Meituan Dianping Ord Cl B

Thank you for standing by and welcome to the May 1, second quarter 2023 earnings conference call. All participants are on 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 star, the key followed by number one on your telephone keypad. I would now like to turn the conference over to Scarlett Shue, VP and Head of Capital Markets. Please go ahead.

Thank you, Operator. good evening and good morning everyone welcome to our second quarter 2023 earnings conference call joining us today are mr xin wang chairman and ceo and mr shao huichen media vice president and the cfo of make one for today's call management will first provide a review of our second quarter 2023 results and then conduct a q a session before we start We would like to remind you that our presentation contains forward-looking statements which include a number of risks and uncertainties and may differ from actual results in the future. This presentation also contains an audited non-IFI financial measures that should be considered in addition to the not as a substitute for measures of the company's financial performance prepared in accordance with IFIs. For a detailed discussion of risk factors and non-IFIs measures, please refer to the disclosure document in the IR section of our website. Now I will turn the call over to Mr. Xin Wang. Please go ahead, Xin.

Thank you, Scarlett. Good evening, everyone. For the second quarter of 2023, our total revenue increased by 33.4% year-over-year to $68 billion. Adjusted net profit would remain the $7.7 billion, reaching the highest level in history. As offline consumption continued to rebound, China's local services market experienced a robust recovery. Leveraging our retail plus technology strategy, we made a significant stride in enhancing the efficiency of both goods retail and services retail, invigorated the local consumption market and deepened online penetration among merchants. Our core local commerce segment achieved a significant year-over-year growth. During the quarter, we continued to help over 10 million merchants on our platform enhance their online operations. In addition to our shelf and search-based business model, we have also piloted short-form videos and live streaming. providing merchants with a more diversified set of marketing tools to reach consumers. In parallel, we also satisfy the growing demands of our consumers by providing them with better quality, more affordably priced, and more convenient tools and services. Furthermore, we are dedicated to accelerate the integration of digital technology with the real economy. In line with this commitment, we recently unveiled our next-generation unmanned aerial vehicle, and our autonomous delivery vehicle has also been more widely applied in more scenarios. It is another step forward in building an end-to-end delivery network in modern cities. Going forward, we are confident that technology will further empower us to achieve greater 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 details. As consumer spending continues to recover during the second quarter, our food delivery business experienced strong growth. It strengthened our supply and allocated more subsidy into holiday, cross-city, and late-night snack scenarios. This helped us effectively cover consumers' diverse range of needs, especially in the high AOV and high-quality brands. Additionally, both supply and demand in the low-price band have grown rapidly on a year-over-year potential basis. Thanks to our optimized operational strategies, order volume grew further in a low AOV range As the restaurant industry plays an important role in China's economy development and in people's livelihoods, we remain firmly committed to helping merchants with business recovery and digital operations. We believe that the key to high-quality growth in the restaurant business is to help restaurants improve the quality and efficiency of their operations. As a result of our continued efforts, The breadth and quality of the supplier on our platform has continued to improve. The number of newly onboarded merchants in the second quarter more than doubled what it was during the same period of last year, largely driven by higher growth from key account and super key account merchants. We have also continued to enhance our marketing tools during the second quarter. For example, We upgraded our monthly promotional event, and we launched in multiple cities. These events allow merchants to sell low-price, high-quality dishes through flash sales, live streamings, and videos. Through these events, participating merchants have realized a notable growth in post-transaction volume and number of new customers. For these sellers, the benefits of selling mega-hit products via livestreaming will outlast the length of the promotion, and consumers will continue to repurchase after the event ends. Moreover, consumers usually add other dishes at checkout when they redeem their vouchers, enhancing cross-sell and boosting sales of shell-based products. The combination of live streaming and shelf-based models is our unique advantage, bringing new growth potential for restaurant merchants. Beyond this, we have also actively onboarded high-quality merchants, which received a high ranking on the Yanting app and provided special resources and traffic support to them. We also released the must-order list for food delivery in Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu in June. This program attracted more traffic for high-quality restaurants, provided long-distance delivery services that enabled the restaurant to reach a broader consumer base. Going forward, we will continue to develop our ecosystem, strengthen our content capabilities, and launching more innovative marketing strategies for our food delivery business. As the structure of China's labor force continues to