Meituan Dianping Ord Cl B

Thank you for standing by and welcome to the Mechuan Third Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.

Thank you, Alfreta. Good evening and good morning, everyone. Welcome to our third quarter of 2024 earnings conference call. Joining us today are Mr. Hsing-Lang, Chairman and CEO, and Mr. Hsiao-Hui-Tien, Senior Vice President and CFO of Makefile. For today's call, management will first provide a review of our third quarter of 2024 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 the actual results in future. This presentation also contains a variety of IFI's 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 IFI's accounting standards. For an easier discussion of risk factors in our IFRs and accounting standards measures, please refer to the disclosure document in the IR section of our website. Now I will turn it over to Mr. Xinhua. Please go ahead, Xinhua.

Thank you, Stalin. Hello, everyone. In the third quarter, we continue to achieve our solid performance. Total revenue increased by 22.4% year-over-year. reaching IMB 93.6 billion. Adjusted net profit increased by 124% for IMB 12.8 billion. Annual active merchants, annual transacting users, and their purchase frequency all grew healthily, breaking record highs. And thanks to our industry insight and our continuous efforts in cultivating both supply and demand. We have become a reliable business partner for merchants across all operational scenarios, and a go-to destination for consumers to discover local services and all-demand retail. We firmly believe that there is a big potential for digital transformation in China's local commerce industry, which will continue to bring new challenges, and new opportunities. We want to bring transformation into a civil lifestyle through innovation, incentivize demand, and drive longer industry growth. Moving forward, we will adhere to our technology strategy, use technology and innovation to drive industry growth, and review our population to help people do better and live better. In this quarter, our all-in-one delivery business continues to grow steadily. We broke 98 million daily orders on August 7th. We actively improved our product formats while penetrating deeper into the supply chain to help merchants enhance operational efficiency. Our innovative business model, Ting Hao Fan, has become a new trend for young consumers. It has over 100 million annual users, majority of which are 35-year-old or younger. This quarter, we've made all the roll-ins of the Bihar Fund for the 19th. We continue to improve our efficiency in matching supply and demand across different time periods and scenarios. to enhance user experience and incentivize demand in Pinghaofan. By now, over 5,000 brands nationwide have participated in Pinghaofan. Additionally, our Shen Qiangzhou program has currently become a sales channel for mega-suites high-frequency products, helping over 10,000 deductible brands create self-selling items and stimulating consumers' long-term demand. We are rapidly expanding branded satellite stores in Highway Indian, a new food delivery business format that's customized for training restaurants. This new format can offer value for many products for consumers while ensuring profitability for merchants. With over 100 stores opening per week, Branded Satellite Store are going to become a new growth trend for chain restaurant. By the end of November, we have collaborated with over 200 brands offering merchants full spectrum of online support such as through location selection, product selection, and traffic conversion. The demand of market size of food delivery continues to expand. We will actively penetrate into the supply chain, explore diverse and efficient solutions, offer merchants more support, and guide the high-quality development of food delivery industry, together with our ecosystem partners. For example, after upgrading our Merchant Support Program, known as 繁盛计划 , in September, we recently announced additional support initiatives. We will also offer subsidies to support merchants who focus on project development and business innovation. with an additional total amount of RMB 1 billion. With the ongoing development in retail, Maesan Instant Shopping continues to lead the rapid growth of on-demand retail. In the first quarter, average daily order volume surpassed 10 million. Both new space and purchase frequency In Qixi, at the Chinese Valentine's Day, peak daily order volume reached 16 million. Supply and consumption scenario of on-demand retail continued to expand. And consumption time span and regions also broadened. This shows that on-demand retail not only needs consumer instant and urgent needs, but also becomes a new lifestyle. It has penetrated more deeply into the lives of consumers. On the supply side, it has consumer experience as part of the consumer habits. It generates more demand, and it in turn promotes further transformation on the supply side. In addition, it has insta-marked a franchise boost our continuing progress on the supply side. During the third quarter, the number of metal instruments and its orders to the region continued to increase, especially in the lower tier cities, and better match consumer demand for long-tail products. More importantly, large retailers are accelerating to embrace this new format we recently announced our strategic partnership for Meta-Instromat. We now have over 500 Meta-Instromats. Going forward, we want to empower more startups and branded merchants in location selection, store lineup, inventory management, and more, and help them generate higher growth through Meta-Instromat. In addition, The sustainable development of our own demand business depends on the hard work of our couriers. In the third quarter, we introduced and improved a series of initiatives to enhance courier protection and support. For example, we launched the Courier-Friendly Community access solution, introduced the House of Couriers interest on the cooling app and piloted a specific management mechanism. In this new environment, flexible employment has become a very important form of employment. During the third quarter, the