Meituan, Q4 2023 Earnings Call, Mar 22, 2024 - SEHK:3690

SEHK:3690

Sijia Xu [VP, Head of Capital Markets & Joint Company Secretary] 💬

Sijia Xu, the VP and Head of Capital Markets for Meituan, made the following statements during the Q4 2023 Earnings Conference Call:

Opening Remarks
- Thanked the operator and welcomed everyone to the fourth quarter and fiscal year 2023 earnings conference call.
- Introduced Mr. Xing Wang, Chairman and CEO, and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan.
- Mentioned that management would first provide a review of the fourth quarter and fiscal year 2023 results, followed by a Q&A session.
Forward-Looking Statements Reminder
- Reminded attendees that the presentation contained forward-looking statements that included risks and uncertainties and might differ from actual results in the future.
Non-IFRS Financial Measures
- Noted that the presentation included unaudited non-IFRS accounting standards financial measures that should be considered alongside measures prepared in accordance with IFRS accounting standards.
- Advised attendees to refer to the disclosure documents in the IR section of the company's website for detailed discussions of risk factors and non-IFRS accounting standard measures.
Handover to Xing Wang
- Passed the call over to Mr. Xing Wang, Chairman and CEO of Meituan.
Closing Remarks
- Thanked everyone for joining the call and expressed anticipation for the next quarter's call.
Technical Closing
- Ended the call, thanking participants and indicating the end of the call.

Xing Wang [Co-Founder, Chairman & CEO] 💬

Xing Wang, the Co-Founder, Chairman, and CEO of Meituan, provided an overview of the company’s performance and future strategies during the fourth quarter and full year 2023 earnings conference call. Here’s a detailed summary of his remarks:

Overview of 2023 Performance

Core Local Commerce Industry: China's core local commerce industry showed faster growth than other retail sectors.
Healthy and High-Quality Growth: Meituan achieved healthy and high-quality growth in its core business sales.
Financial Highlights:
- Total revenue increased by 25.8% YoY to RMB 276.7 billion.
- Adjusted net profit grew substantially to RMB 23.3 billion from RMB 2.8 billion in the previous year.
Fourth Quarter Highlights:
- Consumer base and merchant base saw accelerated growth.
- Active users grew by over 30% YoY to a record high.

Business Highlights

Daily Order Volumes:
- On-demand delivery increased by 23.9% YoY to RMB 60 million.
- Peak daily order volume of food delivery exceeded RMB 78 million.
- Peak daily order volume of Instashopping surpassed 13 million.
Sustainable Development Ecosystem: Fostered a sustainable development ecosystem for consumers, merchants, couriers, and business partners.
In-Store, Hotel & Travel Businesses:
- Achieved explosive growth in Gross Transaction Value (GTV), merchant base, and user base.
- Continued expanding online penetration and evaluating the new consumption environment.
- Effectively satisfied diverse consumer needs and revitalized local consumption.

Food Delivery Business

10-Year Anniversary: 2023 marked the 10th anniversary of Meituan’s food delivery business.
Market Leadership and Core Competence: Further solidified market leadership and core competence.
Annual Transacting Users: Grew mid- to high-frequency users and their consumption frequency increased steadily.
Adapting to Consumer Behavior: Proactively generated business strategies and refined operations to cope with evolving consumption trends.
Pin Hao Fan Focus: Focused on scale expansion and operational enhancement.
High Order Value Domain: Innovated and refined products such as Shen Qiang Shou and Must-Order List.
Key Competencies:
- Product Display: Enhanced content production capabilities across various formats.
- Promotional Channel Schemes: Upgraded and simplified the membership program.

Meituan Instashopping

Pivotal Role in On-Demand Retail: Connects millions of local retailers and brands with hundreds of millions of consumers.
Order Volume Growth: Increased by over 40% YoY, showcasing large growth potential.
User Base Characteristics: Has higher stickiness and stronger purchasing power compared to the average purchasing users, with a significant portion being young users.
Supply Improvements: Continued to improve supply, noticing more frequent usage across a wide range of scenarios and time periods.
New Supply Formats: Expanded new supply formats to broader regions, with Meituan InstaMart covering over 200 cities.
Platform Solutions: Continually innovated and optimized platform solutions to better cope with evolving demand.

In-Store, Hotel & Travel Business

Rebound of Offline Consumption: Actively captured the rebound with products and operations further [increased].
GTV Growth: Increased by over 100%.
Annual Transaction Users: Increased by over 30%.
Annual Active Merchants: Grew by over 60%, all reaching new highs.
Enhanced Abilities:
- Promote mega-hit products.
- Enriched video content offerings.
- Launched live streaming programs.
Theme-Based Marketing Events: Optimized theme-based marketing events and organized diversified online and offline promotions.
Hotel and Travel Industry Rebound: Experienced the highest rebound in 2023.
Domestic Hotel GTV: Increased by over 100% YoY.

Core New Initiatives

Meituan Select:
- Further improved operational efficiency on a YoY basis.
- Accumulated over 500 million transacting users.
- Significant operating loss in 2023 with a high operating net loss ratio.
- Focus on building long-term competencies and improving user experience.

