Meituan announced its second quarter and half-yearly financial report for 2024 on Wednesday. In the second quarter, Meituan's revenue increased by 21% year-on-year to 82.25 billion yuan, and its adjusted net profit increased by 77.6% year-on-year to 13.6 billion yuan, both exceeding market expectations. Local core business revenue achieved steady growth in the second quarter, with a year-on-year increase of 14.2% in the number of instant delivery transactions to 6.167 billion.

On Wednesday, $Meituan ADR (MPNGY.US)$ rose rapidly at the beginning of the trading session, surging more than 10% at one point, but the gain has now narrowed to 4%.

During the earnings conference call held that evening, Meituan CEO Wang Xing said that the company's operations in this quarter achieved very stable data, with steady growth in the instant delivery business and further improvement in operational efficiency.

According to Wang Xing, the fundamental goal of the recent organizational restructuring is to continue integrating the local business field and further improving operational efficiency. He hopes to further integrate instant delivery into the store, hotel, and tourism business.

In the future, Meituan hopes to empower businesses through the support of its platform's effective traffic, establish closer cooperation with merchants, create better synergy effects, and achieve more cross-selling opportunities.

Wang Xing said:

"Looking ahead, we will continue to adhere to digital transformation, promote the industry to obtain greater value in digitization, unleash long-term potential, adapt to changing consumer trends, delve deeper into the supply chain, and provide diversified products and services."

"Through our continuous efforts, I believe we can enhance value for all stakeholders in the ecosystem, promote the high-intelligence development of China's local business, and fulfill our mission of helping everyone eat better and live better."

In terms of share buyback, Meituan CFO Chen Shaohui said that the board of directors has taken corresponding measures, and everyone can further pay attention to the subsequent announcement of news.

Chen Shaohui said:

"Looking ahead, we will further develop our new business, improve efficiency, reduce losses, and seize new opportunities to achieve more growth and achieve a better balance between growth and profitability."

The following is a transcript of the analyst Q&A session:

Q1: The external environment is still full of challenges. What measures has the company taken to address the impact of the environment? What are the expectations for future growth?

We see that the constantly changing consumer trends have indeed brought different challenges to various industries, and we are still vibrant in the local business sector.

We see that consumers are increasingly seeking personalized and diversified experiences, and our products strive to be consistent with such experiential preferences as much as possible. We effectively meet consumers' needs in dining, film and television, entertainment, and other aspects. We have a wide range of categories and very competitive prices. In the future, we will continue to explore new supply forms, optimize the products themselves. I believe these measures can help us better capture new trends, respond to them, and meet a wider range of needs, thereby helping long-term growth.

In the second quarter of 2024, we see that some targets have been affected by the overall environment, but in the refined business scenarios, we continue to improve operational efficiency. For example, "Pinghao Fan" effectively meets the needs of price-sensitive consumers, and the number of orders in the second quarter continues to increase, which also becomes one of the driving forces for further growth of many small and medium-sized restaurants. This is because "Pinghao Fan" has a great delivery model, and this centralized delivery model is very efficient, which can help reduce costs in Shanghai. If we deliver separately, there will be many fragmented operating costs. By adopting this integrated model, we can achieve better efficiency.

The change in consumer trends has a very significant impact. One of the impacts is the reduction of the average order value. So far, we have seen these impacts are actually limited, as instant retail is continuing to develop rapidly and is penetrating more consumer scenarios in every aspects. The future potential in this area is enormous as it will cross more geographical locations, categories, scenarios, and supply formats.

The new supply mode can better integrate with this instant retail model and achieve rapid growth in first-tier and second-tier cities, and further growth can also be achieved in third and fourth-tier cities. We hope to cooperate with leading offline retailers, and we hope that their cooperation can inject more force into our further development in technical retail.

We will continue to improve the supply and operation. We also see that there is room for further improvement in user purchase frequency. We believe instant retail will continue to benefit from digital transformation, and we will also focus on long-term sustainable development. For stores, hotels, and tourism, we see that the overall penetration still needs to be improved. The demand for local services from consumers is still strong, although consumers may now be more sensitive to prices than before.

