MEITUAN-W: Not willing to lose, will continue to invest.

Here is a summary of the MEITUAN-W 3Q23 conference call. For a detailed analysis of the financial report, please refer to the article "MEITUAN-W: Can it continue to withstand the pressure?".

Q: How will the demand and growth of food delivery be affected by the current macro environment and consumer sentiment? Has the medium to long-term growth target for food delivery changed? Will it have an impact on flash purchase?

A: The number of on-demand delivery transactions increased by 23% YoY, with a peak daily order volume of 78 million during the summer, doubling from three years ago. MEITUAN-W's flash purchase business also maintained rapid growth, with a peak of 13 million orders on Qixi Festival.

Consumers are more concerned about value for money, so we have expanded the supply of high-quality and affordable options and accelerated the "Good Food Together" strategy and efficiency to better meet consumers' demand for more efficient food delivery. For consumers who prefer high-quality or group dining, we also provide cost-effective options through "Super Deals". We stimulate consumers' non-immediate demand through live streaming. We have also optimized our membership program to increase transaction frequency.

The 2-year CAGR of flash purchase order volume reached approximately 50% in the past three quarters. In the third quarter, demand in various scenarios continued to increase, especially in the nighttime and travel scenes. Research shows that MEITUAN-W flash purchase users order food delivery more frequently than non-flash purchase users, representing our high-quality user group with stronger purchasing power and loyalty.

Q: What is the forecast for food delivery and flash purchase in Q4?

A: The 2-year CAGR may be similar to the first 9 months of this year. Several factors that affect the growth of order volume: 1) the impact of the current macro environment; 2) the hot weather in October and November, which is not conducive to the growth of winter food delivery demand; 3) more people returning to offline consumption. The base of MEITUAN-W flash purchase in Q4 2022 is relatively high, but it will still maintain growth. We expect the 2-year CAGR of order volume in Q4 to be approximately 45%, significantly exceeding the overall e-commerce growth.

Forecast: 1) Food delivery: We believe that the YoY growth of food delivery revenue will be slightly lower than Q3; flash purchase revenue growth will be similar to the order volume growth. The YoY AOV of food delivery will decrease, mainly due to a higher contribution from large family orders and long-distance orders in the same period last year. At the same time, the comprehensive recovery of small and medium-sized enterprises and changes in consumer behavior this year have led to a significant decrease in the AOV of food delivery in Q4. 2) Flash purchase: The demand for daily necessities and medicines was very high last year, so the AOV in Q4 also had a high base. Moreover, due to strong demand last year, our investment in marketing and subsidies was relatively low. In the current consumer environment, we are increasing marketing efforts to stimulate demand, and higher subsidies will offset the revenue in terms of profit.

Q: How does the macro environment affect the in-store travel business? GTV growth forecast?

A: In the first three quarters, macro data shows that China's demand for service retail is still very strong, and our in-store travel business also maintained high growth in Q3. In this environment, more consumers who shop online are pursuing cost-effectiveness and will compare prices from different channels before making a purchase. Our plan is to provide a variety of coupon and package options, and we have a say in package pricing, which can help businesses design packages to attract consumers. Our quarterly active merchants and transaction users have set new records, and there is still a lot of room for online penetration. Now, some new consumer trends are emerging, and we are closely following the trend to innovate services to meet consumer needs. We also conduct low-price promotions through "special group buying". The GTV contribution from live streaming sales of value-for-money packages has grown rapidly in Q3. In summary, we expect this business to maintain a high growth rate in the next two years.

Q: How did the in-store travel perform during the Mid-Autumn Festival and National Day holidays? Q4 growth and market competition?

A: In the past two quarters, we have been strengthening our live streaming capabilities. The average number of live streams per day in September increased by 300% compared to June. During the National Day Golden Week, GTV even increased more than 40 times. We also launched various promotional activities themed around festivals, which increased the daily transaction value of in-store and travel compared to 2019 by over 150%. Many tourist destinations experienced a significant increase in popularity during the Golden Week. 1) Hotel business: We released the latest "Must-Stay List" and added a live streaming section for these merchants, resulting in a 120% increase in orders compared to before the holidays. 2) Service retail: We have improved and diversified our marketing strategies. We have enhanced our content capabilities and provided more marketing tools for merchants. We hope to further increase our existing user share and penetrate the sinking market, so in Q4, we expect to further increase marketing expenses and significantly expand our local business development team in the sinking market.

As for competition, we believe that the online penetration of the local service industry still has huge potential, and competition helps accelerate this process and forces us to work harder on innovation and proactive transformation. We need to make short-term investments to develop new markets or optimize products, which may have an impact on short-term profitability, but we believe it will help us maintain long-term sustainable growth. Looking ahead, we will dynamically evaluate investment ROI and allocate resources accordingly.

Q: New business growth and loss reduction both face challenges, especially the preferred business. Will there be any strategic adjustments? When can MEITUAN-W's preferred business be expected to turn losses around, and how do you foresee its long-term profitability?

A: 1) Ride-hailing business: In March of this year, we ended the self-operated model and fully transitioned to an aggregation model, so the ride-hailing business may decline compared to the same period last year. 2) Kuaidou business: The platform model is growing faster, and the 3P model is accounted for using the net method in financial statements, so the overall growth rate may slow down. After more than 2 years of development, Kuaidou and SaaS business have become the top in the country, which has also increased merchant loyalty. The bike business has been profitable for two consecutive quarters from an EBIT perspective. 3) MEITUAN-W Mai Cai and MEITUAN-W You Xuan: Both had a high base in June last year. This year, overall consumer spending has declined, coupled with the recovery of offline consumption, which has indeed put pressure on the MEITUAN-W You Xuan business. However, You Xuan is still an important part of our retail business, bringing us new users, increasing user consumption frequency, and cross-selling opportunities. We will adjust our strategy and continue to improve the performance of the You Xuan business.

Q: The company has abundant net cash flow. Does the company have a repurchase plan?

A: Our overseas debt is affected by high US dollar interest rates, and the bottom line is to ensure sufficient funds to repay interest. At the same time, on the business side, we are also looking at overseas investment opportunities and investment opportunities related to our business, participating in industry transformation and consolidating competitive advantages through investment. The current stock price does not match the company's intrinsic value. The board of directors has approved a $1 billion repurchase plan, and the company will implement it based on comprehensive considerations of business investment, cash flow situation, and market conditions.