average monthly income for highly active coolers nationwide ranged from 5,720 IMB to 10,800 IMB. In the third quarter, our in-store hotel and travel business recorded another stellar growth. Order volume increased by over 50% year-over-year. Annual transaction use increased by over 30% year-over-year. Annual active merchants also reached a new high. We continue to leverage the synergies from core local commerce to enhance our competitive advantage and job growth. Our in-store business has entered a new phase since this year. Our goal is to be a valuable partner for merchants, helping them operate under different scenarios and in full business cycles to achieve a high quality growth and high marketing ROI. We further enhanced our operational infrastructures and leveraged special needs such as on-road, lab streaming, as well as personalized marketing strategies to help merchants enhance brand positioning and drive growth. We provided merchants with various solutions and tools such as product shots, consumer insights, review management, and rank and list to help them refine business operations and accumulate digital assets. Meanwhile, we continue to explore different procurement models and enhance internal collaborations within the platform. Our pick-up-and-own service, Yaoqi, helps a restaurant merchant expand the procurement scope while meeting consumers' growing demands for efficiency when they pick up meals themselves from the store. Pick-up now has largely improved the users' self-pick-up experience and restaurants' operational efficiency. Additionally, we extended our upgrade membership program to nationwide. It has received positive responses and active participation from merchants, with over 50% of our merchants joining the program. We optimize our substitute strategy, which helps merchants improve traffic conversion efficiency. User traffic directed for our high-quality food delivery members is quite effective, with the number of new users of the in-store business continuously growing. and purchase frequency of existing users increasing notably. Traffic and transaction volume from participating merchants also increased. In addition, we capitalized on the rising market economy and growing consumption for younger generations. We accelerated penetration into the lower tier markets providing local merchants with more traffic exposure and online operational tools, and providing to the consumers with a more high-quality value for money selections. As a result, our in-store business achieved much faster growth in lower tier cities. In the third quarter, our domestic hotel reunites maintained a steady growth we have strengthened our collaboration with industry partners to provide the mutual selection that new consumer demands across scenarios and different price spans. For high-star hotels, we launched new marketing IPs that effectively track demand in certain popular categories. We also strengthened collaborations with hotel chains through membership programs, marketing campaigns, and hotel plus X package reviews. On the lower star side, as demand rises in local accommodations, we further solidified our marketing positioning thanks to our existing advantages in the lower tier markets and younger generations. In the third quarter, our fully upgraded Shen Hui Yuan program has become our new world's driver. In the high-star domain, a new global high-star hotel brand has participated in Shen Hui Yuan. For low-star hotels, we leveraged Shen Hui Yuan to cross-sell hotel room nights to our high-quality users, which effectively expanded our user base for the hotel business. For new initiatives, we continue to improve the operational efficiency across our grocery retail hardware and software services and other initiatives. Building quarter, new initiatives maintain the healthy growth and continue to narrow losses sequentially. New initiatives help us enhance our ecosystem because they provide a more comprehensive range of products and services, leading to higher user effectiveness and margin engagement. We expect them to gradually unlock financial values in the future. And for international expansion, it remains an important strategy for us for this decade. On October 9, CETA officially launched in Riyadh, Saudi Arabia, marking significant steps in our journey from China to the global markets. In the long run, we will bring our high-quality services and products to more merchants and consumers around the world and help more people eat better, be better. We firmly believe that local commerce has huge potential in digital transformation. As the industry's leading player, Mesa will actively adapt to the ever-changing environment, continue to innovate, and drive digital transformation of the whole industry. We will continue to satisfy consumer demand, empower and support merchants in their operations provide more care for our careers with career development support and deepen collaboration with all partners in our ecosystem. We will also uphold our social responsibility, navigate through cycles together with our ecosystem partners, and create more value for the whole society. With that, I will turn it over to shall wait for an update to our latest financial results. Thank you, Shane. Hello, everyone. I will now go through our third quarter financial results. During this quarter, our business sustained healthy growth with our total revenue increasing by 22.4% year-over-year to RMB 93.6 billion. Cost of revenue ratio decreased 4 percentage points year-over-year to 60.7%, primarily due to improved gross margin of our goods retail business and lower delivery cost as percentage of revenue in our on-demand delivery business. Selling and marketing expenses ratio decreased 2.9 percentage points year-over-year to 19.2%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 5.7%, primarily benefiting from improved operating leverage. Q&A expenses ratio was 3%, remaining stable on a year-over-year basis. Our focus on stimulating quality growth and improving operating efficiency showed substantial year-over-year growth in total segment operating profit and operating margins. total segment operating profit increased