Consumers now seek more valuable or more cost-effective transactions, and we have an advantage in this area. We have advantages in resources, brands, and platforms, and we hope to seize the opportunity in this area to create value for more consumers, meet their needs, and we also see the emergence of more new categories, with very good statistics on the user groups and transaction frequency of new categories. In the area of stores, hotels, and tourism, we have maintained healthy growth. In this business sector, we have seen year-on-year growth rates of over 60% in each segment, and we have also seen continuous improvement in user stickiness.

We have conducted corresponding analysis and have introduced a variety of more than 200 different categories to attract different consumers in this business area, and also provide them with different discounts. We have also introduced live streaming, which can provide consumers with more direct information to make it easier for them to consume. We actively penetrate into lower-tier markets to gain more growth opportunities, accelerate the speed of merchant access, optimize the product itself, and strive to think about how to provide consumers with better value for money. We believe we have the ability to adapt to changes in consumer trends and create greater value for all parties, so we can cope with the impact of the macro environment.

Digital transformation can bring greater potential. We are confident in using digital transformation to achieve greater value and better respond to changes in consumption and achieve more structural changes on the supply side.

Q2: The company has continued to adjust the organizational structure. What synergies have been achieved after the restructuring? What new information can be shared after the upgrade of the membership system? What synergies will be generated in this regard?

In the past few years, our membership system has accumulated more than 0.1 billion members. We have brought considerable business growth to restaurants and helped them improve operational efficiency and marketing efficiency. The 'Super Members' can expand more benefits to stores, hotels, and tourism business, and member benefits mean providing consumers with a wider range of cost-effective products.

We see that in the dining takeaway area, we are also exploring more possibilities, more categories, such as consumers in dining takeaway are also exploring other categories, such as hairdressing, beauty, massage, cleaning, lodging, etc., so that we can achieve more cross-selling. We also noticed some low-frequency consumers, and their transaction frequency is gradually increasing, covering more categories.

On the merchant side, we further expand cooperation with merchants. We hope to bring more traffic support to quality merchants, and for on-site service merchants, they have comprehensive marketing strategies, and we will also provide support in this area. High-frequency dining, takeaway, as well as low-frequency on-site, hotel, and tourism, we will achieve integration and see how to achieve better synergies.

Now, 'Super VIP' has covered more than 2.5 million stores, including many hotels and travel merchants. These numbers are constantly increasing, and the order volume and user scale of many merchants have been greatly increased as a result. In addition to 'Super VIP', we are also exploring new cross-selling possibilities in other areas. For example, in the travel scene, we have launched specific room types, and we can provide free food delivery vouchers for these room types to meet the needs of consumers for online ordering and delivery after staying in hotels.

In terms of organizational restructuring, our clear direction is to see the synergy between various business sectors, how to achieve it, and to what extent it can be achieved. We are confident in these synergies.

Q3: Delivery orders may be affected by the macro environment, and consumers are starting to shift to offline consumption. What is the trend between delivery and offline consumption? How to predict the trend of instant delivery in the second half of the year?

In response to this question, we need to analyze the relationship between our on-site business and delivery business. We hope to provide consumers with integrated one-stop experiences. We are delighted to be able to integrate and meet consumers' needs in different scenarios. Dining, delivery, and on-site are actually different models corresponding to different scenarios. We see that consumers' demand for on-site services is expanding further. Previously, it was mainly dining in the store, mainly regular meals. Now more consumers want to have some desserts, snacks, and drinks. We will seize this trend to further meet these needs, and we will have better product forms and more detailed operation and marketing.

Since the beginning of the year, we have implemented new plans in these areas, introducing rich content, with competitive prices for dining and picking up orders, and we can see the rapid growth of business transactions. As for the instant pick-up in the store that I just mentioned, this business will affect the growth of food delivery orders in certain categories, but the impact is limited.

We actually consider different scenarios and different needs in terms of delivery, dining, and pick-up. We believe that delivery, which is dining takeaway, has its own rules. The penetration rate is still relatively low now, and we hope to have further growth, further increase consumer frequency of consumption, and further capture their mindset. We have more value to realize in this area.

