Meituan Dianping Ord Cl B

Thank you for standing by and welcome to the Meituan second quarter 2024 earnings conference call. All participants are 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 Ms. Scarlett Zhu, VP and Head of Capital Markets. Please go ahead.

Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter of 2024 earnings conference call. Joining us today are Mr. Xin Wang, Chairman and CEO, and Mr. Shao Hui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our second quarter of 2024 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 actual results in the future. This plantation also contains an audited non-IFIS accounting standards 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 IFIS accounting standards. For a detailed discussion of risk factors and the IFI's accounting standards 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, Scarlett. Hello, everyone. In the second quarter, we adapted to the latest consumption environment, and we actively integrated our projects and operations and achieve the solid results. During the second quarter, our total revenue increased by 21% year-over-year to RMB 28.3 billion. Adjusted net profit increased by 77.6% to RMB 13.6 billion. And adjusted net profit margin improved significantly both year-on-year and quarter-over-quarter. to 16.5 percent. And our annual transaction user and annual active merchants maintained a strong growth momentum and reached new highs to 753 million and 30 million, respectively. Also, average purchase frequency per annual transaction user increased marking the 15th consecutive quarter of sequential growth since mid-2020. As a one-stop local commerce platform in China, we effectively satisfy consumer demand for local services through our comprehensive product offerings and on-demand delivery. We support the local merchants throughout their operation cycle across various marketing scenarios, Compared to other sectors, the local commerce industry in China still has a significant growth potential from digital transformation. We will continue to implement our retail-plus technology strategy, use technology to promote industry growth, and fulfill our mission to help people eat better, live better. In the second quarter, we continue to integrate the core local commerce segment and improve its operational efficiency. The goal of our recent organizational restructuring is not only to integrate the on-demand delivery, in-store hotel and travel businesses. What's more important is to better align consumer demand with our platform supply. And subsequently, main-time platform and main-time infrastructure platform and each business unit in core local commerce will better develop and realize more synergies. And we view core local commerce as a whole when it comes to long-term business planning, operational strategy, and resource allocation and product iteration. We hope to empower each business with effective traffic support from a platform and foster closer collaborations create synergies, and realize more cross-sells. This will bring further integration between the demand side and the supply side and further strengthen our brand's awareness. For example, our membership program, which we expanded nationwide in July, is our very first marketing scheme that covers all categories across on-demand delivery and in-store hotel travel. Zeng Huiyuan evolved from the membership program for our on-demand delivery business. It effectively enhanced the user transaction frequency of on-demand delivery and also brought incremental sales to restaurant merchants and helped them operate more efficiently. With this newly integrated membership program, we can deepen collaborations with an expanded network of merchants with a higher efficiency allowing merchants to benefit from user traffic. Meanwhile, our members will have access to more diverse selections of valuable money products and services across all categories in the local commerce domain. In addition, we recently introduced a new brand, Meituan Group Buy, Meituan Time Go. It covers all local service categories including in-store dining, leisure and entertainment, attraction ticketing, duty services, and more. Going forward, we will focus on this new brand and enhance consumer mindset in Meicuan Group by more stores, more savings. Meicuan Chuan Gou, Dian Hao Duo, Shen Hao Duo. Overall, we will continue to explore collaborations within core local commerce with the platform to rate our product and services offerings and provide the best in class experience for both merchants and consumers. And now let's walk through each business in our core local commerce. In the second quarter, on demand delivery maintained steady growth. For food delivery, next two years of business iterations we have successfully cultivated strong consumer mindshare in speed and variety. While we focused on improving operations and marketing our self-based model, we further enhanced our consumer mindshare in value for money offerings to adapt to the evolving consumption trend. We deep-dived into each consumption category and scenario such as travel, weekend, and late-night snacks to incentivize demand. During the quarter, average order grew by almost 40% year-over-year. And orders from late-night snacks grew much faster than the average. Our refined operation and marketing strategies have led to improvement in user thickness as well as a steady growth in user scale and purchase frequency of mid to high-frequency users. On the supply side, we actively explored new product formats to capture different consumer demand, especially in the low-price end. Hinaofan did exceptionally well this quarter. Big daily order volume broke million, setting a new record. This quarter, we worked closely with a branded restaurant to introduce more high-quality, value-for-money offerings for Ping Hao Fan and further improve our products and user experience. Subsequently, user retention and frequency were largely enhanced. As consumers increasingly recognize Ping Hao Fan's high quality value for money features. That demand also extended from lunch and dinner to other discretionary categories, like beverage and late-night snacks. After our continuous iteration in the Ping Hao Pai model, it has now become a new growth driver for many small and medium-sized restaurants. It also helps branded restaurants improve single-store productivity and attracted young consumers. Through Ping Hao Fan, merchants can effectively manage mega-heat products and offer low price in exchange for high order volume. This allows merchants to unleash more economies of scale. In addition, merchants can cut costs and enhance efficiency are using our platforms direct procurement and group delivery. Therefore, merchants can pass savings to consumers through lower price. Going forward, we will continue to help merchants optimize efficiency, help them improve FKU selections, and broaden their price spans to attract more price-sensitive consumers. For branded restaurants, Last quarter, we launched the branded satellite stores in Paiwei, Xinjiang. This quarter, we worked with more brands, such as Lao Xiang Ji and Hai Di Lao, to help them open more satellite stores, thus bringing more quality selection at low price for our consumers. Looking ahead, we will continue to innovate our supply formats, penetrate