from RMB 5 billion to RMB 13.6 billion, and total segment operating margin increased from 6.5% to 14.5%. On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 12.8 billion this quarter. Turning to our cash position, As of September 30, 2024, we maintain our joint net cash position with our cash and cash equivalents and short-term treasury investments totaling RMB $134.2 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB $15.2 billion. Now let's look at our second result. starting with core local commerce. Order volume growth for all-demand delivery maintains 15th year of the yearly quarter. Our expanded supply, optimized operations, and marketing strategy have effectively stimulated consumer demand during key marketing campaigns and holidays. We also successfully converted small food delivery users to maintain instant shopping users and stimulate their purchase frequency among non-food categories. Our in-store hotel and travel business continues its rapid growth. Notably, demand for local services remains strong with in-store number of transactions surging nearly 60% year-over-year this quarter. Categories such as sports, leisure and entertainment, shopping, and infrastructure all experience a rapid growth. Following the organizational restructuring, we have deepened collaborations and enhanced cross-sells among different businesses. Shen Hui Yuan, our first marketing scheme for integrating our marketing efforts in core local commerce, has demonstrated initial success. sliding frequency increase of our core users for in-store hotel and travel services. Meanwhile, as we refine our strategy for expanding into lower tier markets, we have not only gained a better position, but also accelerate the number of transactions growth in our in-store business through the money cities. Our Colorful Common Segment delivered strong year-over-year revenue growth of 20.3%, an acceleration from the second quarter, reaching R&D 69.4 billion. The evolving consumption trends continue to draw varying degrees of impact on average order value, but we saw the decline in average order value of only-buy delivery continue to narrow this quarter. delivery services revenue grew faster than the order volume of on-demand delivery on a year-over-year basis due to social reasons. On one hand, user incentives deducted from delivery service revenue decreased as a result of the national rollout of Shenhui Yuan. On the other hand, a growing number of merchants who previously fulfilled their costs using their own fleet or other channels to maintain delivery service due to our higher cost efficiency. Additionally, the proportion of long-distance, long-time, and large-size orders continue to increase, which further boosted the growth in delivery service revenue given the higher delivery cost. Admission service revenue maintained healthy growth, primarily driven by the rapid order growth. partially offset by the decline of AOV across various categories. And so commission services revenue saw a much faster year-over-year growth than on demand. As a result of its stellar growth of transaction orders, the growth for hotel travel lagged behind due to last year's high space, as well as more balanced supply and demand. With respect to online marketing service revenue, we are pleased to see multiple delivery and existing shopping merchants opting for our advertising services. This is due to our improved marketing solutions that meet their growing needs and enhance their marketing efficiency. However, online marketing service revenue growth for in-store hotel travel continues to trail behind mainly due to the change of subscription service charge. Colorful common segments of paid profit and operating margins both improved significantly on a year-to-year basis to R&D 14.6 billion and 21% respectively. We continue to benefit from the abandoned supply of and optimized delivery capacity structure. On top of that, as the scale of PINHAR funding increased, we also benefit from the efficient group delivery model of Pinghao Bank. Meanwhile, we improved marketing and operating efficiency across all core local commerce businesses. As a result, we further optimized cost and expenses this quarter. As the business scaled up, we also realized greater operating leverage. The sequential decline in core local commerce operating margin was due to feasibility. We provided more incentives to queries working in hot seasons and extreme weather conditions in summer. We also sent more user incentives, promotions, and advertising spaces to stimulate demand during summer season and enhance consumer awareness of new products, especially through Shen Hui Yuan. Turning to our new initiative segment, during this quarter, Revenue in this segment increased by 28.9% year-over-year to RMB 24.2 billion, mainly due to the development of our goods retail businesses, particularly from Kuali and the Xiaoxiang supermarket. In time, the segment operating loss and operating loss ratio both narrowed on quarter-over-quarter and year-over-year basis. to RMB 1 billion and 4.2% respectively. MyTranslate continues to narrow loss on a sequential basis. For the other new initiatives, excluding MyTranslate, we continue to realize efficiency improvement while maintaining healthy growth and continue to make profit on a collected basis this quarter. With regard to our buyback program, Year-to-date, we have repurchased about 4.2% of the total shares outstanding. The company's total outstanding shares have significantly decreased this year. To conclude, our call of commerce showed healthy growth alongside improvement in profitability. At the same time, our focus on efficient improvement in our new initiatives has resulted in ongoing reduction in losses. Moving forward, we will maintain our focus on quality growth strategy while consistently enhancing our operating efficiency. We also anticipate increased synergy among our protocol business in the future. Overall, we remain confident in the strength of our business fundamentals and our long-term growth prospects. With that, we are now open for Q&A.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Yao Jiang with SciTech Securities.