I would also like to emphasize that more and more people are joining our platform to consume instantly in many different categories. Dining delivery is a very large part of our business, and we hope that all these businesses can be better integrated. We hope to achieve more consumer transfer between different business sectors, meaning that consumers who use this business may switch to using other businesses in the future, enabling us to achieve more cross-selling rather than just attracting takeaway users, i.e., consumers. On a broader level, we hope that consumers can further recognize the enormous value of the on-demand consumption model we provide.

For medium to high frequency users, we also have corresponding operational strategies, hoping to encourage them to maintain their frequency and attract them to consume more categories. We see that the current instant sales give us a huge advantage, with very strong current growth momentum. In the future, we will further promote related work in meeting demand and other aspects. In the summer, the order volume may be very high, especially during important promotional activities, where we will provide consumers with many discounts, leading to a significant increase in order volume. We hope to cover more consumption scenarios with these measures, attract more consumers, and optimize our marketing strategy. In terms of "Pinhao Fan", as we mentioned earlier, we hope to better and more effectively serve price-sensitive consumers through this business model, driving the continuous growth of dining delivery order volume.

We can see that on August 7th, the daily order volume for on-demand delivery had a very large increase, reaching a historical high. I believe this is a very important milestone for us, and we are very confident in achieving higher order volumes during the peak season every year. Perhaps in the next peak season, our daily order transaction volume could exceed 10 million orders, which is a very high growth rate. Our growth momentum is very healthy, and I believe that we can achieve balanced growth and profitability in this area.

We expect that our operating margin growth in this area will exceed revenue growth and order volume growth year-on-year. The changing consumer trends will continue to impact the average order value in our on-demand delivery segment. We expect AOV (average order price) to remain abnormal in the second half of this year as the business scale continues to expand. We hope to comprehensively consider achieving better operating leverage and optimizing our subsidy efficiency. We will also introduce different advertisements to meet more advertising demands under the current consumer trends, and advertising revenue will remain strong.

Overall, we are very confident in the dining, delivery, and even retail, which is the on-demand delivery business.

Q4: How is the competitive situation in the second half of the year? How will GTV (gross merchandise volume), revenue, and profit margin grow?

In fact, we have mentioned before about this business, and we hope to further expand its coverage. Overall, we are in a very strong growth momentum, we believe more and more consumers are transitioning from offline to online, in this quarter we saw a continuous increase in the online penetration rate of services, and we actively adapt to this trend, and have taken corresponding measures in main product and operational strategy aspects.

We believe that in the second quarter of 2024, the strong growth trend of order volume and GTV can continue. In this quarter, the year-on-year growth rate of order volume exceeds 60%, and the operating margin also achieves a good increase on a month-on-month basis, maintaining a very healthy growth in business. We believe that this area will continue to improve further in the coming quarters. Overall, we observed a relatively stable competitive landscape in the second quarter of 2024.

I would like to emphasize a few points. Firstly, this industry has experienced rapid development in the past few years with different market participants having different investment and operating models. All of this will lead to rapid growth in the entire industry. Everyone's focus on category composition and merchant hierarchy is not completely the same, and there will also be different results in terms of GTV, which may be very different. Category platform GTV will also be different. We will make corresponding estimates. Our GTV is actually very, very high, higher than many peer companies.

I think we hope, I think our focus should be on the quality of this business, rather than just focusing on GTV and other indicators. The summer season is usually the peak season for local services, and merchants often have more marketing budgets in order to better grasp the opportunities for local services. At the same time, we have also expanded our membership program and launched a series of promotions. In terms of advertising business, according to our observations, it is actually very important for competition in core categories. In fact, in many core categories, we have analyzed that the latest competition is actually irrational, and there is still a lack of rationality. However, competition is also ongoing. As the industry develops to a new stage, we believe that all participants will transition from subsidy-driven growth to other strategies.

For example, achieving better growth through growth strategies. Our strategy will continue to focus on our business development and take a long-term view of how competition trends develop in the long run. We will fully leverage the advantages of our current model and continue to improve the quality of our transactions through our efforts. In terms of education, in terms of providing outstanding products, we will continue to strengthen. We will become the preferred platform for consumers to find the best merchants and the best prices, and for merchants, we will also attract more merchants to join our platform.

