How did Meituan achieve growth against the wind?

The following is a summary of Meituan's second quarter financial report conference call in 2024. For financial report analysis, please refer to " Returning to "Little Sweet", is Meituan the Real Divine Needle of Dinghai? 》

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Business Progress

① Food Delivery

a. The number of annual active users has increased to 730 million, with a continuous increase in the number of active merchants.

b. Expanded cooperation with restaurant brands, partnering with about 90,000 restaurants and 46 restaurant chain brands, promoting "Instant Delivery" service to enhance user experience and order conversion rate.

c. Peak daily orders for Pindao meals exceeded 8 million, significantly improving the supply of low-price, high-value products, leading to a significant increase in user retention rate and order frequency.

d. The growth rate of late-night snack orders exceeded the overall business average growth rate, with a nearly 40% year-on-year increase.

e. Meituan Flash Purchase achieved strong growth, with a significant increase in annual transaction users and order frequency, expanding brand partnerships in various areas such as fast-moving consumer goods, clothing, and beverages.

f. In the pharmaceutical category, a non-prescription drug online medical insurance payment channel was opened, enhancing the supply capacity of health products and further consolidating consumer mindshare.

② In-store, Hotel, and Travel Business

a. Order volume increased by over 60% year-on-year, reaching historical highs in the number of annual transaction users and active merchants.

b. Introduced the Meituan group buying brand, utilizing operations models such as special price group buying to meet consumer demand for high-value products, driving growth in the scale of transaction users and order volume.

c. Must-Eat List covers over 100 cities and 2,800 restaurants, providing online traffic support and operational guidance to help merchants increase exposure and operational efficiency.

d. Significant growth in transaction amount in lower-tier markets, launching in-store instant delivery services for dining, enhancing user convenience experience, and attracting more small and medium-sized restaurants to join the platform.

e. GMV and order volume in the leisure and entertainment category increased by over 60% year-on-year.

f. The hotel business achieved growth in the second quarter, with increases in room nights and GMV, increased demand for lower-star hotels, and significant improvements in transaction conversion rate and room nights. In the high-star hotel sector, more than 1,100 hotels were added in 2024, including in Hong Kong and Macau.

③ New Businesses

a. Revenue from new businesses increased by 28.7% year-on-year, while operating losses narrowed by 74.7% year-on-year. Meituan Select, Xiaoxiang Supermarket, and other new businesses performed well b. Xiaoxiang Supermarket's development exceeds expectations, extending its operating hours until 2 a.m. to capture more consumption scenarios.

c. B2B catering supply chain services, catering management systems, shared bicycles, and power bank businesses have all achieved steady growth, further building a healthy ecosystem and increasing consumer and merchant engagement.

d. In terms of new businesses, the focus is on improving fulfillment capabilities, optimizing resource allocation, and promoting the high-intelligent development of local businesses in China.

④ Shareholder Returns

a. This quarter, the company repurchased over $2 billion worth of shares, accounting for more than 2.1% of total outstanding shares.

b. The board of directors approved the cancellation of all repurchased shares to further reduce the number of shares outstanding.

2.2 Analyst Q&A

Q: The current macroeconomic environment presents significant challenges, especially against the backdrop of weak consumption in the catering industry. How do you assess the impact of these macroeconomic changes on Meituan's core local business? What strategies does the company have to address these impacts? What are the growth expectations for the company in the current macro environment?

A: Changes in consumer trends have indeed brought challenges to the industry, but Meituan's local business remains vibrant as we can effectively meet consumers' demands for personalized and diversified experiences. By providing a variety of products and services, we meet consumers' needs in dining, leisure, entertainment, and other areas, while continuing to explore new supply formats and optimize products to capture emerging trends and achieve long-term growth. Despite external factors affecting the growth of order volume, our refined operations drove growth in mid-to-high-frequency users and purchase frequency in the second quarter. Particularly through new supply formats, we successfully attracted price-sensitive users and brought new growth momentum to small and medium-sized restaurants and branded restaurants. The contribution of these new order formats continues to increase, and through an efficient group delivery model, the cost per order is significantly reduced. Therefore, we will continue to delve into the supply chain to help merchants improve efficiency and pricing capabilities, while providing consumers with valuable products.