deeper into the supply chain, help merchants improve efficiency and pricing ability, and consistently provide a value for money products for consumers. And they try instant shopping, posted another robust growth. And all-demand retail has become a significant growth driver for local retailers. It is also a reliable shopping channel for consumers. We see steady increase in InstaShopping's annual transacting user base and even faster growth in order frequency in this quarter. To precisely capture the latest trend in diversity and personalized consumptions and continue to refine our operations and marketing strategies. Through these measures, we effectively cater to consumer demands across various scenarios. such as holiday gifting, travel, and camping activities. During the quarter, we deepened our collaborations with the leading brands in FMCG, Apparel, Equal, and Fablish, and more, and onboarded many branded stores to our platform. In addition, we provided various merchant support measures, such as a refined marketing strategy to increase transaction conversion rate and bring incremental sales to these branded merchants. Those categories I just mentioned achieve the start of the growth in the second quarter. So with the on-demand retail, we proactively penetrate and deeper into the industry value chain and expanded to abroad regions In higher tier cities, we increase the density of Meta Instamart. In lower tier cities, we also deepen the penetration to drive a strong order volume growth. Meta Instamart is a marketplace model where merchants rent and operate front distribution warehouses. And we help merchants with online operations, offering traffic support, product selection recommendations, and pricing strategy, et cetera. And this new supply format effectively matches supply with demand for on-demand retail. The value of our Natan Instamart is gradually recognized by offline retailers. An increasing number of leading offline brands chose to work with us. They can fully capitalize their advantages in the supply chain. We are leveraging our location-based marketing strategy, online solutions, and efficient delivery network to offer consumers valuable money products through on-demand retail. For certain categories, we penetrated deeper into the supply chain and adopted in-house procurement. For example, we have a self-operated brand Weimar Songjiu in the liquid and beverage category and continue to expand in scale. Weimar Songjiu has integrated a self-operated supply chain, plus front distribution warehouses, plus self-operated delivery. This model effectively meets consumers' instant consumption needs, and in second quarter, Weimer achieved a record high GTV. For the medicine category, we further strengthened consumer management, used stronger capacity to satisfy seasonal demand, and enhanced our product availability in health supplements. In July, we rolled out online medical insurance payment channel for most OTC products. in a few cities, including Beijing, Shanghai, and Qingdao. Consumers can choose insurance-covered pharmacies and drugs on our platform and enjoy 30-minute delivery to their doorsteps. Going forward, under the guidance of local authorities, we will work closely with chain pharmacies and expand the coverage of stores and drugs that can use medical insurance payment to provide consumers with convenience and health services. Overall, the adoption of on-demand retail for more traditional brands and merchants, coupled with an accelerated expansion of a new supply format, further enhanced the competitive advantages of made-time instant shopping on the supply side. It has helped enhance user experience and increase purchase frequency, and that builds a solid foundation for our resilient growth despite facing external challenges. In addition, the long-term sustainable development of our own demand business depends on the continuous optimization of our delivery network and hard work of our coolies. To address the challenges KURIs face, we have launched KURI-friendly communities and KURI-friendly merchants. Currently, we have established KURI-friendly communities in more than 20 cities nationwide. To facilitate easy access for KURIs in residential areas, we introduced a digital solution in collaboration with the various major property management companies enhancing their delivery experience. Additionally, we worked with more than 10,000 stores of branded restaurants and healthcare services brands to provide rest stations, beverage, and discounted meals for our couriers. Looking forward, under the supervision of relevant local authorities, and we will continue to collaborate with the broader society, including local community, property management companies, train brands, and gallery merchants, to accelerate the promotion of courier-friendly community access solution, introduce more arresting scenarios, and provide more discounted services to enhance couriers' sense of belonging and happiness. In the second quarter, our in-store hotel and travel business maintained a strong growth as to the continued digital transformation in local services, as well as consumers' rising demand for diversity and value for money. Order volume increased by over 60% year-over-year. Annual transaction users increased by nearly 35% year-over-year. and annual active merchants reached a new high. For our in-store business, we continue to leverage our shop-based model and mega-heat products, expanding our valuable money products and services offerings for consumer. Through our shop-based model, particularly by leveraging our Meituan Group Buy brand, Meituan Tangzhou, We continue to satisfy consumer demand for value-for-money products. Recently, we put more efforts into the marketing campaign of Meitangtang Gold. We launched online and offline joint marketing events in 15 cities, especially during holiday seasons, like Labor Day and Dragon Boat Festival. This has strengthened the consumer's mindset of most of its and continue to expand our user base. On top of that, we continue to promote mega-heat products by leveraging special tools and many other operational tactics. These measures effectively capture the consumer demand for deep discounted use and boost our user base and order volume. We also continue to invest in lower-tier markets to effectively digitize both supply and demand, and help accelerate the online penetration of local services in these markets. In addition, after we upgraded our Sun Hui Yuan program, consumers can now use coupons in in-store hotel and travel categories, which further strengthens the consumer mindset in our value-for-money offerings. is also widely welcomed by our merchants. In our current macro environment, consumer demand for local services remains intact with new consumption trends emerging and subtle changes in consumer preference. For in-store dining, demand has extended from formal meals to lighter meals, and average snacks such as fast food, coffee, and tea. Those categories are doing well. To adapt to this change, we swiftly onboarded more light meal and beverage supplies. Our in-store business recently promoted the Pick Up Now service on that allows consumers to buy and validate coupons online simultaneously. so that they won't waste time queuing and validating the coupons offline, making use in a