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.