Hi, thank you, operator. Hi, good evening, Madeline. Thanks for taking my question. My question is about food delivery business. And we noted that Meituan announced a series of initiatives at the catering conference held in September to support industry development and help merchants better withstand the current challenges. Can you please share more details on these initiatives? And will the company increase investment going forward? And given the large scale for the delivery business currently, how should we project future growth? Thank you.

Thank you, Jiayang. I believe as consumer demand evolves, it's very important for the whole food service industry to adapt to those changes in order to achieve sustainable growth. Under this new environment, we are committed to being a trusted partner for restaurant merchants to enable their growth. we want to support merchants in growing their customer base and better managing their customer relationship through the vision cycles together with our ecosystem partner we aim to drive the health healthy and sustainable growth for the food industry upper service industry and the food delivery industry to achieve that We upgraded our merchant support program known as Ban Sheng Ji Hua. We introduced the initiative to promote industry innovation, unlock market demand, and boost merchant confidence. To address merchants' concerns on the industry's over competition, we streamlined our merchant marketing tools to make sure that our traffic distribution mechanism remains reasonable and SAM during the marketing campaigns. Regarding ecosystem development support, we now offer six 12-month commission rebates for branded satellite stores in . We already provide AI-powered location selection services to over 500 brands which operate, which opened branded satellite stores. And we also launched matters on food safety together with our merchants to enhance their food safety management and help them mitigate food safety issues that may raise consumer concerns. As we recently announced, we will also offer a subsidy to support the merchants We focus on product development and business innovation with an initial total amount of IMB 1 billion. We will provide the cash and other types of subsidies to help Americans optimize supply chain, enhance service quality, and launch more valuable money products, thereby helping them improve efficiency. We will support mass merchants to explore new supply and innovative business formats and encourage high-quality brands to tap into the lower tier markets. We will also provide time-honored brands Laozihao with free online operating tools and services, assisting their online operations and marketing. With all these methods, we hope to help merchants market opportunities and become industry frontrunners. Additionally, for newly onboarded small and medium-sized merchants, we already extended our full-track support period from seven days to a maximum of 14 days, helping them to ramp up their business daily. Our food delivery business has reached a relatively mature stage of high public roads. Nonetheless, we believe it's inevitable that food away from home offered by restaurants will address more households' dining needs and will continue to expand its standard of scale. As an essential component of food away from home, food delivery is becoming a lifestyle choice for an increasing number of people. and has significant potential for future growth. We are the go-to platform for food in China, with a large base of high-frequency users. We are well positioned to benefit from this industry growth. With the younger generation entering college and starting their careers, the user base of our business is set to expand naturally. Additionally, we see good growth trends in both consumption frequency and R pool among our mature cohorts. Notably, the initial frequency and R pool of new cohorts are higher than those of mature cohorts, and their growth rates are also faster. This dynamic will drive the long-term sustainable growth of our food business. Overall, we believe that the food service industry can achieve long-lasting growth with significant potential. We are confident that our food delivery business can sustain steady growth even at its current scale. During the current transformation phase of the industry, we will work closely with restaurant merchants to turn challenges into opportunities. Building a healthy and truly beneficial ecosystem takes time, and our recent initiatives are just the beginning. Moving forward, we will enhance our support for the industry, helping merchants better navigate cyclical challenges and achieve sustainable and healthy growth together. Thank you.