more convenient way and enhancing the user experience. We see PickUpNow service as a complement to our food delivery and in-store dining service format. Currently, PickUpNow covers popular categories such as coffee and tea. We have partnered with 46 chain brands, and around 90,000 restaurants to offer eCouple now, and have served over 20 million users in hundreds of cities. During the second quarter, we launched our 2024 Master Eat list of eCouple, covering nearly 2,800 cities. nearly 2,800 restaurants in over 100 cities. That's more than ever. The majority of the restaurants on our list are localized restaurants, and nearly 20% are deli shops. We provided online traffic support and operational guidance for the listed merchants, especially those small and medium-sized merchants. helping them enhance store exposure, online operation, and efficiency. For other in-store services, there is a trend that consumers want to enjoy diversity and low price in the leisure and entertainment category. We actively capture this evolving trend in group operation in certain popular categories, capitalizing on our advantages in supply, brand recognition, and service quality. We aim to become consumers' top choice when they look for little happiness, or those type of consumptions. Specifically, leisure and entertainment posted a strong growth, with the GDP and all the volume growth growing over 60% year over year. And GDP from beauty and medical aesthetics also increased by over 50% year over year. For the hotel business, both our domestic room nights and GTV experienced a steady growth during the second quarter. We expanded efforts in branding, promotion, and integrated marketing strategies around the major holidays, such as Labor Day holiday and Dragon Boat Festival. During the 10-year anniversary celebration of our hotel business, we launched a dedicated marketing campaign and effectively incentivized demand. As more and more travelers now focus on culture and experience, we continue to enhance our supply and product formats. For example, we integrated our Hotel Plus X package reviews and leveraged our platform advantage to offer consumers high-quality, valuable money products while helping merchants cross-sell other services beyond accommodations. Under the current macro environment, demand for low-star hotels has increased. Our unparalleled advantage in this domain, especially on the supply side, positioned us well to withstand this new environment. During the quarter, we further strengthened our supply capabilities in low-star hotels. We catered to consumers' differentiated preference and expanded our value for money offerings. Transaction, conversion, and room nights have increased subsequently. On the merchant side, we provided comprehensive online solutions to address the operational needs from traffic acquisition to business growth, to room renovations, and helping low-star hotels capture more growth opportunities. In the high-star domain, we recently launched the 2024 must-see list, ,, featuring over 1,100 hotels. We further expanded our city coverage and included Hong Kong and Macau in the list for the first time. In June, we held a special live streaming session to promote the must-see list, setting a new GTV record in hotel live streaming. In addition, we deepened our joint membership program with high-star hotel groups, adding exclusive discounts and late checkout privileges to the member benefits. We also launched joint marketing events with high-style hotels featuring better product exposure and attracting new users to the merchants. And now let's move on to our new initiative segment. For Maitland Select, we continue to improve its operation efficiency in the second quarter. By continually enhancing our product quality and strengthening supply collaborations, we effectively increased our price per item and price per corporation. On the consumer side, we further improved efficiency and brought elevated experience for consumers. We also increased the proportion of orders delivered by 11 a.m., which will help us penetrate into more consumption scenarios. Moreover, we enhanced our marketing efficiency and optimized resource allocation. All these efforts led to substantial loss reduction for the business on both sequential and year-over-year basis. And our Xiaoxiang supermarket, Xiaoxiang Chaoshi, and is one of the key components of our on-demand retail strategy. It has become a convenient and reliable source for people to shop grocery online. During the second quarter, we made positive progress across various areas, including products, operations, and perfumers. It's worthwhile to mention that we extended the business hours to 2 a.m. allocations, allowing us to capture more nine-time consumption scenarios and enhance user experience. In the second quarter, growth for Xiaoshan Chaoshi continued to outpace industry peers, with efficiency further improving. And the other new initiatives, including our B2B food service distribution, and our restaurant staff, and our bike sharing and shared power banks, they all posted strong performance in the second quarter. And we have not only achieved the market leadership in scale, but also improved operational efficiency. Our new initiative helps strengthen the entire ecosystem, increase consumer and merchant engagement, through our comprehensive offerings. And it will gradually unlock more financial value in the future. And the local commerce market in China has a very big market and large growth potential. And as a market leader, we are competent to navigate through the cycles, facilitate in industrial digital transformation, unlocking greater value in the long term. We will actively adapt to the changing consumption trends and tap deep into the supply chain and offer comprehensive products and services to meet diverse demand across categories. In addition, we will continue to provide the merchants with efficient marketing tools and online operational solutions. We aim to continuously enhance value for our consumers, merchants, and all business partners in our ecosystem. And we want to drive high quality development in China's local commerce industry and fulfill our mission to help people eat better, live better. With that, I will turn the call over to Shaohui for an update on financial results. Thank you, Hsing. Hello, everyone. I will now go through our second quarter financial results. During this quarter, our businesses sustained healthy growth, with our total revenue increasing by 21% year-over-year to RMB $82.3 billion. Cost of revenue ratio decreased 3.8 percentage points year-over-year to 58.8%, primarily due to the improved gross margin of our goods retail business and lower delivery cost percentage of revenue in our own demand delivery business. Selling and marketing expenses ratio decreased 3.4 percentage points year-over-year to 18%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 6.5%, primarily benefiting from improved operating leverage. G&A expenses ratio was 3.3%, slightly increased on a year-over-year basis. Second quarter is usually the best quarter in terms of profitability due to seasonality in our business. In time, our dedication to pursuing quality growth and enhancing operational efficiency continue to yield positive results. Every profitability metric set new records in