In terms of in-store shopping, although changes in consumer trends have affected the average order value, the growth in order volume remains stable. The potential online penetration of on-demand retail in different geographical regions and categories is enormous, and new supply formats such as Meituan Instant Supermarket are widely recognized for their efficiency, especially in the penetration rate of on-demand retail in low-density areas. This growth momentum is expected to continue and will further drive user frequency and ARPU. For in-store hotels and travel services, although the overall penetration rate is still relatively low, consumer demand for local services remains strong. We see order volume growing by over 60% year-on-year, and user stickiness continues to increase. With a rich variety of categories and flexible pricing strategies, our business model demonstrates strong resilience. In addition, through features like live streaming discounts, we actively stimulate consumption, especially in lower-tier cities, as we are actively seeking more growth opportunities In summary, we are confident in the steady growth of Meituan's core local business segment. We believe that through digital transformation and adapting to changing consumer demands, we will continue to seize long-term growth opportunities and withstand the adverse effects of the macroeconomy.

Q: As the company continues its organizational restructuring, can management share the synergies achieved so far? Additionally, could you provide the latest updates on the upgraded membership program? When can we expect to see more synergies?

A: Since the organizational structure adjustment, we have deepened cooperation between different businesses, especially in areas such as cross-selling, product development, research and development, and marketing to achieve integrated operations. The upgraded membership program has become the first successful case of integrated marketing. This program has accumulated over 100 million members for our food delivery business, significantly increasing the frequency of instant delivery users and bringing substantial business growth to restaurant merchants, enhancing their marketing efficiency.

We have also expanded this membership program to more categories such as in-store hotels and tourism, providing consumers with more value-for-money products. These membership benefits have attracted food delivery users to explore new categories such as health, loans, massages, home cleaning, and accommodation, prompting low-frequency users to transact more frequently in multiple categories. On the merchant side, the membership program enables us to collaborate more efficiently with a large number of merchants, providing them with extensive user traffic and offering more comprehensive marketing tools for in-store merchants, driving cross-selling from food delivery to low-frequency in-store services. Currently, the program covers over 2.5 million in-store hotels and tourism merchants, with many merchants experiencing significant growth in order volume and user base. We have also launched other cross-selling initiatives, such as introducing special room types in tourism scenarios that offer free food delivery vouchers, meeting consumers' food delivery needs during hotel stays, thereby driving growth in both businesses.

Overall, our organizational restructuring has a clear direction and has begun to enhance synergies between businesses. While quantifying these achievements is premature at this stage, we will remain patient, continue to focus on building long-term competitiveness through collaboration, and believe that these synergies will eventually lead to positive financial results.

Q: Apart from the macro environment, is food delivery also affected by the shift in offline consumption? Could you share the recent performance of food delivery and Meituan's in-store shopping? How do we expect the growth and profitability of instant delivery in the second half of the year?

A: Food delivery and in-store dining are two different models that cater to different demand scenarios. We have noticed that consumer demand for in-store dining is expanding from formal meals to more casual snacks and beverages such as food, coffee, and tea. By improving supply, optimizing product forms, and refining marketing, we have successfully captured this shift in demand, and the transaction volume of in-store dining business has maintained strong growth.

While this change may have some impact on the order volume of certain categories of food delivery, the overall impact is limited. We believe that the online penetration rate of food delivery is still relatively low and has significant room for growth, especially as we continue to expand food delivery supply and introduce new service formats Instant delivery services are the company's key driver of future growth. We aim to transition more consumers from simple takeaway users to users who make cross-purchases in a wider range of instant delivery scenarios. Currently, the growth rate of instant delivery services has exceeded that of takeaway services by 3 times, and we believe this strong growth momentum will continue in the coming years.

During key summer marketing events such as European events, the Olympics, and special promotions, our order volume maintained strong growth. On August 7th, our peak instant delivery orders reached 98 million, which was a significant milestone. We are confident that next year, during similar seasons, the peak orders will exceed 100 million. Looking ahead to the second half of the year, we expect the year-on-year growth in operating profit to exceed the growth in revenue and order volume. Although changes in consumer trends may affect the average order value, we expect the decline in order value in the second half of the year to normalize. With the expansion of our business scale, we also anticipate achieving more operational leverage and continuing to optimize subsidy efficiency. Additionally, we will continue to meet the demand from merchants for advertising and launch different advertising products to support this demand. We are confident in the future performance of both takeaway and instant delivery services.