Thanks, Xin Ge. Your next question comes from Ronald Hung with Goldman Sachs.

Thank you. So I want to ask about core local commerce with quite a few stimulus policies that we've seen introduced recently. Has Meituan seen any momentum pick up in your business so far? And as we look into next year, how should we project the growth of core local commerce next year and how we balance growth and profitability. Thank you.

Thank you, Ryan. A question on local commerce. Yes, we noticed that from the end of September onward, various monthly and fiscal stimulus measures have been announced. We think these measures aim to restore consumer confidence and realize the huge potential of consumption in China. on our own platform, we also noticed that consumption in hotel travel during the national day holiday pick-up in October, year-over-year decrease in the average order value of our particular business narrowed compared to the past few months. While it will take some time for the positive effects to fully materialize and to further pass on to more consumption categories, We are confident that this policy will gradually provide more support for a real economy and incentivize consumer spending, bringing more growth opportunity for our business. We have also actively adapted to the changing consumption trends to better meet consumer demands and market needs since the beginning of this year. We penetrate deep into the industry supply chain and explore new supply formats, such as Pin Hao Fan, branded satellite stores, 品牌卫星店, and 美团 Instamart, 美团闪电厂. By leveraging our platform advantages and promotional campaigns, we refined our content capability, improved marketing schemes for Mac heat products, and effectively enhanced our pricing competitiveness. Additionally, we captured the rise of content economics, changing heat, and younger consumers. and accelerate the penetration of our in-store business into lower tier markets. As a result, merchant base, consumer base, and transaction volume all increased significantly in the lower tier markets. As we continue to integrate and upgrade our Sanhui event program, we've achieved more cross-sales among call local commerce and that enhanced the purchase frequency and consumption categories of our call consumers. These proactive measures enable us to grow resiliently in the first half of the year as well as the third quarter. Regarding your question on the growth next year, we will continue to implement and accelerate these strategies and strengthen our brand awareness. We are confident that our quality performance will maintain healthy growth. All the changes in consumption trends may pose challenges We believe our on-demand retail business will continue to grow steadily from the current scale. In particular, Meituan Instant Shopping will benefit from the online digital transformation and our continuous efforts on both supply side and demand side. Its growth will continue to significantly outpace food delivery growth. We will facilitate more cross-sell between food delivery and Meituan Instant Shopping and boost For the new stock business, there is a large potential as consumption trends continue to evolve and considering the vast opportunities from accelerating online penetration and lower tier markets. Therefore, we expect healthy growth to continue in the coming years. Meanwhile, we will further accelerate our Shanghai membership program. explore more ways to cross-sell and penetrate more synergies among core local commerce. About the question between growth and profitability, we continue to believe growth is our top priority, but at the same time, we will focus on profitable growth or high-quality growth. We will also pay attention to maintain a healthy ecosystem Under the current environment, merchants on our platform need more support. Therefore, we will continue to invest into our ecosystem. A healthy ecosystem will also lead to stronger long-term competitive mode for us. During this process, we will focus on efficiency as well. Our goal is to generate high-quality growth, achieve strategic targets, and ensure steady and sustainable profit growth year-over-year. Thank you.