this quarter, marking the highest levels since our listing. Our quarterly profit surpassed $10 billion mark for the first time. Net profit for the period adjusted net profit with RMB 11.4 billion and 13.6 billion respectively, while the corresponding margin climbing to 13.8% and 16.5% respectively. And for our cash position, as of June 30th, 2024, we maintain our own net cash position with our cash and cash excellence and short-term treasury investments totaling RMB $133.3 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB $19.1 billion. Now let's look at our segment results, starting with core local commerce. Thirdly, our core local commerce segment increased by 18.5% year-over-year to RMB $60.7 billion. We set new records for both its operating profit and operating margin in this quarter, with operating profit increasing by 36.8% to RMB $15.2 billion and operating margin climbed to 25.1%. Our on-demand delivery business follows the lead by leadership and deliver resilient results during this quarter. On-demand order volume achieved year-over-year growth this quarter despite external challenges. Mainfinance Internet Shopping maintained rapid growth, which is year-over-year order volume growth, far exceeding that of the delivery. We converted more than 60% of delivery users to Mainfinance Internet Shopping users and simulate more cross-sales among different categories. As a result, users' purchase frequency of the overall on-demand delivery further increased on both year-over-year and quarter-over-quarter basis during this quarter. We are confident that the long-term growth potential of on-demand delivery remains substantial. Lastly, on August 7th, the peak daily order volume for on-demand delivery broke 98 million. Revenue of on-demand delivery grew faster than the order volume on year-over-year basis Although the consumption changes continue to waive on AOV for our on-demand delivery business, the year-over-year decline in AOV started to normalize this quarter. In time, margin demand from restaurants, offline retailers, and brands remained strong, with the scale of advertising merchants for both food delivery and make-financing shopping growing by more than 20% year-over-year. Once again, all our marketing services revenue for on-demand delivery relieved a remarkable growth. Meanwhile, we saw more operating leverage as the business scales up. We're also managing to promote user frequency growth to enhance the subsidy efficiency. Delivery cost order is usually the lowest during the second quarter, given generally weather conditions across the country. On top of that, we continue to benefit from the abundant supply of quarries and further optimize our delivery capacity structure. Meanwhile, as the order contribution from Ping Hao Fan increased meaningfully year-over-year this quarter, we are also able to achieve more delivery cost savings on an order basis thanks to its group delivery model. Year-over-year growth in on-demand operating profit outpaced the growth in order volume and revenue. thanks to the improved advertising monetization, as well as the optimization in cost and expenses, which offset the decline in AOD. The economics of both food delivery and the metro and instant shopping improved year-over-year this quarter. Our in-store hotel and travel business also sustained their leadership and delivered another robust growth. GTV, for in-store business, continues its rapid growth strategy this quarter, with both the number of transacting users and merchant base hitting new records. Our expanded suppliers enhance product and content, with five operations and marketing strategies enabled us to accurately cater to demand across a variety of local commerce categories, leisure and entertainment, ATVs, sports, beauty, and such, or experienced rapid growth in transaction volume. In time, as the scale of the lower-tier markets increased rapidly, we also saw continuous enhancements in operating efficiency in those markets. However, the BTV growth for hotel and travel significantly lagged behind the growth of installs. given the last year's high pay and also more balance of supply and demand. Purchasing of installs during travel grew at a slower pace than GTV, as the gap between revenue growth and GTV growth significantly narrowed compared to the last quarter. Transaction-based and service revenue continued to show robust growth, and its growth was quite in line with GTV growth. The year-over-year growth of online marketing services revenue continues to trail behind, mainly because of the change of our subscription service charge. Nevertheless, online marketing services revenue contribution evicts an upward trend sequentially. In specific, the expansion of the advertising merchant base for performance-based ads drove year-over-year growth in performance-based ads revenue this quarter. Offering profit for in-store hotel and travel business achieved a healthy year-over-year growth. Offering profit margin also continued to improve on a sequential basis, mainly attributed to the increase in online marketing service revenue contribution and the improvement in marketing and operation efficiency. And into our new initiative segment. During the quarter, revenue in this segment achieved an accelerated year-over-year growth of 28.7%, reaching RMB 21.6 billion, mainly due to the development of our goods retail business, particularly from Xiaoxiang Supermarket and Kuaiyu. In time, The segment further accelerated its loss reduction this quarter. The segment's operating loss and operating loss ratio both narrowed significantly on both quarter-of-a-quarter and year-over-year basis to R&D 1.3 billion and 6.1% respectively. The loss reduction was primarily attributed to the sequential efficiency improvement of May Translect. We continue to implement strict cost-cutting and efficiency improvement measures for MedPranselect, such as raising price markup ratio, lowering user subsidy, and shut down underperforming warehouses. In time, most of the other new initiatives continue to achieve healthy growth while improving operating efficiency. The profitability of all the other new initiatives, including May Translate, further improved on a collective basis. With regards to our buyback program, we purchased over $2 billion worth of shares before Blackout started. It represents more than 2.1% of total shares outstanding. Our board has approved us to cancel all the repurchased shares to further reduce our share count. To conclude, we proactively adapted to evolving consumption trends and improved our operations and products across our business. Our core local commerce demonstrated resilient growth once again with improving operating profit and operating margins. And currently, our commitment to enhancing efficiency in our new business has led to a significant reduction in losses. Looking ahead, we will actively seize growth opportunity across our business while striking a balance between growth and profitability. We will continue to pursue quality growth strategy for our business and consistently improve operational efficiency. We also believe that there will be more synergy among core businesses to come in future. Thank you. With that, now we are open for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Ronald Kung with Goldman Sachs. Please go ahead.