evolve, flexible workers have become an important part of the workforce. As we provide a large number of job opportunities for food delivery couriers, we are committed to enhancing their welfare and providing them with better working experience. In June, we launched a summer courier care program in over 100 cities. We also optimized our delivery route algorithm to reduce courier exposure in high temperatures, offered them subsidies, and ensured a stable income for individuals working in intense heat. During this year's July 17th Courier Festival, we launched a courier growth project that aims to support careers in their long-term personal development. The project encompasses professionals' career in educational development and support employee opportunities. Median InstaShopping also maintains strong growth momentum during that second quarter. It leveraged various promotional events and festivals to enhance consumer perception of the diversity and convenience that we offer. Driven by growth in our user base and purchase frequency, daily order volumes peaked at 11 million orders for the second time in May. In addition, the quantity and variety of our supplies increased, and our number of annual active merchants increased by over 30% from the same period last year. We continue to empower merchants through online operations, providing traffic, subsidies, and access to various marketing tools, including live streaming. These initiatives enhance product exposure and help the small and medium-sized merchants reach a broader consumer base. During major promotions like Labor Day and the June 18th Shopping Festival, many product categories achieved a notable growth. For instance, electronics in home appliances saw accelerated online penetration in lower tier cities, while daily necessities, beauty and personal care, and mom and child products encountered a strong growth throughout the second quarter. We actively explore product categories that will better satisfy the consumer's on-demand retail needs. For example, during the hot summer season, categories such as fruits, beverage, pickles, and ice cream experience greater physical demand. For the medicine category, we expanded our 24 by 7 smart pharmacy, , nationwide. to ensure that consumers will have timely access to medical consultations and medications for both emergencies and chronic illnesses. We collaborated with pharmacies and pharmaceutical companies and launched the Yellow Light Project to help bring medical resources to lower the market and provide 24-hour medical services to more counties. As offline consumption continues to recover, our in-store hotel and travel business maintained a strong growth in the second quarter. GDP increased by over 120% year-over-year. Annual active merchants and annual transaction users also reached a new high. And turning to our in-store businesses, with the arrival of the peak consumption holiday season, The local services industry rebounded rapidly and demand continued to be strong. During the second quarter, in-store GGV increased month by month and achieved significant year-over-year growth. During the quarter, we optimized our existing products, enhanced the consumer experience, and expanded merchant services. For example, we helped a merchant at the design set meals based on consumption data analysis and provided the delivery services. We also lowered the threshold of subscription-based services to more small and medium-sized merchants so that they can enjoy the benefits of online operation at lower cost. Meanwhile, we continue to strengthen our capabilities in consumer and content creation. We also expanded our marketing initiatives, such as a special use and live streaming, providing merchants with new marketing tools and traffic acquisition channels. This not only boosts merchants' marketing effectiveness, but also offers consumers more high-quality and affordably-priced products and services. At the same time, We have continuously created our operating strategies, improved our ability to create a magazine products, and diversified our supply. Already, over 100 products have achieved the sales of over 100,000 units through live streaming and special deals. We also optimized our content and expanded our coverage of existing consumption scenarios. Furthermore, we solidified consumer mindshare by using Meituan to select local stores and find deals. During the quarter, we explored collaborations with third parties for traffic acquisition and integrated online and offline operations to further drive traffic growth. For our recently released 2023 must-eat list, we increased our promotional efforts, expanded coverage to more stores, and offered a must-eat set meals, and utilized live streaming to offer consumers more recommendations and discounts. We also stimulated consumption. by organizing themed activities based on holiday travel scenarios. For instance, we launched the foodie family season for holidays, including Dragon Ball festivals, Father's Day and Mother's Day. This effectively boosts food consumption during family gatherings. In addition, we leveraged our platform capabilities to stimulate local consumption by collaborating with travelers who can get specific such as the Guangzhou Night Consumption Festival. With the post-pandemic response of the domestic travel industry, our hotel and travel business continues to grow rapidly in the second quarter. We broadened our product offerings such as increasing live streaming frequency and diversifying special views. We also expanded the supply of high-quality selections suitable for different consumption scenarios and price ranges. These efforts solidified the consumer's mind-share of Meizhuang as a platform that helps save money when booking hotels. In addition, we enriched our hotel plus X activity for leisure travel and vacation scenarios during the peak demand