Thank you, Xiaohui.

Your next question comes from Gary Yu with Morgan Stanley.

Hi. Thank you, management, for the opportunity to ask questions. I have a question on instant shopping. How should we size the eventual penetration of quick commerce on online retail goods or sales? And how will Instamart play a role in accelerating the inter-shopping penetration? How are the potential new categories that we have not yet penetrated that have good growth potential? Thank you.

Thank you, Jerry. I'm glad you raised the question on inter-African shopping because we do believe that this is a high potential area for a company. In the last few years, we have seen that on-demand retail has profoundly changed people's lifestyles. It also transformed the whole retail industry. Now, consumers believe that everything could be delivered to your doorstep within 30 minutes. The industry has developed a highly efficient and dynamic flywheel. It will play a crucial role in the retail sector in the future. We believe in the long-run on-demand retail will account for at least over 10% of the total e-commerce market. Over the past three years, we continue to broaden supply of Meituan Instamark, running more closely with continuous needs in on-demand retail. We upgrade our technology and infrastructure and penetrate deeper into the supply chain, These efforts have scaled up market demand, particularly in the low-income markets. Currently, there are over 30,000 Meituan estimates across various categories, including over 10,000 owned demand-designed convenience stores. More importantly, large retailers are now partnering with us In Taiyuki, the Minnesota is a standout example, surpassing our location in the Instamart extension. With its strong product capability, 30% of its Instamart products are now online exclusive, a figure set to grow with more products customized for all-demand retail. We anticipate more large retailers will join us in the future because Medtron Instamart provides an efficient growth model for them. Their participation will enhance our product variety and quality and elevate user experience. Overall, we see growth opportunities for Medtron Instamart in every city and town where our food delivery services is available. It helps accelerate on-demand retail penetration We also recently launched a supporting program known as Banxing Jihua to provide comprehensive support and resources for our Meituan Eskimo merchants and related parties. We are confident that Meituan Eskimo will reach a GTB scale of over 200 billion RMB by 2027 with over 100,000 stores covering all categories in broader regions. There are numerous new categories in on-demand delivery with very low penetration. Going forward, we plan to introduce more brands and merchants and continue to allocate resources to drive growth. The young convenience store, Meituan Instant Mart, covers a wide array of categories catering to every aspect of consumer life. We have Meituan Instant Mart that's dedicated to electronics and the home of clients, mom and child products, daily necessities, apparel, beauty products, pet care, roof cut, flowers, medical equipment, and more. In the future, Manchuan Eastern Mart will continue to expand and penetrate deeper into lower-tier markets, enhancing the supply of long-tail product categories. Thank you. Thank you.

Your next question comes from Thomas Chong with Jefferies.

Hi, good evening. Thanks, management, for taking my question. My question is about the in-store hotel and travel segment. So for in-store hotel and travel, could you share some more about the recent progress in Shenhui Yuan in the lower tier cities? And how has the competitive landscape evolved? What is our expectation for the operating margin next year and in the long term as the landscape stabilizes. Thank you.

