Dingdong Q3 Review: Losses Narrow Sharply, Q4 May Turn Losses into Profits

22Q3 achieved GMV of RMB 6.512 billion/yoy-7.2%, with a revenue conversion rate of 91.3%, up 3.1 pcts from the same period last year, and average order value (AOV) up ~25% yoy.

By segment, merchandising revenue was 5.872 billion yuan/yoy-4.1% and service revenue was 0.70 billion yuan/yoy+4.4%. Revenue was affected by the high base due to the significant coupon issuance to pull new in 21Q3, and shrank slightly year-on-year. In terms of user performance, high quality and price product power building strategy to build a stronger user mind, customer stickiness continues to improve, net retention rate reached 84.2%, per capita GMV contribution of more than 400 yuan per person.

Benefiting from the maturity of the supply chain construction and the company's deepening participation, 22Q3 gross margin 30.0%/yoy +11.8pct, in the long run, the proportion of direct procurement & higher gross profit of own brand ratio is expected to drive the company's overall gross margin continue to improve.

22Q3 fulfillment expenses 1.595 billion yuan/yoy-30.9%, fulfillment expense ratio 26.8%/yoy-10.5pcts, mainly due to the company's warehouse staff & site distribution efficiency optimization is obvious, first-line distribution site distribution efficiency increased by 15.8%, warehouse staff efficiency increased by 29.6%. Q3 sales expenses of 130 million yuan, -70.3% year-on-year; current revenue accounted for Administrative expenses were RMB 120 million, -21.5% year-on-year, accounting for 2.0% of revenue, down 0.4 pct YoY.

Non-GAAP net loss of 285 million yuan, compared with - 1.976 billion yuan in the same period last year, the company expects to achieve a break-even in Q4 Non-GAAP caliber, the profit inflection point or verify the strong vitality of the front warehouse model.

As an industry leader in front warehouse model, the company has a double flywheel effect of building differentiated product power + operational efficiency & cost management optimization to drive continuous growth in performance, and the inflection point of break-even is expected, and the blood-making ability of business model is expected to be verified in advance. In the future, profitability is expected to continue to improve as product structure & customer structure continue to be optimized, the proportion of own products such as pre-made dishes increases, and regional expansion tightens cost control carefully. CITIC Capital Securities has a target price of $6.33 for Dingtone and maintains a Buy rating.