In addition, we must also leverage the synergy within the core local business. As we have mentioned repeatedly, the core local business has different sectors, and there is very good synergy between different sectors. Synergy can also be translated into cross-selling, as we have repeatedly mentioned. In the membership upgrade plan, we will look at the consumption trends of different members in the past, as well as their transaction frequency. In the low-tier market, we have seen significant progress in many different categories. We will further explore methods of supply-side innovation.

In terms of demand, in the long run, we believe we will continue to lead the transformation of consumer lifestyles, and we also believe that such a transformation will greatly help our business. We hope to further observe the effects of our organization in the second half of this year and see how the synergy actually works.

We are currently very focused on the growth of orders and the growth of user base, and the momentum in these areas is strong. This will drive GTV growth to maintain a very good level for the remaining time of this year, and we will also see better and more monetization opportunities, or we can say that the monetization rate will further improve. As we mentioned before, in different categories, different cities, and different income groups, we need to do detailed analysis and better matching of process. We will also see how all of this eventually translates into our profitability. We expect our measures to achieve very good results. In the second half of 2024, we hope that our operating margin will continue to increase.

Q5: Can you give an example to illustrate the latest progress of the new business this quarter? The losses in this quarter have significantly narrowed. How do you view the overall loss situation for the whole year? How do you control the losses of this part of the business overseas?

Just now, we shared the data. Our new business supermarket revenue increased by 29% year-on-year, and the growth rate exceeded the previous quarter. There is still a lot of potential in this area, and we have been exploring. We hope that the core local business can develop faster, and such growth is closely related to demand. In this quarter, our new business indeed achieved a significant narrowing of losses.

We will also look at how to further implement efficiency improvement measures. Since February of this year, we have been doing this. How much can we narrow the losses of the new business? It depends on the overall business scale and many different factors. Don't be too excited about this. We will also look at how to further consolidate infrastructure to ensure the supply and quality of our products.

We hope to achieve long-term sustainable development. I think we must create more value for consumers, meet differentiated needs, and do a good job in differentiating supply on our platform. We are optimistic about long-term growth, especially the huge potential for long-term growth in the Chinese online grocery market. We hope to seize this incremental potential and seize the opportunity for better development, but we have patience and financial discipline. We will dynamically analyze how to achieve the best balance in resource allocation and fund utilization.

For the broader new business, we have actually achieved very good efficiency improvements. In the first half of this year, most of the new business maintained healthy growth, and overall, the new business achieved good financial results in this quarter.

Regarding the issue of overseas expansion, I would like to emphasize that we are still in the early stage. We will continue to evaluate market opportunities in different regions and deepen our understanding of the local markets. We will share some progress in due course. From a financial perspective, overseas business is grouped together with new business for statistical purposes, and currently, it is still relatively small. I believe that overseas business is an indispensable part of our long-term development strategy, and we will maintain patience.

Q6: Meituan has already repurchased $3 billion worth of stocks this year. Can you further explain this? What is the latest situation regarding share buybacks?

The Board of Directors has approved our share buyback plan to reduce the number of our outstanding shares. We have repurchased a total of 3.6% of the issued shares. From 2021 to 2023, our average annual repurchase amount accounts for about 1% of the total. Looking ahead, we expect the annual growth rate in this area to stabilize at a similar or slightly lower level.

Our management team is very focused on improving different long-term returns through business growth or capital allocation. We will optimize our capital allocation strategy, invest more funds to achieve healthy business growth, and make further arrangements for free cash flow, increasing our operating free cash flow. Our goal is to offset the dilutive effect of infrastructure through share buybacks, and we will also consider corresponding investment plans.

In terms of offshore cash reserves, we will comprehensively consider factors such as debt repayment and stock prices to determine whether to execute share buybacks. If necessary, we will make comprehensive deployments. We will make decisions based on our current cash reserves and our understanding of the market. The Board of Directors has just approved another $1 billion plan, which further reflects our confidence in business development and long-term value. We are not determined to either do or not do it in this regard, but we will remain flexible. We will be very flexible in share buybacks and make timely adjustments according to the situation.

Editor/Emily