Thank you. Thank you, Xin Ge, Xiao Hui, Scarlett, and Wen. I want to ask that the external environment remains quite challenging, and particularly we've seen the consumption weakness in restaurants, the catering industry. How should we assess the impact on Meituan's core local commerce, and what strategies does the company have in place to mitigate these macroeconomic impacts? And lastly, what's our growth expectation in the current macro setup? Thank you.

Thank you, Ronald. Yes, the evolving consumption trends have indeed brought varying degrees of challenges across the industry. Our local commerce remains vibrant and dynamic. We see consumers increasingly looking for personalized and diverse experiences. Our products and services are well aligned with these changing preferences. We effectively meet consumer demand in dining, leisure, entertainment, and more. And we have a wider range of categories and price bands. And continue to explore new supply formats and optimize our products. So these measures allow us to better capture emerging trends, satisfy diverse demand and bring more potential for our long-term growth. In the second quarter, despite the external impact on all the volume goals, and our refined operation across consumption scenarios continue to drive a steady growth in both user scale and purchase frequency of mid to higher frequency users. Also, our innovation in the new supply formats, such as the Ping Hao Fan, and effectively meet the demands from price-sensitive users. Ping Hao Fan has become a preferred choice for many people seeking valuable money products. It has also become a new growth driver for a number of small and medium-sized restaurants and also branded restaurants. In this quarter, the order contribution from Ping Hao Fan continues to rise. And thanks to its efficient group delivery model, who are able to save a debris cost on an order basis. Ping Hao Fan has proven to be more efficient for ultimate run and restaurant merchants in addressing low price demands. We will continue to deepen penetration in the supply chain and help merchants improve efficiency and enhance pricing capability and provide value for money products for more consumers. And for Medline InstaShopping, while the change in consumption trends have impacted the average order value, the impact on order growth has been so far limited. On-demand retail still has a very significant potential in online penetration across different geography category scenarios. New supply formats like Medline Instamart, , are well-recognized because of its compatibility with the on-demand retail. These new supply formats not only grow rapidly in the higher tier cities, but also help accelerate penetration of on-demand retail in lower tier cities. We will work closely with leading offline retailer on Meta Instamart. And that's expected to drive additional growth in future. Additionally, as we continue to enhance supply and improved operations. We see considerable growth in user frequency, and there are pools for meta-insert shopping. So we believe that on-demand retail will continue to benefit from the ongoing digital transformation process and our continuous development on both the supply and demand side. And for in-store hotel and travel, the penetration overall is still very low. The consumer demand for local services remains strong. But the consumers become more price sensitive and want to seek more value for money deals. All these facts present a significant long-term growth potential, especially as new categories continue to emerge. Our user base and transaction frequency in our in-store hotel and travel maintain healthy growth. All the volumes up by over 60% year-over-year. We also see continued increase in user stickiness and volume share. In addition, our shelf-based business model is very resilient. We have over 200 categories to meet diverse consumer demand in finding stores and discounts across price bands. We have also introduced live streaming to incentivize impulse consumption and cater to consumer needs for deep discounts. Additionally, we actively penetrated into lower tier cities for more growth opportunities. As we accelerate the merchant onboarding optimized products and strength and value for money consumer mind share, I think we are well positioned to accommodate changes in consumer needs. And this will allow us to maintain healthy growth in both user base and frequency, thereby mitigating the adverse macro impacts. So overall, we believe our core local commerce segment can maintain steady growth the potential for digital transformation remains substantial. And we are confident in our ability to capitalize on the long-term growth opportunities worked by a shift in consumer demand and structural change on the supply side. Thank you.

