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.