get so smart that they become scary. So AI is going to have such a huge impact in both the digital and the physical world. And the regulators globally should get moving and get ready to do their job in working with science and business communities to make sure AI is a good thing for the whole society and the human race. At Meizhang, we are open to external collaborations and investment opportunities. Now we have an internal team working on building our own foundation models and its applications. At this moment, we don't have anything to show. Honestly speaking, we are still playing catch up. But I think the message should be clear enough We are very committed to building our AI capabilities and applying it to our use cases. Here we have the use cases. We have accumulated a massive amount of proprietary data, and we have the engineering and computing resources to get it started. Of course, the more the better. So that's why we will be very actively investing in this, building our capability and using AI to the benefit of all people, including our mission to help people each better and be better. Thank you.

Thank you, Xingguo.

There are no further questions at this time. I would now hand the call back to Scarlett Chu for closing remarks.

Okay, thank you for joining the call. We look forward to speaking with everyone next quarter. Thank you for your support.

That does conclude our conference for today. Thank you for participating. You may now disconnect.