Organizational Structure Adjustment

Purpose of Adjustment: To lead to more synergies among core businesses and further solidify competitive advantages.
Realizing Synergies:
- Better synergy between on-demand delivery and in-store, hotel & travel.
- Work more closely with merchants to bring more value and improve their operating efficiency.
- Integration of equipping teams helps better identify consumer demand, enhance products and pricing competitiveness, and improve consumer experience.

Future Outlook

New Consumption Demand: Will continue to emerge, and the digital transformation of the local commerce industry is inevitable.
Industry Leader Position: Well-positioned to adapt to changes and capture more growth opportunities.
Retail + Technology Strategy: Firmly implementing the strategy to accelerate the digital transformation process for the industry.
Mission: “We help people eat better, live better.”

Closing Remarks

Xing Wang expressed confidence in the long-term development of food delivery and Instashopping, emphasizing the company’s commitment to serving the needs of consumers, delivering greater value to merchants, creating more job opportunities, and generating more social value.

Shaohui Chen [CFO & Senior VP] 💬

Shaohui Chen, the CFO and Senior Vice President of Meituan, provided updates on the company's financial performance and addressed several questions during the Q4 2023 earnings call. Below is a detailed summary of his comments:

Financial Results Overview

Fourth Quarter Performance:
- Total revenue increased by 22.6% year-over-year to RMB 73.7 billion.
- Cost of revenue ratio decreased 5.7 percentage points year-over-year to 66.1%, mainly due to improved gross margins in food delivery, Meituan Instashopping, and goods retail business.
- Selling and marketing expenses ratio increased 4.8 percentage points year-over-year to 22.7%, driven by increased promotions, advertising, user incentives, and employee benefits.
- R&D expenses ratio decreased year-over-year to 7.4%, benefiting from improved operating leverage.
- G&A expenses ratio remained stable at 3.7%.
Segment Operating Profit:
- Total segment operating profit increased significantly year-over-year to RMB 3.2 billion, and the operating margin increased from negative 1.2% to 2.4%.
- Adjusted net profit increased significantly year-over-year to RMB 4.4 billion.
Cash Position:
- Cash and cash equivalents and short-term treasury investments totaled RMB 145.2 billion as of December 31, 2023.
- Cash generated from operating activities improved significantly year-over-year to RMB 10.4 billion.

Segment Results

Core Local Commerce:
- Revenue increased by 26.8% year-over-year to RMB 55.1 billion.
- Operating profit increased year-over-year to RMB 8 billion.
- Operating margin was 14.5%.
- On-demand delivery order volume grew 25.2% year-over-year.
- Food delivery revenue growth was slower than order volume growth due to last year’s VAT exemption policy and a decline in average order value (AOV).
- Delivery efficiency improvements and supply optimization helped offset increased subsidies and AOV decline.
Meituan Instashopping:
- Order volume maintained healthy growth with an average order volume of 8.3 million per quarter.
- Strategy focused on strengthening consumer mindshare, broadening supply variety, and optimizing operations.
- Purchase frequency and user base grew rapidly.
- Despite AOV decline year-over-year, online marketing service revenue grew remarkably, improving advertising monetization and enhancing economic scale.
In-store, Hotel & Travel:
- GTV for in-store continued rapid growth, with both the number of transaction users and merchants reaching new highs.
- Hotel & travel business maintained robust growth in both room nights and ADR.
- Revenue growth lagged behind GTV growth due to higher merchant incentives and lower subscription-based service charges.
- Operating margin declined sequentially, mainly due to increased marketing efforts and strategic investments in lower-tier cities.
New Initiatives:
- Revenue in this segment improved by 11.5% year-over-year to RMB 18.6 billion, mainly due to the development of the goods retail business.
- Segment operating loss and operating loss ratio narrowed sequentially to RMB 4.8 billion and 26%, respectively.
- Meituan Select improved business operating efficiency, leading to a narrowing of the quarterly operating loss ratio.
- Other new initiatives continued to make progress and enhance operating efficiency.

Competitive Landscape and Growth Outlook

Food Delivery:
- Despite competition, Meituan maintains a clear industry leadership due to its scale, efficiency, and strong brand.
- Continues to invest and innovate to meet changing consumption trends and consumer needs.
- Expects healthy and solid growth in 2024, with a focus on high-quality growth and balancing growth with profitability.
In-store, Hotel & Travel:
- Excited about the fastest growth in Q4 2023 and overall in 2023.
- Investments impacted short-term profitability but will significantly benefit long-term business.
- Expects faster GTV growth and revenue growth in 2024.
- Remains confident in the competitive landscape and long-term growth potential.

New Initiatives

Meituan Select:
- Growth slowed in 2023, with significant operating losses and a high operating loss ratio.
- Strategic changes and refinement of the business model aimed at significantly reducing the operating loss.
- Focus on building key competencies and improving user experience rather than market share.
- Positive results seen in Q1 2024, with a significant narrowing of the operating loss.
- Will prioritize natural retention rates and growing user cohorts.

Shareholders' Return

Share Repurchase Program:
- Committed to improving long-term total shareholder return through careful consideration of capital allocation options.
- Prioritizes capital allocation in areas that meet high-quality ROI requirements and strengthen competitive strength.
- Share repurchase is the preferred option to increase shareholder return and offset dilution from stock option exercises.
- Kicked off share repurchase in January with over USD 400 million worth of shares.
- Plans to continue executing the existing share buyback program and may upsize the program in the future if needed.