Thank you, Singho.

Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Hi, good evening. Thanks, management, for taking my question. As the company continues organizational restructuring, could management share with us the synergies achieved so far? Can you also provide updates on the upgraded membership program, Chen He Yuan? When can we see more synergies to come? Thank you.

Thank you, Thomas. So, in the organizational structuring, we have deepened collaborations and enhanced crop sales among different businesses. And we have also integrated operations in core local commerce across many areas, including product development and R&D and marketing. So notably, our upgraded membership program stands out as our very first marketing schemes for integrating our marketing efforts in core local commerce. Over the past few years, our membership program has accumulated over 100 million members for our food delivery business. It has not only enhanced the user frequency in on-demand delivery, but also brought substantial business growth for restaurant merchants and helped improve their marketing efficiency. Our Shenhui Yuan extends benefits to more categories in our in-store hotel and travel, offering consumers a broader range of valuable money products. Thanks to the membership benefits, some of our food users have started exploring other categories, such as a health room, massage, home cleaning, and accommodations. We also noticed that some low-frequency users are making transactions on our platform more frequently with more categories. On the merchant side, Chenghui Yuan further allows us to collaborate more efficiently with a large number of merchants and bring them extensive user traffic from the Meituan platform. We also offer in-store merchants more comprehensive marketing tools to cross-sell from higher-frequency food delivery to lower-frequency in-store hotel and travel services. By now, Zhenhui Yuan has covered over 2.5 million merchants in in-store hotel and travel, and the numbers continue to increase. Many participating merchants have experienced additional growth in order volume and user scale. In addition to Shen Hui Yuan, we continue to launch new cross-selling initiatives. For example, in travel scenarios, we introduced a special room type that offers free food delivery vouchers catering to consumers' demand for placing food delivery orders while staying in hotels. This effectively drove growth in both businesses. And generally speaking, we have a clear direction in the organizational restructuring. We have got enhancing synergies across our businesses. It's too early to quantify the results and we'll be patient and we will continue to focus on building our long-term competencies and most from the collaboration and synergies. We have confidence that these synergies will eventually yield positive financial results. Thank you.

Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results. My question is on, you know, if you look at besides the macro environment, were the food delivery orders also affected by the shift to the offline consumption? So could you share that the recent performance of the food delivery and the Meituan Insta shopping? How should we anticipate the growth and the profitability of the on-demand delivery in the second half of the year? Thank you.

