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pww.comMeituan Dianping, Q4 2019 Earnings Call, Mar 30, 2020 - SEHK:3690

SEHK:3690

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

Sijia Xu, Vice President and Head of Capital Markets & Joint Company Secretary at Meituan Dianping, made the following statements during the Q4 2019 Earnings Call:

  1. Initial Remarks:

    • "Hi, operator. Sorry, Xing said that his line is dropped. So can you call him right now, please? And we wanted to wait for him to come back to the call. Thank you."
    • She requested the operator to call Xing Wang back after his line disconnected.

  2. After Technical Difficulty:

    • "Thank you, operator. Thank you, everyone. Welcome to our Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan Dianping. For today's call, management will first provide a review of our fourth quarter and fiscal year 2019 result and then conduct a Q&A session."
    • She welcomed everyone to the earnings call and introduced the speakers.
    • "Before we start, we would like to remind you that our presentation contains forward-looking statements, which include a number of risks and uncertainties and may differ from actual results in the future. This presentation is based on our management account, which have not been audited or reviewed by our auditor."
    • She reminded listeners that the presentation contained forward-looking statements and provided disclaimers regarding risks and uncertainties.
    • "This presentation also contains unaudited non-IFRS financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents in the IR section of our website."
    • She informed listeners about non-IFRS financial measures and directed them to the company's website for more detailed discussions on risks and non-IFRS measures.
    • "Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing."

  3. Closing Remarks:

    • "Okay. Thank you for joining this call today. We are sorry for the technical issues today. And we look forward to speaking with everyone next quarter. Thank you."

    • She thanked everyone for joining the call, apologized for the technical issues, and expressed anticipation for the next quarter's call.

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

Xing Wang, Co-Founder, Chairman, and CEO of Meituan Dianping, discussed the following points during the Q4 2019 Earnings Call:

  1. 2019 Performance Overview:

    • Achieved solid growth in core business.
    • Positive net income for the full year 2019.
    • Gross Transaction Value (GTV) increased by 32.3% year-over-year to RMB 682.1 billion.
    • Total revenue increased by 49.5% to RMB 97.5 billion.
    • Gross profit increased by 114% to RMB 32.3 billion.
    • Adjusted EBITDA and adjusted net profit improved significantly to positive RMB 7.3 billion and positive RMB 4.7 billion.

  2. User and Merchant Growth:

    • Annual transacting users on the platform increased to 450.5 million.
    • Number of annual active merchants increased to 6.2 million.
    • Average number of transactions per transacting user increased to 27.4x in 2019 from 23.8x in 2018.

  3. Strategic Focus:

    • Maintained a long-term perspective in strategy development and execution.
    • Strengthened leadership in food-related local services and penetrated the broader local services market.
    • Used technology to change people's daily lives and shape small merchants' daily operations.

  4. Food Delivery Business:

    • Total GTV of the food delivery business increased by 38.9% to RMB 392.7 billion.
    • Daily average number of food delivery transactions increased by 36.4% to 23.9 million.
    • Solidified leadership in consumer base, merchant base, and delivery network.
    • Unit economics improved due to economies of scale and better operations.
    • Growth in lower-tier cities contributed significantly to GTV.
    • Diversification of food delivery offerings and increased demand for non-peak hour delivery.

  5. In-Store, Hotel & Travel Segment:

    • Achieved rapid revenue growth and strong monetization capabilities.
    • Advertising revenue increased by 56.1% year-over-year.
    • In-store businesses saw growth in GTV and commission revenue.
    • Continued to improve operational capabilities through promotions and campaigns.
    • Enhanced content ecosystem to maximize marketing effects for merchants.
    • Hotel business showed sustainable growth with a 38.2% increase in domestic room nights.

  6. New Initiatives and Others Segment:

    • Continued exploration to strengthen the platform on the consumer and merchant sides.
    • Became more prudent in exploring new initiatives, narrowing losses significantly.
    • Expanded grocery retailing through self-operated and marketplace models.
    • Invested in Restaurant Management System and B2B food distribution services.
    • Reduced losses in bike sharing and car-hailing services.

  7. COVID-19 Impact:

    • Confronted with the novel coronavirus outbreak, which resulted in significant challenges.
    • Provided support to medical staff, ensured normal life for consumers, and assisted local service providers.
    • Launched assistance programs for small- and medium-sized merchants.
    • Waived commissions and provided subsidies to food delivery and in-store merchants.
    • Expected business performance to be significantly affected in Q1 and possibly the whole year of 2020.

  8. Future Outlook:

    • Despite short-term setbacks, strong confidence in the long-term goal.

    • Increased investment in science and technology to promote the development and digitalization of the service industry.

    • Continued focus on corporate governance and talent development.

    • Stuck to the mission of using technology to help people eat better, live better.