Thank you, Thomas. In July, we expanded the Sun Hui Yuan program to keep track of our quality performance and roll out to a nationwide scale. Since then, we have made notable progress across product, merchant, and consumer sites. For in-store hotel and travel, the number of participating merchants has surpassed 50% with an increasing portion of orders using Shenzhen. Our integrated marketing scheme and services has enhanced consumer awareness in Shenzhen's value for money offerings. We aim to gradually direct over 100 million Shenzhen members from food delivery to in-store hotel and travel services. Honestly, Shen Hui Yuan has directly increasing traffic to install object travel with continuously improved impact on acquiring new users, engaging inactive users, and increasing transaction frequency. Looking forward, we will continue to expand Shen Hui Yuan category coverage and iterate our product offerings. We will continuously enhance commercial rate through refined customized operations. which will also help merchants efficiently acquire traffic and increase transaction volume, as well as enhance user and merchant engagement with the platform. For in-store business, there is a large potential for digital transformation in lower-tier markets. This year, we actually launched onboarding in this market. By leveraging our platform's traffic and online operational tools, we support merchants in their rapid expansion, especially for restaurant merchants, leisure and entertainment merchants, trying to penetrate into the lower-tier markets. Our diversified offerings enable local consumers to enjoy the discounts and convenience brought by online penetration. Additionally, we capture new opportunities tourism, ,, addressing diverse tourist needs, such as special group tours, travel photography, experience, spa services, and . As a result, our in-store business achieved high growth in markets. Regarding competition, our primary focus remains the long-term healthy development of our business. In the local commerce industry, We differentiate for our major competitors in the business models and operating strategy, and we have differences in tech-tethering mix, merchant type, merchant scale, and marketing efficiency. We hold a still market share in our core categories. Recently, the industry has become more rational and efficiency-oriented. The merchants are increasingly focusing on the ROI of their daily operations and marketing spending due to the current competitive environment. Our easier-to-use and higher ROI marketing tools combined with our comprehensive services across all business cycles, scenarios, and product types will help us further solidify our supply-side advantages. We will provide merchants with more cross-business traffic and comprehensive services through our integrated operations. We will continue to monitor the progress of our competitors closely, but we will also focus on how to innovate our product formats, refine our operations, and advance efficiently. We remain highly confident in our long-term competitive strength in the inter-hotel trial business. As mentioned earlier, following our organizational restructuring, our in-store just cloud business will prioritize order volume and user-based extension because they are key drivers for GTV growth. Regarding the question on profit, we focus on operating profit growth rather than operating margin, since the range of operating margin is impacted and 50 tiers, and also seasonality. As you have seen in the last few quarters, we have been able to maintain a relatively healthy and continue to improve. We are confident that in scale potential of the market and the sustainable growth of our business, as the competition specialized in the medium to long term, and more synergy emerged will be steadily improved in our presentation on end-stop hotel travel. Thank you. Thank you.

Your next question comes from Kenneth Bong with UBS.

Hi, good evening, management. Thank you for taking my question. I have a question on the overseas expansion. How is QITA expansion progress in Saudi Arabia? Will the expansion... beyond Saudi take a gradual pace, or will you expand it to the other Middle East cities fairly quickly? How do we assess return advantage and disadvantage in the Middle East market? And what are plans for the overseas investment? Thank you.