Q: Competitors have increased subsidies in the local service market and are sticking to their annual Gross Transaction Value (GTV) targets. Could management share some insights on recent competitive dynamics? How do we predict the growth in GTV, revenue, the gap between GTV growth and revenue growth in the second half of this year, and the performance of the operating profit margin?

A: We see that the local service industry as a whole is maintaining very strong growth momentum, with online penetration continuing to rise. We are actively adjusting our products and operational strategies to adapt to this trend, with strong growth in order volume and GTV in the second quarter, with order volume increasing by over 60% year-on-year, and an improvement in operating profit margin on a quarter-on-quarter basis. We expect online penetration to continue to increase in the upcoming quarters.

Regarding the competitive landscape, we observed relative stability in the second quarter, with competition remaining rational. The industry has experienced rapid development in the past few years, with investments made in different business models leading to varying focus on category composition and merchant levels. We found our GTV verification rate to be significantly higher than competitors in core categories, so we are gradually shifting our focus to the market share of verified GTV in core categories.

Summer is typically the peak season for local services, with merchants investing more in marketing. We have expanded our membership program nationwide and launched a series of marketing activities and brand promotions. We believe that the industry will gradually shift from a growth strategy focused on subsidies to one that emphasizes return on investment. Looking ahead to the second half of the year, our business will be more focused on order growth and user base, with GTV expected to continue its growth momentum. The gap between revenue growth and GTV growth will significantly narrow. While the operating profit margin is influenced by various factors and is not our main focus, we expect solid year-on-year operating profit growth in-store business in the second half of the year.

Q: The revenue growth of new businesses accelerated this quarter, and Meituan Optimal significantly reduced losses. Can you provide a detailed overview of the overall progress of new businesses? How should we view the losses of Meituan Optimal and new businesses in the second half of the year? Additionally, with the expansion of food delivery business in the Middle East, how much impact does overseas expansion have on reducing losses?

A: In the second quarter, our revenue from new businesses increased by 29% year-on-year, faster than the first quarter and core local businesses, mainly due to strong performance in certain small provincial businesses. Although the new business segment is still operating at a loss, the losses have decreased, especially in the case of Meituan Optimal, where we have significantly reduced losses by improving operational efficiency. Since February, we have been more focused on improving efficiency rather than expanding market share, which will continue to optimize our loss situation in the second half of the year.

For Meituan Optimal, our focus is on achieving long-term sustainable development, which requires creating more value for consumers and building competitive advantages. Therefore, we remain optimistic about the long-term potential of the Chinese online grocery market and are exploring this market through different models. We will balance resource allocation among different models while adhering to financial discipline.

Other new businesses have also performed well in the first half of the year, exceeding expectations in efficiency improvement and achieving modest profitability in production. As for overseas expansion, although we are still in the early stages, we will continue to evaluate opportunities in different regions. The budget for overseas expansion is currently included in the overall budget of the new business segment, so the impact on overall operating losses is limited. We are confident in our long-term strategy for overseas markets, will continue to explore patiently, and maintain financial discipline.

Q: Regarding shareholder return policy, Meituan has already repurchased $2 billion worth of shares this year. Is management considering launching additional repurchase plans? Are there plans to cancel all repurchased shares? Will the company increase annual equity awards due to repurchases? What are management's views on formulating a more systematic and sustainable shareholder return policy in the future?

A: In this quarter, we repurchased over $2 billion worth of shares, representing over 2.1% of total outstanding shares, reflecting our confidence in long-term stock prices. The board has approved the cancellation of all repurchased shares to reduce the number of shares outstanding. Since the beginning of the year, we have repurchased 3.6% of total outstanding shares, exceeding the average annual equity grant of 1% from 2021 to 2023.

Looking ahead, we expect the average annual grant to remain stable at similar levels or slightly lower. Our management team is focused on enhancing long-term shareholder returns through business growth and capital allocation, prioritizing investments in high-return projects and increasing free cash flow. We will also consider expanding repurchase plans based on market conditions, cash flow, and investment needs. The board has just approved another $1 billion repurchase plan, further reflecting our confidence in business development. We will maintain a flexible strategy and continue to execute repurchase plans.

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