Shaohui Chen [CFO & Senior VP] 💬

Shaohui Chen, CFO & Senior VP of Meituan Dianping, provided updates on the company’s financial performance and addressed questions from analysts. Here is a detailed summary of his comments:

Financial Results:

  • Fourth Quarter Total Revenue: Reached RMB 28.2 billion, up 42.2% YoY, primarily driven by robust increases in revenue across all business segments.
  • Total Gross Profit: Increased to RMB 9.7 billion, up 116.9% YoY. Gross profit margin increased to 34.5% from 22.6% in the prior year period.
  • Selling and Marketing Expenses: Decreased to 19% of revenue from 22.9% in the prior year period, reflecting improved marketing efficiency and more effective sales execution.
  • R&D Expenses: Decreased to 8% of revenue from 10%.
  • G&A Expenses: Decreased to 4.4% of revenue from 13.8%. Excluding the effect of impairment provisions for intangible assets, G&A expenses as a percentage of revenue decreased by 1.9 percentage points.
  • Adjusted EBITDA and Net Profit: Continued to improve YoY, reaching RMB 2.2 billion and RMB 2.3 billion, respectively. Adjusted net margin increased to positive 8.1% from negative 8%, and adjusted EBITDA margin increased to positive 7.7% from negative 4.3%.

Business Segments:

  • Food Delivery Segment:
    • Food delivery transacting user base maintained healthy growth YoY, driven by increased penetration in lower-tier cities and a higher percentage of subsidy allocated to the membership program.
    • Average number of daily food delivery transactions increased by 36.7% YoY to 27.2 million transactions.
    • Gross profit increased by 89.4% YoY to RMB 2.8 billion, with gross margin expanding to 18.7% from 13.4%.
    • Average delivery cost per order for the 1P delivery model decreased by around 6% YoY.
  • In-Store, Hotel & Travel Segment:
    • Revenue increased by 38.4% YoY to RMB 6.4 billion.
    • Gross profit increased by 41.5% YoY to RMB 5.6 billion.
    • Gross margin increased to 88.8% from 86.8% YoY.
  • New Initiatives and Others Segment:
    • Revenue increased by 44.8% YoY to RMB 6.1 billion.
    • Recorded a gross profit of RMB 1.3 billion, with a gross margin expanding to positive 21.2% from negative 23.3% YoY.

Impact of COVID-19:

  • First Quarter Outlook: Forecasting negative YoY revenue growth and operating loss due to the pandemic's severe disruptions on both the demand and supply sides of the business.
  • Full Year 2020 Uncertainty: Due to the evolving nature of the situation, the full-year impact cannot yet be ascertained.

Competition:

  • Emphasized the company's mission and vision, stating that competition is not a new challenge. Highlighted Meituan Dianping’s strong brand and platform reliability, deep insights into the local services market, and proven superior execution record.
  • Mentioned the company's focus on building deeper relationships with consumers and merchants and upgrading its business model, rather than solely focusing on competition.

Monetization Rate and Profitability:

  • Voluntarily reduced commission rates in severely affected areas, launching several supporting policies for merchants.
  • Stated that the long-term philosophy is to prioritize business growth, scale, and efficiency over short-term monetization rates.
  • Food delivery monetization rate is relatively stable and is expected to remain low, with a focus on maintaining close relationships with merchants.
  • Reaffirmed confidence in the long-term profitability of the food delivery business, emphasizing its healthy unit economics and early stage of development.

Recovery and Growth:

  • Discussed the impact of the pandemic on the food delivery business, mentioning that order volumes were significantly affected, with average order volume in February less than half of normal levels.
  • Expected a gradual recovery, with a focus on improving efficiency and monitoring the overall situation.
  • In-store, hotel & travel segment saw a dramatic decline in transaction-based commission revenue and advertising revenue.
  • Hotel & travel business is expected to take longer to fully recover compared to food delivery, with a conservative outlook for the full year.

Grocery Retail Business:

  • Mentioned the growth of the grocery retail business during the pandemic, with both the self-operated model and marketplace model showing increased demands.
  • Emphasized the strategic importance of the grocery retail business and the company’s commitment to winning in this market through focused investment and innovation.

New Initiatives Investment:

  • Confirmed continued investment in new initiatives, particularly in B2B food distribution, restaurant management systems, and bike sharing.
  • Bike sharing is expected to be a key CapEx area in 2020, with plans to replace all old bikes and integrate the service more closely with core business operations.
  • Investment decisions are evaluated from a long-term perspective, with a focus on value creation, and will not be altered due to short-term disruptions.

Technology Investment:

  • Highlighted the company’s commitment to increasing investment in technology, particularly in areas related to moving items and procurement.

  • Emphasized the importance of digitizing the offline world to fulfill the company’s mission of helping people eat better and live better.

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