Thank you for the question. I'm glad you raised the question on food delivery and also on-demand delivery and also the relationship between the delivery business and our end-stop business. Meituan aims to be a one-stop shopping experience for local services, so we are very glad that we have a good combination of both the delivery services and the end-stop business, and that can cater to consumers' different needs. The food delivery and in-stop dining are two different models and under different demand scenarios. We saw that the consumer's demand for in-stop dining expanded from formal meals to more lighter meals, snacks, and beverages, such as fast food, coffee, and tea. And also, our in-stop dining business effectively captured the shifting demand through our enhanced supply a better product format, and refined marketing. We have seen that since the beginning of this year, our offering in these new scenarios has further enriched, either for dine-in or self-pick-up, and with very competitive pricing. As a result, transaction volume for our in-store dine-in business maintained strong growth momentum. We understand that this may potentially impact the food delivery or the volume growth in certain categories, but the impact is limited. We still see very different value propositions for food delivery and for dining, and we still believe that food delivery itself has a very low online penetration and very strong value proposition to further increase the frequency, especially with the continuous expansion of our food delivery offerings and . And we also want to highlight that although food delivery is where we start for the on-demand business, we have seen more and more categories have joined in the on-demand business. And we want to drive the attention from purely food delivery business to a broad on-demand delivery business because we believe this is going to be an important growth driver for the company. We believe that more and more consumers will be converted from purely food delivery users to more selling consumers in broader on-demand delivery. We will enhance operations from mid- to high-frequency users and encourage more processing opportunities across these categories and drive the user frequency. As mentioned earlier, we are seeing that our on-demand delivery maintains more than three times the growth rate of our foot delivery business. And we believe its strong growth momentum will continue in the following years. Total order volume and demand delivery also became very strong growth during summer, especially during some of the very important marketing campaigns, such as our European campaign, the Olympics, and promotion. This was achieved by expanding supplies across popular consumption categories and scenarios and optimized both operations and the marketing strategy. Our pin hao fan business also allows us to better serve prices, users more effectively, and continue to drop the growth of order volume. Notably, on August 7th, the peak daily order volume for on-demand delivery broke 98 million, which is a very important milestone for the company. We are very confident that next year during the same season we will see the peak delivery number to 100 million orders. We believe that this order volume growth momentum is healthy and will continue during the rest of this year. We believe in this business we can balance growth with profitability. We expect the year-over-year growth in operating profits to be higher than the revenue growth and order volume growth. Shifts in consumption trends will continue to impact the average order value of our on-demand delivery. The AOV supply is expected to be normalized during the second half of the year. As the business scales up, we also expect to realize more operating leverage. and to continue to optimize our efficiency. So we will continue to demand for merchants, including the advertising of our platform. And we will continue to launch different advertising products to meet those demands. So the advertising revenue will remain strong. And our optimized operation will also help us to improve overall efficiency. Overall, we're still very confident on both the food delivery and on-demand delivery business. Thank you.

Your next question comes from Kenneth Fong with UBS. Please go ahead.

Hi, good evening, management. Thanks for taking my questions and congrats on the very strong results. I have a question on the local service. We recently heard that competitors will stick to their annual GTV target and may even step up subsidies for local service in the third quarter. Could management share some insights on the recent competitive dynamics for the second half of the year? How do we project the GTV growth, the gap between revenue growth, GTV growth, as well as OP margin? Thank you.

Thank you. For the ASTAR business, before competition, I would like to share a little bit more of the overall industry. As we mentioned in the earlier quarters, we are seeing the in-store business overall is a very strong and the important growth momentum in that more and more consumption are shifting from offline to online. The online penetration of the service return in China continues to rise during this quarter. And we proactively adapted to these macro trends, and actually our products and operating strategies meet these new trends. We delivered strong growth in Q2, both in our order volume and our GTV. Order volume increased by over 60% over the years. At the same time, our operating margin improved quarter over quarter. business remains very health growth, and we think the online penetration will continue to improve in the following quarters. About the competition, overall, we observed that the competitive landscape remained relatively stable in Q2, and there are a couple of points I'd like to highlight. First, the industry has experienced rapid development in the last two years. Both other players and ourselves have invested in two different business models, and all of those efforts lead to faster growth, also lead to quite different focus on category mix and merchant tiers. We have seen that on the GTV validation rate, It could be very different in different categories and also on different platforms. We have continued to see that our validation rate for GTV is much higher than our competitors. As a result, we have gradually shifted our focus to the validated GTV market share for our core categories, which we believe is more relevant to really understand the quality of the business. Secondly, summer is usually the peak season for local services, and merchants tend to market more marketing expenses in order to meet the rising demand for local services. We also expanded our Shen Hui Yuan membership program to nationwide and launched a series of marketing campaigns and brand advertisements. Based on our observations, we think competition in these core categories remains rational and stable. As the industry evolves to a new stage, we believe all the participants will shift from a subsidy-driven growth strategy to a more ROI-driven growth strategy. And our strategy will continue to be centered around our own development and to fortify our long-term competitive strength. We will fully leverage our advantage in the share-based model and enhance our capability and value for money offering through special deals. And that's my goal. And to continue to strengthen, clear my share in Matron. It's the go-to platform for finding stores and best deals and to attract more merchants to use us as the primary platform for online operations. We will also... have to capitalize on the synergies within the core local commerce. For example, in our upgrade program, we direct high-frequency traffic for our on-demand delivery to install services, thereby increasing transaction frequency and user . As we implement lower-tier market strategy end of last year, we have seen notable progress across many categories. We will continue to explore ways to revitalize local consumption in the lower tier market. Our ongoing efforts will drive further innovation on both the supply side and the demand side. We believe we will continue to lead the lifestyle changes for consumers in the long term. And we will also benefit the most from this accelerated online penetration trend Looking ahead to the second half of this year, after our organizational restructuring, our business is now focusing more on the order growth and the user base. The strong performance of these indicators will drive the GDP growth to maintain its momentum during the rest of this year, and we will see a more normalized monetization rate based in the second half of this year. And the difference between revenue growth and GDP growth will continue to narrow significantly. In terms of profitability, as we mentioned earlier, operating margin is not our focus, as it will be impacted by the GDP contribution from different categories, different cities, and the different revenue max, and also seasonality. And third, we suggest paying more attention to the operating profit dollar growth, which is a more important metric for the business team. We expect we will achieve solid year-over-year operating profit growth for our in-stock account trail business in the second half of 2024. Thank you.