season. On the higher staff run, we onboarded more hotel brands and deepened the collaboration with the high-star merchants and certified our price competitiveness. We also expanded joint marketing events, optimized the joint membership programs, and improved overall consumer experiences. For Labor Day and the Dragon Boat Festival, we expanded efforts in both external traffic acquisition and internal cross-sell from other businesses. For live streaming, besides leveraging our MainTrend Hotel channel, We also collaborated with the in-store and food delivery businesses to sell hotel vouchers during their live streaming sessions. Furthermore, we successfully capitalized on the recovery in outbound travel by increasing the supply of overseas hotels and broadening our outbound travel customer base. For alternative accommodations, We enhanced the experience for both consumers and landlords and better match the demand with supply. We also launched the theme-based marketing events to drive room-line growth. Now let's move to our new initiatives. For Meitan Select, Meitan Youquan, QTD and revenue continue to grow year over year in the second quarter. Our growth rate decreased due to slower than expected growth of the overall markets. We believe the growth rate digitization will continue and remain competent on a trans-select long-term potential despite the short-term difficulty in refining the business model. During the second quarter, we retained our position as an industry leader in terms of business scale. Our accumulated transaction users have reached 470 million by quarter end. Transaction frequency of existing users increased as we further enhanced our consumer mindshare. During the quarter, we diversified the supply and established a long-term partnership with more suppliers. providing consumers with wider selections of high-quality products at lower cost. Our refined operations expanded coverage of cold-chain logistics and smart warehouses powered our industry-leading fulfillment efficiency. We continue to solidify our capabilities in digital operations and supply chain management, facilitating the advancement of urban and rural supply chains In addition, we help the farmers increase their incomes and promote the circulation of agricultural products on our platform, and continue to create employment opportunities in lower-scale cities. And our Meizan Grocery, Meizan Mai Cai, also experienced solid growth on year-over-year basis in the second quarter. despite a high base last year. And market share also improved steadily. As the weather warmed up, categories such as food, liquor, and beverage saw a notable increase in on-demand delivery. We continue to diversify our product offerings and the proportion of GTV from standardized products and private label products continue to increase. User frequency further increased, showcasing our effective cultivation of consumer habits. Moreover, we increased the density of front-end warehouses in the major cities that we operate in, leading to continuous improvements in delivery efficiency and user experience. At the same time, we deepened our collaborations with suppliers and enhanced direct sourcing and procurement of fresh produce. Thanks to these efforts, we are able to offer consumer high-quality products while enhancing our price competitiveness. Looking ahead, we will continue to responsibly undertake our corporate role in facilitating and promoting social and economic development. Following the path of high-quality growth We are committed to creating a greater number of opportunities, empowering the retail industry through technological innovations and accelerating the industry's digital transformation. With the help of innovations and our continued product iterations, we can further elevate our consumer experience. Our goal is to become a smart assistant for consumers' daily lives. and providing merchants with diversified services to support their online operations. We will leverage our proprietary research and external investment to explore the views of artificial intelligence and autonomous delivery and other cutting-edge technologies. Through these initiatives, we will drive innovations and support the development of the digital economy and the growth of the real economy. With that, I will turn the call over to Shaohui for an update on our latest financial results. Thank you, Xin. Hello, everyone. I will now go through our second quarter financial results. During the quarter, the recovery of local services has been much stronger than other sectors. Our total revenues increased by 33.4% year-over-year to RMB $68 billion. Cost-to-revenue ratio decreased 6.8 percentage points year-over-year to 62.6%, primarily due to the improved gross margin of our food delivery, maintenance and shopping, and goods retail business, as well as the increased contribution of online marketing services revenue. Selling and marketing expenses ratio increased 3.8 percentage points year-over-year to 21.4%, mainly due to our increased promotions, advertising user incentives, and employee benefits to stimulate consumption and solidify our competitive advantage. Time to expenses ratio and the G&A expenses ratio both decreased year-over-year to 8% and 3.1% 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 5.9 billion and 8.7%, respectively, compared to total segment operating profit and operating margin of RMB 1.5 billion and 2.9% for the same period of 2022. On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 7.7 billion this quarter, turning to our cash position. As of June 30, 2023, we continue to maintain still net cash position with our cash and cash equivalent and short-term treasury investments totaling RMB 120.2 billion. Cash from operating activities in the second quarter improved significantly year-over-year to RMB 10.9 billion. Now let's look at our second