Thank you, Kenneth. Thank you for bringing attention to Qatar. Because Qatar is still so small and in an earlier stage, So first let's come to the fact, we on October 9th, we officially launched a Qatar in Riyadh, the capital city of Saudi Arabia. So we are less than two months old in Riyadh. And actually one month before that, in the beginning of September, We tested water in a small city near Riyadh, Al-Hajj. So in total, we have been operating in Saudi Arabia for two months. So I think it's still in very early stage. But so far, I would say we have seen very encouraging progress, very encouraging results. Because we have get some support from both consumers and local merchants. So when we go there, we see very positive feedback from both consumers and merchants, and also the local debris partners. And also, in general, Saudi people are very nice people, and they are all very positive about the future of their economy, about their country. So that's very encouraging. So when we go there, we believe we can bring value to local customers and local ecosystems. We understand it's not an empty market. It's not a greenfield market. There are already several local players. But we believe Meituan and Kita can bring some new value proposition. So I think that here the message is very clear. We want to convey that message loud and clear to all customers. Teta is faster. Because we don't process the food, we take orders, we take online orders, and we deliver food. So our value proposition is very clear. Teta is faster. So I believe that's what consumers want when they order. especially in Riyadh, such a big and sprawling city. So speed is very important. And because of our original cloud and our technology platform developed in China over the past 10 years, we know how to organize the network. We know how to deliver food faster. I think that's what consumers want. So because we are still in very early stage, so I think it doesn't make sense for us to talk about plans beyond Saudi Arabia. So we are only operating in one major cities. And Saudi Arabia is a big country with many other cities that we would like to get to. So for a time being, we focus on Saudi Arabia. Either in Riyadh, I think, because Riyadh is growing quickly, right now approaching 10 million population, I think there's a lot of room for growth for us there. But in a longer term, of course, Riyadh wants to become a global company, or a company with a global presence. We want to bring our product and services to the audience. And the mission of our company is to help people use the battery method. It's not limited to Chinese people. So we would like to go to other markets where we believe we can create value for both consumers and local merchants. And so, and it is very clear, global expansion will be our long-term strategy. and we are going to stay very open-minded to all kinds of opportunities in all regions. But at the same time, we are not going to rush into any decisions. So we have to be very patient, and we want to make sure every decision we make is well informed, and we don't want to rush into a market. We now know local culture, we now know local ecosystem, or without the support of local regulators. So here I think it's very important for us to show respect to every party in our ecosystem. We want to make food delivery a utility for more consumers. I think it's very important to make food delivery become a daily habit. We have seen that become a reality in China. We believe that the potential to make that a reality in many other countries, many other markets. But at the same time, we know it will take more time. So we are not going to rush. So, yeah, stay tuned. Thank you.

Thank you, Shingo.

Your next question comes from Charlene Lu with HSBC.

Good evening, management. Thank you for taking my question. I'm speaking on behalf of Charlene. With the recent $2.5 billion US dollar CDN notes issuance and a strong free cash flow generation, what does management see as an optimal annual shareholder return as a percentage of free cash flow profits are going forward? And will the company be more opportunistic in buybacks going forward? Thank you.

Thank you. From the beginning of September to the days before the blackout period, we have repurchased over USD 600 million worth of shares. And a year today, we have repurchased around 4.2% of total shares. we saw growth from 2021 to 2023, not significantly reduced our total outstanding shares. As we mentioned before, we aim to enhance long-term shareholder returns through business growth opportunity and balanced capital allocation. In September, we issued USD 2.5 billion in senior notes after our credit ratings further upgraded by three rating agencies. The proceeds will be used primarily to retain our maturing senior nodes and convertible bonds that are subject to early exercises or options in the coming years and for general corporate purposes. After the issuance of the senior nodes, we now have more ultra-cash reserves to support our overseas expansion and future shareholder return initiatives. Going forward, we will dynamically access of capital allocation strategy and shareholder return. Share buyback remains to be the primary approach at this stage. We will offset this solution through share buyback and seek opportunity to further reduce total shares outstanding. At this stage, we cannot commit to a fixed proportion of cash to be used in shareholder return each year, but we will remain flexible in the amount and execution. investment plans, offshore cash reserves, debt repayments, and stock performance. Thank you.

Thank you.

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

Okay, thank you for joining our call today. We look forward to speaking with you next time. Thank you for your support, as always.

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