Our next question comes from Ya Jiang with CDC Securities. Please go ahead.

Good evening, Madeline. Thanks for taking my question. We've noticed that revenue growth of new initiatives continue to accelerate this quarter. Can you please provide an update on the overall progress of your new initiatives? And also, May time select showed significant loss reduction this quarter. How should we think about the loss of May time select in the second half of the year? And how should we think about loss of new initiatives? And lastly, And after we expand food delivery in the Middle East, how much will overseas expansion impact our loss reduction pace? Thank you.

Thank you, Danyang. So in second quarter, the revenue from our new initiatives increased by 29% year-over-year, and it's growing faster than the first quarter. And also, It's growing faster than our core local commerce. So this growth was mainly driven by very strong numbers from Xiaoxiang, Chaoshi, and Kuaili. And this quarter, our initiative segment is still losing money, but losing less money. So the loss reduction is making some progress. For Median Select, we continue to implement efficiency improvement measures. And we have been doing that since this February. And that leads to a notable sequential loss reduction. As we mentioned last quarter, now we no longer focus on the nationwide market share. Instead, our priority are loss reduction and efficiency improvement this year. And going into the second half of this year, we will keep optimizing operational efficiency. And how much loss we can cut will also depend on the total business scale. So don't get too excited too quickly. Additionally, we also have expenses in cold-chain infrastructure during summer. We need to do that to ensure our product quality. In order to achieve long-term sustainable development, we must create more value for consumers and build differentiated competitive advantage for MetaSelect. And that means that we remain optimistic about the long-term potential of the online grocery market in China. And we have been addressing this market with a few different models. Meitan Select is one of the business models we are doing in online grocery. And we will stay patient. At the same time, we will also stick to our financial disciplines. and dynamically assess our progress and balance resource allocation among different models. For other new initiatives, most of them have achieved better than expected efficiency improvement and maintained quite healthy growth in the first half of this year. So on a collective basis, this new initiative have achieved modest profit this quarter. Regarding our overseas expansion, while we are still in a very early stage, we will continue to evaluate opportunities across different regions. And so we won't dive deep into the specifics about any specific markets until we have some concrete progress to share. So from a financial perspective, the budget for overseas is already included in the total new initiative segment. So the impact on segment operating loss will be limited this year. And we believe overseas market is the right long-term strategy for Meituan. So we will stay patient and continue to explore while maintaining our financial discipline. That's it. Thank you.

Your next question comes from Charlene Liu with HSBC. Please go ahead.

Thank you. Thank you, National, for taking my question. And congratulations on all sorts of results. I would like to ask a question about shareholder return policy. Given May 5 has already repurchased $3 billion worth of shares this year, will management consider launching an additional buyback plan? Xiaohui mentioned some repurchased share has already been cancelled. Are there plans to cancel all repurchased shares, or will they be used for other purposes? Additionally, will the company increase the annual ESOP grants due to the buyback, and what are management's thoughts on putting in place a more systematic and continuous shareholder return policy in the future? Thank you so much.

Thank you for the question. As I mentioned earlier, during this quarter, we repurchased over 2 billion USD worth of shares before Blackout started. It represents more than 2.1% of our total shares outstanding. This actually reflects our confidence in our current long-term share value. Our board has approved us to cancel all the repurchased shares to further reduce our share count. We have repurchased total 3.6% of the total shares outstanding year-to-date. It's more than the results granted from 2021 to 2023. Our average annual results from 2021 to 2023 were approximately 1% of total shares. In the long run, we expect the average annual grants to be stabilized at a similar level or slightly lower. Our management team focuses on enhancing long-term shareholder returns, whether through our business growth or capital allocation. We will optimize our capital allocation strategy, directing resources to all high ROI investments to ensure sustained healthy growth of our business and consistently increase free cash flow. We target to offset the dilative effect of ISA grants in each year through share buyback. We will also take into consideration our investment plans, cash flow, our offshore cash reserves, debt repayment, and share price, et cetera, to decide whether to apply buyback plans as needed. Based on our current offshore cash reserves and our understanding on the market, our board has just approved another US dollar, $1 billion US dollar buyback plan. And this further reflects our confidence in our business development and long-term share value. We will maintain a flexible strategy and execution of future buybacks. Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Ms. Scarlett Ju for closing remarks.

Okay. Thank you for joining our 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.