results. starting with core local commerce. Our core local commerce segments revenue increased by 39.2% year-over-year to RMB $51.2 billion. Operating profit increased by 34.8% on a year-over-year basis to RMB $11.1 billion. Operating margin remained at around 22% this quarter. On-demand delivery achieved 31.6% year-over-year order volume growth this quarter. for food delivery, we have seen joint recovery across all price ends on the supply side since April. Thanks to our effective subsidy strategy and promotional event, high TSTs, median to high-frequency users, and high AOV orders continue to grow healthily. Demand from lower TSTs, lower frequency users, and low AOV orders has also shown an accelerated recovery trend since April. On the unit north side, average order value declined year-over-year against last year's high base. The decline was a natural result of the accelerated recovery of low ticket size orders. At the same time, our strength and marketing efforts to stimulate consumer demand acquired new users led to a year-over-year increase in subsidy spending. However, we benefit from abundant supply of queries. Also, volume growth also drove economics of scale on the cost side. Meanwhile, the increase of marketing demand from merchants drove a strong growth in online marketing services revenue this quarter. These favorable factors helped to offset the increase in subsidy and lower LV. Notably, operating profit per order continued to increase on a year-over-year basis. Pending to maintain shopping, It continued to achieve strong order volume growth and accounted for more than 11% of our total on-demand delivery orders during the second quarter. Average order value declined year-over-year, mainly due to the high base last year. Unignomics remained at a similar level to that during the 70th of last year, primarily due to lower AOV and our increased investment to drive business growth and strengthen user mindshare. Nevertheless, our advertising potential was further unleashed this quarter, with both the online marketing merchant base and merchant app pool increased significantly. Online marketing revenue for this business grew by almost 140% year-over-year, We are glad to see that SMA Twine Instant Shopping has built up its core competence and become the largest on-demand retail player in China. We have become a key channel for small and medium-sized retailers across many categories to generate online sales and market their products. We also cooperate with a larger pool of top brands and K-8 merchants. Now let's turn to our in-store hotel and travel business. A business revenue without it significantly on a year-over-year basis. We continue to benefit from a strong demand recovery for local service consumption and travel. In addition, we set up investments to support merchants and incentivize consumers through diverse range of marketing formats and solutions. GTV for Enso Hotel & Travel grew strongly and drove a robust year-over increase in our transaction-based service direct in this quarter. The revenue growth rate for Hotel & Travel was particularly significant. Anything came from a faster rebound in the scale of room nights and significant increase in AER. We are also pleased to see that merchants' willingness to market online is also rising. However, revenue growth was slower than PTV growth. First, merchant incentives and user incentives to enhance the price competitiveness and strengthen consumer mindshares negatively impacted the revenue. Second, we lowered the threshold of subscription-based services for selected categories and lowered tier cities to encourage more merchants to join our platform. This dragged down the growth of online marketing service revenue On the profitability side, it is worth mentioning that the second quarter was a peak season for local service. We think it's really important for us to have sufficient investment in this quarter to further stimulate consumption recovery and help us solidify our competitive advantage, as well as to enhance consumer mindshare. As a result of our investment in traffic, application, merchant incentives, user subsidy, and other marketing and branding activities, operating profit declined quarter over quarter. Operating profit achieved positive growth on a year-over-year basis, mainly due to a recovery in business scale. Let's now turn to our new initiative segment, Ewing Needs Quarter. Resilience in this segment increased by 18.4% year-to-year to RMB 16.8 billion, mainly due to the development of our goods retail business. The segment operating loss increased slightly to RMB 5.2 billion from RMB 5 billion in the first quarter of this year. costly loss extended on a sequential basis. This was primarily due to a larger business scale or increased subsidy to drive growth or expenditure on cold chain and logistics in response to the upcoming hot weather during the upcoming season and the product exchange. For the other new initiatives, most of them have made good progress in improving operating efficiency and financial results. For example, our bike-sharing business achieved a positive operating profit for the first time in history, and our B2B food distribution operating margin continued to improve. In summary, we are pleased to see that our core local commerce segment has delivered another set of strong results this quarter, riding on the recovery of local service consumption. We are confident that the digitization of local services in China will continue to benefit our platform. Meanwhile, we will continue to proactively adapt to evolving consumer behavior and merchant needs. Our confidence in the medium and long-term growth for the core local commerce segment remains unchanged. At the same time, we will continue to pursue high-quality growth and optimize operating efficiency for our new initiatives. With that, we are now open for Q&As.